KYA presentation 10 18 06 ALL Slides

Why Federal Budget and Tax Issues Are Kentucky’s Issues: 

Why Federal Budget and Tax Issues Are Kentucky’s Issues Melanie Nathanson, CBPP Director, Federal Budget Initiative nathanson@cbpp.org October 24, 2006

Slide2: 

A Brief Recounting the Importance of Budget: What we are up against

From Large Surpluses to Large Deficits in Just Five Years: 

From Large Surpluses to Large Deficits in Just Five Years Cumulative Surpluses/Deficits, 2002-2011 Source: CBPP calculations based on Congressional Budget Office data. Assumes extension of tax cuts and Alternative Minimum Tax relief.

Legislation Adding to Deficits: Mostly Tax Cuts and Defense: 

Legislation Adding to Deficits: Mostly Tax Cuts and Defense Cost, 2002-2011, of legislation enacted since January 2001 Tax Cuts Defense, Homeland Security and International Entitlements Domestic Discretionary (except Homeland Security) 50% 33% 10% 6% Source: CBPP calculations based on Congressional Budget Office data. Assumes extension of tax cuts and Alternative Minimum Tax relief.

The Current Path of Federal Spending and Revenues Is Unsustainable: 

The Current Path of Federal Spending and Revenues Is Unsustainable

Slide6: 

President’s Proposed Cuts in Domestic Discretionary Funding Grow Deeper Over Time

Slide7: 

President’s Budget Calls for Large Cuts to Broad Range of Domestic Discretionary Programs

Slide8: 

Tax Cuts: Where we stand and future challenges

WHAT WOULD IT TAKE TO BALANCE THE BUDGET WHILE PRESERVING THE TAX CUTS?: 

WHAT WOULD IT TAKE TO BALANCE THE BUDGET WHILE PRESERVING THE TAX CUTS? To balance the budget by 2016 while making the tax cuts permanent, policy makers would have to:

Making the Tax Cuts and AMT ReliefPermanent Would Cost Trillions: 

Making the Tax Cuts and AMT Relief Permanent Would Cost Trillions Source: CBPP calculations from Congressional Budget Office data Cost of tax cuts with interest, adjusted for inflation

Full 10-Year Cost of extending Tax Cuts, 2012-2021(in billions of dollars): 

Full 10-Year Cost of extending Tax Cuts, 2012-2021 (in billions of dollars) Extending Even Just the Most Popular Tax Cuts Is Costly

Tax Cuts Cost More Than MostAgency Budgets: 

Tax Cuts Cost More Than Most Agency Budgets Source: CBPP calculations from Congressional Budget Office and Office of Management and Budget data. 2006 Agency Budgets, Tax Cuts if Fully in Effect in 2006

Average Dollar Value of Tax Cuts: 

Average Dollar Value of Tax Cuts Source: Urban Institute-Brookings Institution Tax Policy Center Average tax cuts in 2004, if tax cuts had been fully in effect in that year

Top Tax Issues on the Long-Term Horizon: 

Top Tax Issues on the Long-Term Horizon Estate Tax Repeal/Reform Making the Bush Tax Cuts Permanent Tax Code Overhaul Federal preemption of the Internet Tax and Business Activities Tax (BAT)

Slide15: 

Studies Find Recent Tax Cuts, If Not Offset, Are at Least as Likely to Reduce Long-Term Economic Growth as to Increase It "Nearly all of the simulations  [done of the tax cuts' effects on the economy]  showed that the tax cuts would have positive effects in the short run and negative effects in the long run.  Often, the long-run effects did not entirely materialize by the end of the traditional 10-year forecast window."  -- Congressional Research Service “making the 2001 and 2003 tax cuts permanent would raise the cost of capital for new investments, reduce long-term investment, and reduce economic growth.” --William Gale and Peter Orszag, Brookings Institution economists Studies by Federal Reserve economists, the Joint Committee on Taxation, and other noted experts have produced similar findings regarding the effects of unpaid for tax cuts.

FEDERAL BUDGET FY08: What lies ahead?: 

FEDERAL BUDGET FY08: What lies ahead?

