U.S. Budget Watch is a historical project of the Committee for a Responsible Federal Budget, which provided analysis around the 2008 and 2012 presidential campaigns. This site is not regularly updated.

November 2015

Cutting The Crop Insurance Subsidies Is Proving To Be Challenging | Live Insurance News



Back in April, Republicans in Congress formed a new agreement in order to move ahead on a plan that was designed to create a savings of $5 trillion over the next ten years, and reductions in crop insurance subsidies were a part of this effort to balance the budget at the end of that time.


At that time, the House speaker, John A. Boehner,said that the savings strategy was a reflection of how “We continue to get things done for the American people.” That said, several months have now passed and now that it is possible to see some of the impact of these changes to crop insurance subsidies, some of these budget spending cuts are starting to be appealed. For instance, Congress has said that it intends to repeal some of the laws for the spending cuts it previously approved, including the $3 billion in subsidy reductions for farmers over ten years.


Republican leaders came together and agreed to hold a vote in December that will remove the savings from thefarm insurance subsidy cuts after lawmakers based in states where agriculture is vital registered a complaint that said that these reductions would be harmful to the survival of growers.

According to Committee for a Responsible Federal Budget senior advisor, Ed Lorenzen, “It just highlights that no one took the budget resolution seriously, or ever intended to actually produce the spending cuts necessary to balance the budget.” Lorenzen’s committee is a center-right group located in Washington D.C.

Many analysts are now pointing out that while it may seem as though it is easy to balance the budget by simply making cuts to areas that seem to be the most draining, this process is far more complex than it looks to be on paper. The crop insurance subsidies are regularly debated as a drain, but it is clear that in this particular instance, they are being viewed as a worthwhile drain.

Earned Income Tax Credits On GOP's Welfare Agenda | Washington Examiner

Republican lawmakers, emboldened by the election of Paul Ryan as House speaker, are intensifying efforts to extend the 1996 welfare reform to other areas of the safety net.

 But before that, they will have to decide where they stand on anti-poverty tax credits backed by President Obama.

 Lifting people out of poverty was one of the few policy goals Ryan cited in his inaugural speech as speaker, along with more widely publicized GOP agenda items such as tax and healthcare reform.

Ryan has taken a special interest in developing viable Republican ideas for aiding the 47 million people whose income fell below the federal poverty line last year. Ryan began working on the issue after being part of a losing presidential ticket in 2012 that was widely criticized as out of touch with downscale voters.


After laying out a detailed criticism and a reform plan as House Budget Committee chairman last year, he continued advancing legislative ideas during his stint this year as chairman of the Ways and Means Committee, which has jurisdiction over many federal anti-poverty programs.

Perhaps the most politically significant idea Ryan embraced as part of that effort is an expansion of the anti-poverty earned income tax credit. The credit is refundable, meaning that if it exceeds a family's tax liability, the government sends them a check.

Ryan has proposed expanding the credit for childless adults, putting him on the same page as President Obama. Both would phase in the credit more quickly, boost the maximum credit to $1,000 and lower the eligibility age.

Ryan has touted the credit as an incentive to work, rather than the kind of welfare program that conservatives often worry leads to dependency.


But before talking about expanding it, the White House is fixated on extending two low-income tax credits that are set to expire in 2017. One is an expansion of the earned income tax credit to provide relief from a marriage penalty and to boost the benefit for large families, and the other is an enlargement of the child tax credit for poor families. The left-leaning Center on Budget and Policy Priorities estimates that those policies affect 50 million people.

The White House has demanded that those features be extended permanently with a package of business and other temporary tax breaks. The package of 50-plus tax breaks, known as extenders, must be passed before the end of the year for companies to benefit from them.

Ways and Means has approved legislation making permanent certain extenders, such as a provision allowing companies to more quickly write off the cost of investments. If all their legislation were approved, it would represent roughly $1 trillion in lost revenue on paper, according to the Center for a Responsible Federal Budget.

Many Republicans, however, are concerned about expanding anti-poverty tax credits out of concern that they could be abused, especially by illegal immigrants.

Once questions surrounding the earned income tax credit are resolved, the major question for Republicans will be tightening work requirements for welfare programs, partly by rolling back some of the changes Obama has made.

"Work is such a powerful weapon to eliminate poverty," Sen. Tim Scott, R-S.C., said at an event last month hosted by the conservative Heritage Foundation. "We should do everything we possibly can in attempting to restore work" as part of welfare.

Scott, who attributes his own rise out of childhood poverty in part to a Chick-fil-A manager who mentored him about the value of work, said providing credible responses to poverty would be critical to the GOP's success in the presidential election.

Obama attempted to "gut" the federal cash welfare program in 2012 by loosening some work requirements, Scott said, a step that Obama's Republican opponent Mitt Romney criticized during the campaign.

