/PRNewswire/ -- With the House having passed its version of health care reform (H.R. 3962) and the Senate on the verge of passing its version (H.R. 3590), the outline of a final bill is beginning to take shape. In its new Issue Brief, The Concord Coalition looks ahead at the fiscal considerations that will likely be the subject of conference committee discussions and "end game" negotiations. These include the cost of expanding coverage, the methods used to prevent that cost from adding to the deficit, and the prospects for systemic reforms to reduce cost growth over time.
This issue brief gives The Concord Coalition's perspective on how the bills measure up, what the risks are and how these risks could be lessened. We conclude that:
-- Both bills establish an important benchmark by achieving deficit
reduction according to official cost estimates by the Congressional
Budget Office (CBO). However, the fiscal outlook remains on an
unsustainable track even with the modest deficit reduction achieved
under either plan.
-- There are clear risks that some of the methods used to achieve deficit
reduction in the official scores may not hold up over the long-term.
-- The revenue package in the Senate bill holds more promise to reduce
the deficit than the House version because its largest component --
the high-cost insurance excise tax -- will better keep up with the
growth rate of health care spending, and will also work to lower
health care costs.
-- Both bills contain many promising reform strategies to achieve
long-term cost control. However, these strategies remain unproven and
cannot be counted on to produce timely, reliable savings without a
strong cost control mechanism such as the Senate's proposed
Independent Payment Advisory Board (IPAB).
The "Fiscal Risks" mentioned in the discussion include:
-- Doing Nothing
-- Spending offsets that are not maintained over time
-- "Curve benders" that don't pan out or are not adopted more broadly
-- Failure to include an effective cost control mechanism
-- Lagging revenue increases
-- General revenue bailout of the CLASS provision
-- Inadequate premium subsidies, weak penalties, and a poorly designed
exchange
In the conclusion, Concord discuss the possible changes that could be added to the legislation to lessen these risks and further promote fiscal responsibility.
To read the full issue brief, go to: http://www.concordcoalition.org/issue-briefs/2009/1223/health-care-reform-end- game-fiscal-considerations
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Showing posts with label fiscal relief. Show all posts
Showing posts with label fiscal relief. Show all posts
Wednesday, December 23, 2009
Thursday, March 19, 2009
Statement of Secretary of Labor Hilda L. Solis on COBRA subsidy under American Recovery and Reinvestment Act of 2009
/PRNewswire-USNewswire/ -- Secretary of Labor Hilda L. Solis today issued the following statement regarding the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the premium reduction under the American Recovery and Reinvestment Act (ARRA):
"America's workers and employers are the most productive in the world. With the labor and capital markets under financial stress, the Obama Administration is working to provide relief to American families. In February, the President signed into law the American Recovery and Reinvestment Act to create jobs, provide training opportunities for new jobs, extend unemployment benefits and help relieve the burden of health benefits.
"These programs are vitally important to the economic well-being of people who lost their jobs. Right now the federal government is beginning to implement the law to meet some of the basic needs of its citizens.
"The ARRA provides a 65 percent tax subsidy for the cost of health benefits, making them more affordable for the unemployed and their families. Millions of individuals, including those who previously declined employer-provided coverage under COBRA, will be eligible to receive a subsidy on their premiums for up to nine months.
"Today the Labor Department is publishing more information to help the public understand how the program works and how they can qualify for the premium subsidy for continuation of health coverage under private, state and federal programs. The model notices we are releasing enable employers to quickly spell out for former employees and their families how to take advantage of COBRA coverage and the subsidy.
"This administration is committed to putting Americans back to work so they can re-build the financial fabric of their lives. And the Labor Department is working quickly to make that happen."
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"America's workers and employers are the most productive in the world. With the labor and capital markets under financial stress, the Obama Administration is working to provide relief to American families. In February, the President signed into law the American Recovery and Reinvestment Act to create jobs, provide training opportunities for new jobs, extend unemployment benefits and help relieve the burden of health benefits.