What Could We See in Congress in 2007? : 

What Could We See in Congress in 2007? Budget Reconciliation legislation to achieve entitlement and tax cuts Continued cuts to domestic discretionary programs SCHIP reauthorization (linked to a threat to Medicaid) Food Stamp reauthorization Taxes: If estate tax fails this year, another push in ’07. Making 2001 tax cuts permanent? Budget process carried over from this year

Looming Macro Budget Issues: 

Looming Macro Budget Issues Big push on entitlements: Entitlement reform; Entitlement commission; Tax Reform: Revenue impact… could lose revenues. Should be revenue neutral. Decisions may wait until after the ’08 election, but debate and policy steps towards these big changes could start next year.

Budget Reconciliation Again?: 

Budget Reconciliation Again? What is reconciliation: requirement that key authorizing Committees cut entitlements. Also used to push through more tax cuts with procedural protections. If Republicans retain control, quite likely. Has significant implications for SCHIP and Food Stamp reauthorization if the authorizing committees have to cut entitlement spending.

Tax Cuts Continue: 

Tax Cuts Continue Possible tax cuts coming in ’07: estate tax (if not resolved this year); even Democratic reform proposals cost hundreds of billions of dollars; making the 2001 middle class tax cuts permanent (child credit, 10% bracket, marriage penalty relief, etc) $1.8 trillion? And internet tax, business activity tax, and related federal tax changes that preempt state/local taxes too?

BUDGET PROCESS LEGISLATION: The gift that keeps on giving: 

BUDGET PROCESS LEGISLATION: The gift that keeps on giving

The Federal Budget Matters: 

The Federal Budget Matters Federal budget rules may seem arcane but they are extraordinarily powerful. In many cases the rules of the road have as much impact on programs as actual reauthorization or appropriations bills. It is critical that organizations, no matter what their field of interest, understand and engage in federal budget policy debates. Key issues to watch: LIVA, Sunset Commissions, any changes to entitlement policies.

Budget Process Never Dies: 

Budget Process Never Dies This year, proposals moved forward in both chambers to establish line-item veto, a “sunset commission,” an entitlement commission, etc. Not likely to pass in ’06. Next year could see renewed efforts to use budget process to further restrain spending (both entitlement and “discretionary”) and facilitate the passage of more tax cuts.

Line-Item Veto: 

Line-Item Veto Proposal to give President the authority to veto individual provisions. Some bills give the President the authority to rewrite individual entitlement provisions including Medicare, Medicaid and SCHIP provisions. Improvements, eligibility expansions, or provider reimbursement rates could be singled out and rewritten against Congressional intent. Goes back to Congress for up-or-down vote. This is likely to carry over to the lame duck session or FY08 and could be included in a Budget Resolution or stand alone legislation.

SCHIP and FARM BILL REAUTHORIZATION: factors that will influence key outcomes: 

SCHIP and FARM BILL REAUTHORIZATION: factors that will influence key outcomes

The Impact of the Deficit Reduction Act of 2005: 

The Impact of the Deficit Reduction Act of 2005 Enacted in early 2006. Included significant changes in Medicaid, TANF and Child Support and other key programs. Intended to reduce the deficit but actually goes to partially offsetting the cost of tax cuts that moved in a separate piece of legislation. Ironically, the two packages in tandem actually increase the deficit.

DRA and Medicaid: Changes Upon Which to Focus: 

DRA and Medicaid: Changes Upon Which to Focus Added Flexibility is Code for: Changes in Cost Sharing Requirements, Ability to significantly reduce benefits, Truncate eligibility Confuse populations to keep them from applying for assistance Potential spill-over into other programs Major impact on state policies.

Citizenship Documentation: 

Citizenship Documentation Requires nearly all Medicaid beneficiaries to show proof of citizenship, both for new applicants and for current beneficiaries, upon renewal. Primarily passports or birth certificates. No hardship exception. Under current law, most states do not require citizens to submit documentation and no evidence of any problem.

Citizenship Documentation: 

Citizenship Documentation We expect millions will be affected, could lose their coverage, because they do not have access to passports or birth certificates. Disproportionately affects children and their parents, people living in rural areas , and people with mental impairments not covered by SSI. Substantial burden on states and beneficiaries. Went into effect July 1, 2006. Potential implications for SCHIP programs

TANF Provisions of the DRA: 

TANF Provisions of the DRA Significant changes to the work requirements Continued flat funding for the TANF block grant $200 million/year in additional child care funding $150 million/year in marriage & fatherhood funding

2007:SCHIP Reauthorization Is Looming: 

2007:SCHIP Reauthorization Is Looming The SCHIP program is scheduled to expire at the end of 2007. Congress is likely to consider reauthorization next year. Not only must the program be reauthorized, but additional funding is needed for the system to avoid federal funding shortfalls among the states. States already are facing shortfalls (17 states in 2007 for under $1 billion) and that is likely to rise to over 30 states over time even if SCHIP is reauthorized.