This summer, Republicans on the House Ways and Means Committee introduced eight bills to tighten the work requirements in the Temporary Assistance for Needy Families program, as well as a draft reauthorization of the program, which has been extended on a piecemeal basis during the recent fiscal showdowns between the Obama administration and congressional Republicans.

Many conservatives see defending the 1996 welfare reform, with its work requirements, as the key to moving people into the workforce and out of poverty.

Ryan's recommendations suggested similar reforms to a broad swath of government programs that can create disincentives to work by subsidizing people not to work or causing them to lose benefits if they do. The government spends $750 billion annually on more than 80 means-tested federal programs, of which TANF accounts for less than $17 billion, the Ways and Means Committee estimated last month.

The Congressional Budget Office, Congress' nonpartisan in-house budget experts, released a report in November underlining some of Republicans' concerns that the mix of programs can discourage work. The office calculated what they called effective marginal tax rates, or the share of each dollar earned taken away by the government in taxes or lost eligibility for benefits. They found that one in 10 workers earning 50-150 percent of the federal poverty level face effective marginal tax rates of more than 50 percent.

Yet, as top Republican Ways and Means Committee member Charles Boustany acknowledged last month, fixing some of the biggest anti-work benefits, including Medicaid, will involve working across congressional committees and government agencies, making reform in some ways politically more difficult than the 1996 overhaul. Furthermore, some of the programs that create the biggest disincentives to work, such as Medicaid and Supplemental Security Income, are among the most sprawling and difficult federal programs to change. "But we have to start somewhere," Boustany said.

In particular, food stamp policy, which is directed by the Department of Agriculture, is under the jurisdiction of the Agriculture Committee. Conservatives have expressed concern that changes to the food stamp program made in Obama's 2009 stimulus bill have undermined its work requirements, resulting in the program remaining large even as the recession has abated. About 46 million people received food stamps in fiscal 2015, at a cost of $64 billion.

The result is that many of the policy gurus who the GOP looks to in reforming welfare see reclaiming lost ground and tightening work requirements in TANF and food stamps as the top priorities.

"Yes, you can do it in a range of programs, my own sense is I'd love to see it happen in the mainstream programs first," University of Maryland professor Douglas Besharov told the Ways and Means Committee, referring to TANF and food stamps. "Let's do it there before we get into housing and child care."



How Congress Could Give Small Businesses A Bigger Incentive To Invest In Growth | The Business Journals

 Under current law, small businesses can expense only $25,000 in capital expenditures this year, a level far below the $500,000 Section 179 expensing limit that went into effect in 2003.

Congress is likely to remedy that problem in December, just like it did last year, when it retroactively raised the Section 179 expensing limit for 2014 to $500,000 on Dec. 19. That left small businesses 12 days to buy eligible equipment and put it into service in order to take advantage of this tax break. This short window sharply reduced the impact of this tax incentive for small businesses to invest in growth.

“Forklifts and combines are not eligible for Amazon Prime and two-day delivery,” wrote Amanda Austin, vice president of public policy for the National Federation of Independent Business, in a letter to Congress this month. “Some equipment can take weeks or even months to order, and as a result, many small businesses forfeited the benefit. Many no doubt canceled their plans in the hope that 2015 would be different. Here we go again.”

NFIB and other business groups want Congress to end the guessing game on whether tax incentives such as Section 179 expensing and the research and development tax credit will be available in a given year by making these tax breaks permanent.

The temporary nature of these tax breaks is an example of the Washington-created uncertainty that “hangs over small business like a dense fog,” Austin wrote.

Making the $500,000 Section 179 expensing limit permanent, by contrast, would lead small businesses to add as many as 197,000 jobs over the next decade, according to an NFIB study.

In a separate letter to Congress, the National Association of Manufacturers touted the benefits of making the R&D tax credit permanent. This break “spurs the investment in R&D that leads to new product development and increased productivity,” wrote Dorothy Coleman, NAM’s vice president for tax and domestic economic policy.

NAM also touted the benefits of now-expired tax breaks such as bonus depreciation — letting companies immediately write off 50 percent of the cost of capital equipment — and a “look-through” rule that allows U.S. manufacturers to “redeploy foreign earnings from active overseas business operations without triggering immediate U.S. tax, thus removing a competitive disadvantage faced by U.S. companies in the global marketplace.”

Like Austin, Coleman pointed out how the uncertain fate of these tax breaks is making businesses think twice about investing in growth.

“When tax extenders expire, manufacturers are left with a choice of either sidelining the types of operations and investments that help grow their companies and create jobs, or paying higher taxes in an already uncompetitive tax environment,” Coleman wrote.

Making these tax breaks permanent would bring “confidence back into investment decisions that fuel economic growth,” she wrote.

