The USAction Education Fund released a report today; Setting the Right Priorities: Why We Can't Afford Repeal or Drastic Reduction of the Federal Estate Tax.

The report finds that repeal or drastic reduction of the estate tax only benefits a small group of multimillionaires, while middle- and lower-income families will suffer from budget cuts to education, environmental protection, community development, health care, and other programs. The report notably points out that the loss in revenue we would see in one year if one of Sen. Kyl's (R-AZ) proposals were enacted could "alternatively be used to make up for the entire set of budget cuts proposed to agriculture, community development, Medicaid, transportation, veterans benefits services, income security, health, environmental protection, education, training, employment and social services in 2010."

The Census Bureau released its annual report on poverty, income, and health insurance in the United States and the news is not good. The number of Americans living in poverty rose for the forth year in a row as 1.1 million more Americans were officially poor in 2004 than the year before. The data shows almost 1 in 5 American children live in poverty.

In additon, almost 1 million more Americans lacked health insurance, primarily due to a decrease in employer-provided health care. Unfortunately for working families, total household income remained stagnant and income for men and women employed in full-time jobs decreased significantly. This is the first time ever that household income has failed to increase for five straight years.

The Census data give just a glimpse of the reality being faced by more and more working Americans who are being forced to live without health insurance and have less money with which to purchase their own as employers increasingly focus on their profit margins at the expense of their workers.

The current economic policies are not working for most Americans - only those already well-off. The decline in indicators of poverty and income for the fourth straight year should be a wake-up call for members of Congress and the administration who are seeking to make those policies permanent. It is time for a change.

Read More:
> Census Data Full Report
> Income Stagnated and Poverty Rose in 2004, Census Shows
> Coalition on Human Needs Release on Census Poverty Data
> Economic Recovery Failed to Benefit Much of Population in 2004

The Government Accountability Office released a updated response to the Senate Finance Committee after an April hearing on the tax gap. The report released by GAO concerns the Internal Revenue Services' strategic approach to reducing the tax gap.

The most recent IRS calculations put the tax gap - or the difference between how much should be paid in taxes and how much actually is - betwen $312 and $353 billion per year. The majority of this comes from underreporting of taxes owed by individuals and corporations. Interestingly enough, the current projections for the FY05 budget deficit fall smack in the middle of that range, at $331 billion. While there are many more problems with growing and persistent long-term budget deficits than closing the tax gap could fix, it is nonetheless an important problem needing to be addressed by Congress and the IRS.

Following the Congressional Budget Office release of an updated budget and economic outlook this past Monday, both the Center on Budget and Policy Priorities and the Senate Budget Committee Democratic Staff released their own analyses of the CBO update.

While both CBPP and the Senate budget staff believe the projections are improvements on the White House's mid-year update, they also believe the estimates are too optimistic. In particular, the two reports stress the long-term budget picture has not improved significantly and also that it will drastically worsen if the tax cuts from 2001 and 2003 are extended.

About a month after the White House released its highly misleading and overly optimistic budget projections, the Congressional Budget Office (CBO) released their projections today.

The CBO report projects a $331 billion deficit for FY05, a $33 billion reduction since they released an initial estimate earlier this year in March. CBO also has increased their estimate of the total deficits over the next ten years by more than $1.1 trillion to $2.1 trillion. These estimates are much more worrisome than OMB projections released last month as CBO and OMB differ over the ten-year deficits from 2006 - 2015 by more than $600 billion.

Unlike the OMB numbers, CBO finds very little reason to be optimistic about the future health of the federal government. They write, "Although the deficit for 2005 is lower than previously expected, the fiscal outlook for the coming decade remains about the same as what CBO described in March." In March, CBO described a very dark future if current policies are continued.

This CBO report casts further doubt on administration claims that their economic policies are working to spur strong economic growth and will continue to shrink deficits. CBO has confirmed what many private analysts have reported - that the recent jump in federal revenues are due to short-term and temporary factors that are unsustainable and that over the long-term, the country still faces many large and difficult fiscal challenges. CBO concludes, "Over the long-term, then, growing resource demands...will exert pressure on the budget that economic growth alone will not eliminate."

Most strikingly, the CBO report states that if the tax cuts from the administration's first term are extended (with the exception of policies related to the alternative minimum tax), as President Bush has been strongly advocating, deficits over the next decade would increase $1.6 trillion on top of their current projections.

The Senate Budget Committee's most senior Democrat Kent Conrad (D-ND) believes the nation needs a "serious fiscal wake-up call" if we are to correct the long-term budget shortfalls that "threaten our economic security." It's time for President Bush to be straight-forward with the American people and begin an honest conversation about adopting alternative policies that will return the country to a sound and sustainable fiscal foundation.

Earlier this week, Secretary of the Treasury John Snow conceded the slowly-progressing economic recovery has not benefited all Americans equally. Snow said, "The idea...is to explore the things that produce broad-based prosperity and one of the things we know is that less educated people have seen their incomes and wages grow more slowly."

Snow's comments come amid slightly more positive economic indicators and increasing business optimism about the economy, but also in conjunction with the release of two reports showing the recovery has been anything but good for most Americans. This week the Center on Budget and Policy Priorities released a report comparing this economic recovery with previous recovery periods and finds that not only is this one less robust but that it is much more unevenly distributed, with corporate profits reaping nearly all the benefits at the exclusion of the labor market.

In addition, the Congressional Budget Office released a background paper examining employment during and after the economic recession of 2001. Among its interesting findings, the CBO writes, "both the magnitude and persistence of the decline in the labor force [participation rate] during the past several years are unprecedented."

The Bush administration announced last week that the Treasury Department would begin issuing 30-year Treasury bonds again. The bonds were discontinued about four years ago because they were seen as unnecessary due to huge projected surpluses in the federal government. The announcement signals an realization and acceptance that budget deficits are here for the long haul and with looming long-term costs rising, the government needs additional ways to borrow money.

While OMB has lowered its deficit projections for 2005 from $412 billion to $333 billion and continued to claim President Bush is well on his way to cutting the deficit in half by 2009, they continue to omit crucial aspects from their budget analysis and downplay more pressing budgetary concerns beyond 2009.

First, the recently released projections to not include a fix to the Alternative Minimum Tax (AMT) after 2005. Many analysts are crediting the expanding reach of the AMT as one of the reasons individual and corporate tax receipts increased so unexpectedly over the last six months. It is widely accepted that Congress will take action soon to restrict the number of Americans who pay the AMT. This will have a profound impact on tax receipts, causing them to fall and in turn increase deficits. For OMB to omit this aspect is misleading and irresponsible.

Secondly, as they have done repeatedly, OMB ignores the impact of current policies after the five-year window ending in 2009. According to the White House's own budget calculations released in the president's FY06 budget, if current policies are extended, deficits will begin to climb again after 2009. If these policies continue until the retirement of the baby-boomer generation about a decade later, deficits will skyrocket, reaching double digits as a percentage of GDP.

Finally, the mid-year review does not reflect changes to tax policy scheduled to be debated and enacted this fall. Congress agreed to a budget resolution earlier this year calling for $106 billion in additional unpaid-for tax cuts to be passed by year's end. This alone will wipe out the $94 billlion improvement in the deficit OMB is forecasting.

Until the White House, and to a certain extent Congress, begin to be more honest and forthright about budget projections and the future effects of changes in tax policy (beyond artificial five- or ten-year windows), budget policy in the U.S. will continue down a dangerous path.



Posted by Adam Hughes, 02:33:06 PM

Wednesday, August 03, 2005