Budget & Taxes

What Accounts for the Large Increase in State Spending?

Governing: “States increased their spending in fiscal year 2015 by the biggest margin in more than 20 years, but most of the increase was thanks to huge leaps in Medicaid spending under the first full year of the Affordable Care Act.”

“Spending increased last fiscal year, which ended on June 30 for most states, by 7.8 percent, according to new estimates from the National Association of State Budget Officers (NASBO). It’s the biggest boost since 1992 and was thanks to a 15.1 percent increase in Medicaid spending, much of that paid for via federal Medicaid funds. Illinois, Michigan, Kentucky, Nevada and Oregon saw more than 30 percent increases in federal funding because they expanded Medicaid under the ACA.”

“Still, all is not great for state fiscal health. On average, state revenues aren’t keeping pace with spending; NASBO estimates General Fund revenues will increase by just 3.8 percent. That is likely because some states are still having trouble balancing their budgets, as a handful transferred money from special funds or dipped into savings to close 2015 in the black, said Sigritz.”

Medicare Premiums to Increase by 16% not 52%, as Initially Projected

According to the most recent Kaiser Family Foundation newsletter, as a result of the recently enacted budget deal in Congress, “the 2016 Medicare Part B monthly premium will be $121.80, increasing by 16 percent over the 2015 amount—far lower than the increase initially projected by the Medicare actuaries, a new brief from the Kaiser Family Foundation explains. The Part B premium increase will affect 3 in 10 Medicare beneficiaries. The remaining 7 in 10 beneficiaries will pay the same $104.90 monthly premium in 2016 as they paid in 2015, thanks to protections in Social Security law that exempt them from the increase.”

Figure 1: Medicare Part B Monthly Premiums, 2015-2016

“The brief describes how the Medicare Part B premium and deductible are affected for 2016 by the Bipartisan Budget Act of 2015, including a new $3 per month fee for some beneficiaries to offset federal spending. It also lays out the connection between the Medicare Part B premium, the Social Security COLA, and the so-called ‘hold-harmless’ provision, and why, without the change in law, Medicare premiums would have increased by 52 percent for the 30 percent of beneficiaries not protected by the hold-harmless provision.”

The GOP’s Approach to a Tax Plan: Deny Fiscal Reality

New York Times Editorial Board: “The Republican presidential candidates were full of tax talk at this week’s debate. But none has a tax plan coherent enough to be the basis of a substantive discussion, let alone one that could meet the nation’s challenges.”

“All of the Republican plans focus on tax cuts, so losses are all but inevitable … Yet the candidates assert, against historical evidence, that revenue losses from tax cuts will be offset by economic growth.”

“All of these candidates deny fiscal reality. In the next 10 years, revenues will need to increase by 40 percent simply to keep federal spending even, per capita, with inflation and population growth. Additional revenues will be needed to pay for health care for the elderly, transportation systems and other obligations, as well as for newer challenges, including climate change. And interest on the national debt will surely rise because interest rates have nowhere to go but up.”

“In light of these needs, taxes have to go up. The reality is that income tax increases can be prudently imposed only on the wealthy at this point, because only they have had meaningful income gains in recent decades.”

The Hidden Costs of Driving

Joe Cortright in The Atlantic: “A report published earlier this year confirms, in tremendous detail, a very basic fact of transportation that’s widely disbelieved: Drivers don’t come close to paying for the costs of the roads they use.”

“The report documents that the amount that road users pay through gas taxes now accounts for less than half of what’s spent to maintain and expand the road system. The resulting shortfall is made up from other sources of tax revenue at the state and local levels, generated by drivers and non-drivers alike. This subsidizing of car ownership costs the typical household about $1,100 per year—over and above the costs of gas taxes, tolls, and other user fees.”

“While congressional bailouts of the Highway Trust Fund have made this subsidy more apparent, it has actually never been the case that road users paid their own way. Not only that, but the amount of their subsidy has steadily increased in recent years. The share of the costs paid from road-user fees has dropped from about 70 percent in the 1960s to less than half today, according to the study.”