"These programs are vitally important to the economic well-being of people who lost their jobs. Right now the federal government is beginning to implement the law to meet some of the basic needs of its citizens.
"The ARRA provides a 65 percent tax subsidy for the cost of health benefits, making them more affordable for the unemployed and their families. Millions of individuals, including those who previously declined employer-provided coverage under COBRA, will be eligible to receive a subsidy on their premiums for up to nine months.
"Today the Labor Department is publishing more information to help the public understand how the program works and how they can qualify for the premium subsidy for continuation of health coverage under private, state and federal programs. The model notices we are releasing enable employers to quickly spell out for former employees and their families how to take advantage of COBRA coverage and the subsidy.
"This administration is committed to putting Americans back to work so they can re-build the financial fabric of their lives. And the Labor Department is working quickly to make that happen."
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Saturday, January 10, 2009
Economic Recovery Watch: Sobering Jobless Data Highlight Need for Recovery Package to Focus On Hard-Hit Families and States
/PRNewswire-USNewswire/ -- Since a decline in overall demand is the main cause of rising unemployment and the weak economy, the economic recovery package should focus on putting money in the hands of people who will spend it quickly, according to the Center on Budget and Policy Priorities.
Most economists agree that two cost-effective ways to do this are by helping hard-pressed families, such as those with low incomes and those that have experienced layoffs, and helping states avert steep budget cuts and tax increases that would reduce overall demand. In fact, these measures would do more to protect jobs and the economy than the business tax cuts and certain other measures that some in Congress are promoting as "job creators."
These conclusions are widely shared among economists. Mark Zandi, chief economist for Moody's Economy.com and a former advisor to presidential candidate John McCain, endorsed them earlier this week, stating: "To provide the largest bang for the buck, a well-designed stimulus plan should include a temporary increase in government spending... The most efficacious spending includes extending unemployment insurance benefits, expanding the food stamp program, and increasing aid to hard-pressed state and local governments."(1)
-- Poor families are more likely than businesses or higher-income families to spend quickly any new income they receive. The Congressional Budget Office has stated that "the efficacy of fiscal stimulus depends critically on households' tendency to spend the income placed in their hands."(2) CBO has also stated, "Lower-income households are... more likely to be among those with the highest propensity to spend. Therefore, policies aimed at lower-income households tend to have greater stimulative effects."(3)
The reason is simple. Families that are having difficulty affording food, shelter, and other necessities will spend any new income they receive to cover those basic costs. Higher-income families, in contrast, are likely to save more of any extra income.
So are businesses. As Goldman Sachs has stated, "companies don't spend money just because it's there to spend. To justify outlays for new projects, the expected returns have to exceed the costs, and that usually requires growth in demand strong enough to put pressure on existing resources."(4) This is why a 2008 CBO analysis comparing different stimulus proposals put corporate tax cuts in the lowest category for cost-effectiveness.(5)
-- Food stamps and unemployment insurance are two of the most effective forms of stimulus. The CBO analysis cited above put expanded food stamps and unemployment insurance in the highest category for cost-effectiveness as stimulus. "Additional [food stamp] benefits are likely to be spent rapidly by recipients, who tend to be experiencing periods of economic difficulty," CBO noted.
As for unemployment insurance, then-CBO director Peter Orszag told Congress in 2007 that "research has shown that the unemployment insurance system is among the most effective dollar-for-dollar economic stabilizers that we have in terms of counterbalancing periods of economic weakness."(6) Supporting spending by unemployed workers in hard-pressed communities helps prevent the spread of layoffs and loss of jobs in those communities.
-- But unemployment insurance reforms are needed. Fewer than half of unemployed workers actually receive jobless benefits because the unemployment insurance program, designed in the 1930s, is seriously out of date in many states. Most states, for example, require applicants to look for a full-time job, even if they are parents raising very young children and were working part-time before being laid off. These laws -- designed when most workers were married men who were the sole breadwinners for their family -- particularly disadvantaged women, who are much more likely to work part-time than men.