Likely Threat to Medicaid During SCHIP Reauthorization: 

Likely Threat to Medicaid During SCHIP Reauthorization Significant new infusion of federal dollars will be necessary to sustain existing SCHIP programs. Even more funding will be required for needed improvements and expansions of SCHIP. Other program savings will likely be required to pay for SCHIP reauthorization, in light of poor fiscal outlook. Likely target for these cuts is Medicaid. President’s hand-picked Medicaid Commission’s recommendations due at the end of 2006. Block grant and/or caps.

SCHIP Reauthorization: 

SCHIP Reauthorization Major issues: financing Medicaid Commission Proposals: will Medicaid cuts “pay for” SCHIP? changes a la the DRA/Medicaid? (e.g. citizenship documentation) potential restrictions in eligibility (“core population”) outreach and implications Premium Assistance and defined contribution proposals

Principles for Reauthorization: 

Principles for Reauthorization All of America’s children should have health coverage Of all our health reform efforts in recent years, expanding coverage to children through Medicaid and SCHIP has been the most resoundingly successful and efficient. We are too close to turn back now. During SCHIP reauthorization, we can promote further success by taking these three steps: Fully Fund SCHIP Reach more uninsured children and improve quality and access Protect and strengthen Medicaid By promoting the continued success of the Medicaid/SCHIP partnership, we’ll help to ensure that America’s children get the health care they need.

Food Stamp Reauthorization: 

Food Stamp Reauthorization The food stamp program will be reauthorized in 2007 as a part of the Farm Bill. Much is uncertain about how food stamp reauthorization will play-out Budget Cuts may come out of food stamps rather than commodities Further curbing eligibility for immigrants Cuts in the name of simplification Across the board benefit reductions Undermining the national entitlement structure of the program through block grant demonstrations.

Our Message Doesn’t Change : 

Our Message Doesn’t Change The Food Stamp Program is the cornerstone of the national nutrition assistance programs. It’s structure is essential to it’s performance, a near-uniform national entitlement. The Food Stamp Program is efficient and effective. Error rates at an all time low. Benefits delivered through EBT which reduces fraud. USDA, Congress and States on a bi-partisan basis are committed to serving eligible households. That said, some investments are needed to improve the Program’s ability to serve needy individuals.

Themes for the Farm Bill: 

Themes for the Farm Bill Do no harm. Maintain the national entitlement structure. Expand Eligibility, e.g. immigrants, assets. Improve Benefit Levels Improve Access, e.g. reduce paperwork and office visit requirements. Strengthen Nutrition Components, e.g. better nutrition education, access to fresh foods.

What Do We Do Now?: 

What Do We Do Now? Be proactive! We’ve got a good story to tell. Work to positively position the program. Inform and engage policy makers about the program and the farm bill. Build a broad base of allies: Govs and state officials, farmers, doctors, schools, faith communities, food banks and grocers.

Concluding Thoughts: 

Concluding Thoughts

Calendar for rest of year and early 2007: 

Calendar for rest of year and early 2007 December “lame duck” session: Finish appropriations and any remaining “must pass” bills; December/January: staff already working to prepare reauthorization legislation; Administration finalizes its budget for FY 2008 to submit in February

Impact of Elections: 

Impact of Elections If the balance of power shifts in the House and Senate, obviously will affect the agenda (e.g. no reconciliation?). If Democrats take the House and Republicans control the Senate, mostly gridlock. But even shift in power won’t translate into “easy money” for SCHIP or Food Stamps. And could still see more tax cuts, budget process changes. On a positive note, potential opportunities for two-sided pay-go.

The Federal Budget Really, Really, Really Matters: 

The Federal Budget Really, Really, Really Matters Complex federal budget and tax policies made in far-away Washington D.C. create significant fiscal pressures for federal spending cuts. Such cuts can include severe cuts to key federal programs like Medicaid and SCHIP, Food Stamps as well as vital discretionary programs. These cuts in turn shift costs onto states and localities, and thus onto low-income individuals and families. Involvement in this federal budget and tax debate is therefore essential for providers, advocates and beneficiaries, to preserve and/or expand critical programs at the community level.