“At a minimum, a multiyear extension of these provisions would provide a critical bridge of predictability until comprehensive tax reform is enacted.”

Making these tax breaks permanent, or even extending them for a few years, would cost the federal government a lot of money, however. Unless this cost if offset by eliminating other tax breaks, federal deficits likely would increase.

The Committee for a Responsible Federal Budget estimates a package of tax breaks for businesses and low-income Americans being discussed by Congress would raise the federal government’s debt by $840 billion over the next decade.

“Congress should not close the year by rushing through budget-busting legislation that increases the debt burden on future generations,” said CRFB President Maya MacGuineas.

NFIB’s Austin questions the accuracy of such cost estimates.

“We disagree with the assumption that tax incentives to stimulate the business would create a net loss in revenue,” she wrote. “More business activity would generate more revenue.”

Some conservative groups contend, however, that the 50 tax breaks that could be part of a “tax extender” package benefit only a small number of well-connected corporations. The extenders include tax breaks for Hollywood filmmakers, racehorse owners and speedway operators, an op-ed by Freedom Partners' Marc Short and Andy Koenigpointed out.

More than 1 in 10 federal lobbyists in Washington, D.C., focused on the tax extenders package in 2014, they noted
“Washington should just abandon this ill-conceived tradition,” they wrote. “Replacing extenders with lower, simpler rates would enhance American businesses international competitiveness and put more money in regular taxpayers’ pockets.”

Congress Is Back At The Tax Extender Trough | Forbes

 For years, Congress has struggled with what to do with scores of temporary tax breaks that have come to be known as the “tax extenders.”   The usual resolution: Lawmakers fiddle for months. Then, sometime in December, they mindlessly continue the immortal mostly-business tax breaks for another year or two.

Last year, Congress never could agree on what to do, so most of the measures technically expired. But fear not, it’s another December. And this time lawmakers think they have a better idea—restore and extend most of the subsidies, make a bunch of others permanent, and repeal a couple of recent tax hikes in the bargain. The Committee for a Responsible Federal Budget figures that one version of this deal now floating around Capitol Hill would add $850 billion to the debt this decade and $2.3 trillion by 2035.

With neither party much interested in budget discipline these days, lawmakers may fix their extenders problem simply by giving everyone most of what they want.  Politico’s Bernie Becker compares it to the day Oprah gave everyone in her studio audience a car. As she might have screamed, “You get a tax cut. And you get a tax cut. And so do you.”

Republicans want to make permanent several business subsidies. Thus, a working version of the extender compromise would do just that for small business expensing, the research credit, and a handful of others. Those that don’t make the cut would still be temporarily extended. Weirdly, most GOP presidential hopefuls would repeal nearly all of these tax subsidies in their tax reform plans. More on that in a bit.

Democrats want to make permanent some provisions of the Earned Income Tax Credit and the Child Tax Credit that were included in the 2013 fiscal cliff bill but are due to expire in 2018. They also want to expand the EITC to childless adults and make permanent theAmerican Opportunity Tax Credit. Those proposals could find their way into the package as well.

But such an extender bill is not yet a done deal. Among the sticking points: Some Republicans want to bar undocumented immigrants from receiving refundable credits—a non-starter for Democrats. Others want to crack down in what they see as abuse of the EITC. Unions and most Republicans want to repeal the Affordable Care Act’s Cadillac Taxon high-cost employer sponsored health plans and other lawmakers want to dump the ACA tax on medical devices.  The White House may choke on some of those provisions.

If this story seems familiar, that’s because it is. Last year, Congress came down to the wire on an extender bill that also would have made some of these same provisions permanent. At the last minute, the bill collapsed–which makes this year’s effort all the more urgent.

Whatever happens in the next few weeks, keep in mind that the tax reform proposals of most GOP presidential candidates would repeal the very provisions Congress is working so hard to make permanent. It sounds crazy. It is crazy. But it makes perfect sense in the wonderland that is congressional budgeting.

Making these tax breaks a permanent part of the official congressional budget baseline actually makes rate-cutting tax reform easier. Why? Because killing a permanent tax break produces more revenue than killing the temporary version of the same subsidy—more money on paper that could be used to further reduce tax rates. Never mind that it adds hundreds of billions of dollars to the government’s borrowing needs.

The calculation is not so simple for Democrats. The kind of deal being debated this week would give them a win on important refundable tax credits. But adding nearly a $1 trillion to the debt over the next decade would come back to haunt them should a Republican win the White House in 2016. In that event, they can be sure that this same increase in the deficit would be a prime justification for GOP efforts to cut Social Security, Medicaid, and Medicare.

But that’s next year’s problem. For now, everybody wins. Unless you care about the budget deficit.

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