Congress is considering financial incentives to encourage more states to adopt reforms that would allow more part-time and other laid-off workers to qualify for benefits. States that adopt the reforms would receive temporary federal funds to cover the cost of paying the associated benefits for several years, but there would be no ongoing cost to the federal government, because regular unemployment insurance benefits are fully state-funded.
-- Fiscal relief is also badly needed. Prior to the recession, states not only balanced their budgets every year but also had built up the largest budget reserves in recent history. (This refutes the claim by some that states' budget problems reflect fiscal mismanagement.) The recession has largely wiped out these reserves. Already 30 states have had to cut services ranging from health care to education, and more than a dozen have raised revenues.
As a result of the deepening recession, state deficits are likely to total $350 billion to $370 billion over the next 2 1/2 years. Without fiscal relief to close part of that gap, states will have to institute exceedingly deep budget cuts and tax and fee increases. Both kinds of measures reduce overall demand: tax increases leave consumers with less money to spend, and budget cuts reduce state payments to vendors, benefit recipients, and others, thereby taking money out of the economy. These measures would undercut the stimulus Washington is trying to provide.
-- Loans are no substitute for fiscal relief. A few policymakers support converting the fiscal relief to loans. This would render it ineffective as stimulus. Many states have legal barriers that explicitly prohibit them from borrowing funds to cover operating expenses. Even states that could accept the loans would be reluctant to do so, since they cannot know when their budgets will recover sufficiently to begin repaying the loans. In the last two recessions, most states' fiscal problems continued two to three years after the economy hit bottom.
Funds for infrastructure projects that can be undertaken in the next couple of years constitute effective stimulus, as well. Such infrastructure investments are appropriate measures to include in a recovery package.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
NOTES:
(1) Mark Zandi, "The Economic Impact of a $750 Billion Fiscal Stimulus Package," testimony before the House Democratic Steering and Policy Committee Forum, January 6, 2009.
(2) Congressional Budget Office, "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," January 2002, http://www.cbo.gov/ftpdoc.cfm?index=3251&type=0.
(3) Congressional Budget Office, "Options for Responding to Short-Term Economic Weakness," January 2008, http://www.cbo.gov/ftpdocs/89xx/doc8916/01-15-Econ_Stimulus.pdf.
(4) GS Weekly, September 21, 2007.
(5) CBO, 2008.
(6) "State of the U.S. Economy and Implications for the Federal Budget," Hearing before the House Budget Committee, House of Representatives, December 5, 2007.
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Most economists agree that two cost-effective ways to do this are by helping hard-pressed families, such as those with low incomes and those that have experienced layoffs, and helping states avert steep budget cuts and tax increases that would reduce overall demand. In fact, these measures would do more to protect jobs and the economy than the business tax cuts and certain other measures that some in Congress are promoting as "job creators."
These conclusions are widely shared among economists. Mark Zandi, chief economist for Moody's Economy.com and a former advisor to presidential candidate John McCain, endorsed them earlier this week, stating: "To provide the largest bang for the buck, a well-designed stimulus plan should include a temporary increase in government spending... The most efficacious spending includes extending unemployment insurance benefits, expanding the food stamp program, and increasing aid to hard-pressed state and local governments."(1)
-- Poor families are more likely than businesses or higher-income families to spend quickly any new income they receive. The Congressional Budget Office has stated that "the efficacy of fiscal stimulus depends critically on households' tendency to spend the income placed in their hands."(2) CBO has also stated, "Lower-income households are... more likely to be among those with the highest propensity to spend. Therefore, policies aimed at lower-income households tend to have greater stimulative effects."(3)
The reason is simple. Families that are having difficulty affording food, shelter, and other necessities will spend any new income they receive to cover those basic costs. Higher-income families, in contrast, are likely to save more of any extra income.