The Cumulative Difference Between Public Spending on Highways and How Much Drivers Pay to Use Them

“The fact that user fees are too low not only means that there isn’t enough revenue, but that demand is too high. One value of higher user fees would be that they would discourage excessive use of the roads, lessen wear and tear, and in many cases obviate the need for costly construction projects.”

How High Are Alcohol Taxes in Your State?

Matthew Yglesias: “Alcoholic beverages are subject to special excise taxes in virtually every American state, but there’s little policy rhyme or reason to how they vary.”

 

“It looks like American legislators as a whole simply aren’t all that thoughtful about how they are designing these taxes. The mere fact that taxes are levied on quantities of beer or spirits rather than on quantities of alcohol speaks to a failure to really consider the issues in a public health framework.”

Which State Has the Most Regressive Tax System?

The Atlantic: “According to a study by economists at the Federal Reserve, Tennessee, Mississippi, and West Virginia have structured their tax codes so that middle and lower-income families pay a bigger share of their incomes than wealthy families do.”

“Tennessee has taken this strategy the furthest: The state has the most regressive tax system in the country, according to the study: It has no state income tax (though it does tax interest on stocks and bonds) and, instead, the state relies on sales taxes and other fees to fill its coffers, although many luxury items are tax-free. Additionally, attorneys’ fees, services such as haircuts and massages, and goods for horses and airplanes are all tax-exempt.”

“Last November, voters passed a constitutional amendment that banned the state from levying any income or payroll tax … But no income tax doesn’t mean there are no taxes. Tennessee has one of the highest combined local-state sales-tax rates in the country, at 9.45 percent, according to the Tax Foundation.”

“According to the Fed study, tax codes in some states, such as Minnesota, Oregon, and Wisconsin, ‘substantially mitigate income inequality.’ Those states make their tax codes more equitable by exempting basic necessities from sales taxes, and by offering a significant state-level Earned Income Tax Credit.”

Can a Ryan Reign Really Save a Fractured GOP?

Chris Cillizza: “Paul Ryan’s tentative agreement to serve as House speaker has set off an era (or at least a day) of unbridled optimism among Republicans.”

“Not to rain on that parade, but there’s some compelling evidence to suggest that many of the problems that dogged Speaker John Boehner could well linger during Speaker Ryan’s reign (assuming that the Wisconsin Republican’s conditions to be speaker are even met). This chart — via my friend (and Republican lobbyist) Bruce Mehlman — documents how often House Republicans were on Ryan’s side on six key votes in 2015.”

“What the chart shows is that there are between 20 and 45 Republican members who make it their mission to defy the wishes of the party leadership. That has been a very good business model for the Freedom Caucus, which has turned itself into a high-profile power-broker on virtually every contentious legislative fight in Congress. It’s less reassuring for the new speaker.”

 

Larry Summers: A Gas Tax to Fix America’s Roads is a ‘Free Lunch’

Lawrence Summers argues that “maintaining our infrastructure directly benefits American families and businesses because with fewer potholes they have to spend less maintaining their vehicles. This effect turns out to be surprisingly large. TRIP, a transportation research group, estimates that the cost to motorists of driving on roads in need of repair in 2013 was $109 billion. This includes only extra vehicle repair and operating costs, and not the delays caused by driving on poor roads, so it is almost certainly an underestimate. On the other hand, even with proper polices, some potholes would remain. To be very conservative, assume that proper infrastructure investment policies would save motorists half the total, or $54 billion a year.”

This figure “is comparable to total consumer spending of $49 billion on air transportation or $53 billion on personal computers. As another way of seeing its magnitude, it works out to 40 cents per gallon of gasoline consumed in the United States.”

“So if we were able to raise the gas tax by 40 cents and repair our highways and roads, we would create no new net burden on consumers: The benefit in reduced vehicle operating costs would at the very least offset their higher gas bills. In fact, since our cost estimate is conservative, the net effect on consumers would most likely be positive. And as is fair, those who drive the most would both pay the most and benefit the most from reduced repair costs.”