So are businesses. As Goldman Sachs has stated, "companies don't spend money just because it's there to spend. To justify outlays for new projects, the expected returns have to exceed the costs, and that usually requires growth in demand strong enough to put pressure on existing resources."(4) This is why a 2008 CBO analysis comparing different stimulus proposals put corporate tax cuts in the lowest category for cost-effectiveness.(5)
-- Food stamps and unemployment insurance are two of the most effective forms of stimulus. The CBO analysis cited above put expanded food stamps and unemployment insurance in the highest category for cost-effectiveness as stimulus. "Additional [food stamp] benefits are likely to be spent rapidly by recipients, who tend to be experiencing periods of economic difficulty," CBO noted.
As for unemployment insurance, then-CBO director Peter Orszag told Congress in 2007 that "research has shown that the unemployment insurance system is among the most effective dollar-for-dollar economic stabilizers that we have in terms of counterbalancing periods of economic weakness."(6) Supporting spending by unemployed workers in hard-pressed communities helps prevent the spread of layoffs and loss of jobs in those communities.
-- But unemployment insurance reforms are needed. Fewer than half of unemployed workers actually receive jobless benefits because the unemployment insurance program, designed in the 1930s, is seriously out of date in many states. Most states, for example, require applicants to look for a full-time job, even if they are parents raising very young children and were working part-time before being laid off. These laws -- designed when most workers were married men who were the sole breadwinners for their family -- particularly disadvantaged women, who are much more likely to work part-time than men.
Congress is considering financial incentives to encourage more states to adopt reforms that would allow more part-time and other laid-off workers to qualify for benefits. States that adopt the reforms would receive temporary federal funds to cover the cost of paying the associated benefits for several years, but there would be no ongoing cost to the federal government, because regular unemployment insurance benefits are fully state-funded.
-- Fiscal relief is also badly needed. Prior to the recession, states not only balanced their budgets every year but also had built up the largest budget reserves in recent history. (This refutes the claim by some that states' budget problems reflect fiscal mismanagement.) The recession has largely wiped out these reserves. Already 30 states have had to cut services ranging from health care to education, and more than a dozen have raised revenues.
As a result of the deepening recession, state deficits are likely to total $350 billion to $370 billion over the next 2 1/2 years. Without fiscal relief to close part of that gap, states will have to institute exceedingly deep budget cuts and tax and fee increases. Both kinds of measures reduce overall demand: tax increases leave consumers with less money to spend, and budget cuts reduce state payments to vendors, benefit recipients, and others, thereby taking money out of the economy. These measures would undercut the stimulus Washington is trying to provide.
-- Loans are no substitute for fiscal relief. A few policymakers support converting the fiscal relief to loans. This would render it ineffective as stimulus. Many states have legal barriers that explicitly prohibit them from borrowing funds to cover operating expenses. Even states that could accept the loans would be reluctant to do so, since they cannot know when their budgets will recover sufficiently to begin repaying the loans. In the last two recessions, most states' fiscal problems continued two to three years after the economy hit bottom.
Funds for infrastructure projects that can be undertaken in the next couple of years constitute effective stimulus, as well. Such infrastructure investments are appropriate measures to include in a recovery package.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
NOTES:
(1) Mark Zandi, "The Economic Impact of a $750 Billion Fiscal Stimulus Package," testimony before the House Democratic Steering and Policy Committee Forum, January 6, 2009.
(2) Congressional Budget Office, "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," January 2002, http://www.cbo.gov/ftpdoc.cfm?index=3251&type=0.
(3) Congressional Budget Office, "Options for Responding to Short-Term Economic Weakness," January 2008, http://www.cbo.gov/ftpdocs/89xx/doc8916/01-15-Econ_Stimulus.pdf.
(4) GS Weekly, September 21, 2007.
(5) CBO, 2008.
(6) "State of the U.S. Economy and Implications for the Federal Budget," Hearing before the House Budget Committee, House of Representatives, December 5, 2007.
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