Congress’ ‘Pathetic’ Response to Transportation

Washington Post Editorial Board: “Congress is poised to temporarily patch the country’s transportation funding system — like it has nearly three dozen times over the past several years. Each time this number ticks up it underscores Congress’s dysfunction. Privately, many members of Congress know that raising the federal gas tax is a ready and reasonable way to pay for the nation’s infrastructure. Publicly, most lawmakers are too spineless to face up to this reality. The result has been impasse after impasse as Congress has attempted to find money elsewhere — leaving the country’s investment in roads, rails and bridges on short-term and unsustainable footing.”

“The whole spectacle is, well, pathetic. A sustainable source of funding to maintain and upgrade infrastructure is a basic requirement for any modern nation. Congress had one for decades. But the 18.4 cents-per-gallon gas tax hasn’t been increased since the early 1990s, and inflation has eroded its purchasing power. Modestly hiking the tax — and indexing it to inflation this time — would prevent Congress from having to constantly look under the cushions in search of money for the transportation budget. It would also make drivers pay for the roads they use. Waiting until 2017, or even until December, won’t alter that logic.”

The Koch Brothers Like Government Handouts

Joe Nocera finds that the Koch brothers have no problem accepting government handouts despite their longstanding opposition to “corporate welfare.”

Nocera points to a 2013 investment by Koch Minerals in a Big River Steel project that benefited from “an $800 million 10-year loan from a German bank, KfW IPEX-Bank. That loan, in turn, was contingent on credit insurance provided by Euler Hermes, a credit agency like the Export-Import Bank of the United States.”

“In doing so, of course, the Kochs were taking advantage of the same ‘corporate welfare’ they had long condemned — while relying on the kind of government credit agency they are trying to dismantle in America.”

“Koch-funded groups have led the battle to defund the Ex-Im Bank, which Congress declined to reauthorize this summer, in part because of pressure applied by those groups.”

But “the Big River Steel project offers a clear illustration of why those who want to put the Export-Import Bank out of business are dead wrong.”

“‘Because of the size of the loan and the 10-year repayment period, private insurers would not have wanted to pick it up … And banks wouldn’t have touched it with a 10-foot pole … ‘This is exactly what export credit agencies are good at:’ … stepping in to complete deals that make business sense but need the backing of a sovereign to complete.”

Washington’s Myopic Focus on Health-Care Costs Doesn’t Add Value

Ezra Klein argues that Democrats and Republicans are wrong when they focus solely on costs as the litmus test for a successful health care system.

“But the problem isn’t that America’s health-care system costs too much. It’s that it delivers too little. Value, not cost, is the problem. And cutting costs may actually be counterproductive.”

“The question in American health care isn’t how much it costs. It’s how much it’s worth. People complain that America spends about a fifth of its GDP on health services. But in isolation, the statistic is meaningless. The question is whether the health services Americans get are a good value at a fifth of GDP.”

“On that, the answer is easy: hell no. Americans spend roughly double what other developed nations spend but get basically the same outcomes. We’re not paying more to get more. We’re paying more and getting ripped off.”

“You can fix that problem by paying less for health care of the same quality, by paying the same — or more — for health care of higher quality, or some combination of the two. But our political discourse focuses simply on cutting costs.”

A Closer Look at Who Doesn’t Pay Taxes

The Hill: “Mitt Romney’s 47 percent is now 45.3 percent.”

“The Tax Policy Center says that’s now the number of households who don’t pay any income taxes, an almost five percentage point increase over the 2013 estimate of 40.4 percent.”

“Romney, the 2012 GOP presidential nominee, took a political hit when he used a previous Tax Policy Center estimate to assert that the 47 percent who didn’t pay income taxes would support President Obama.”

“The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, says this year’s increase is largely due to more precise projections about who actually pays taxes.”

“In other words, as the Center’s Roberton Williams put it: ‘Those additional non-payers were there all the time — we just failed to count them.'”