How Many More Low-Income Households Will Be Left in the Cold?

November 26, 2013

On Sunday, a blast of cold air arrived in Washington, D.C. With the gusting winds, the feel temperature around mid-day was 21 degrees. So much for my plans to cut down the withered vines and sweep up the mounded leaves in our backyard.

Instead, I spent part of the afternoon cleaning out my inbox, where I found a press release that made me feel at once privileged and newly distressed about the hardships that sequestration is causing.

About 300,000 fewer low-income households received help with their home heating and cooling costs last fiscal year, reports the National Energy Assistance Directors’ Association, which represents the state directors of the federally-funded Low Income Home Energy Assistance Program.

This was a direct result of sequestration, NEADA says. But the cut came on top of other cuts that began in Fiscal Year 2010. The cumulative losses have reduced the number of households served by 17%, or 1.4 million.

At the same time, the average grant households received shrank from $520 to $406. And even during the baseline period, the average grant didn’t cover estimated heating costs.

The shortfall was greatest — and has remained so — for households that use heating oil. These are largely households in the Northeast, where, as you know, it can get bitter cold.

But even households like ours, which use natural gas, would have had to come up with about 40% of their heating costs last winter, assuming the estimated seasonal cost and average grant apply.

Prospects for the winter season that seems to have begun are worse. Home heating costs are expected to rise by an average of 6%, due mainly to a 13% spike for households using natural gas.

This translates into a further purchasing power loss for LIHEAP — from 52.5% of the average household’s home heating costs in 2010-11 to a projected 41.5%.

And this doesn’t factor in any additional funding cut for the current fiscal year. NEADA seems to think that another cut will occur unless Congress “takes action to reverse” sequestration — by which I assume it means the spending caps imposed by the Budget Control Act.

In point of fact, non-defense discretionary programs like LIHEAP, i.e. those that depend on annual appropriations, will collectively meet their Fiscal Year 2014 spending cap without further cuts because Congress tinkered with the BCA to give defense some one-year protection.

But that doesn’t mean there’s no reason to worry. Republicans generally — and some Democrats — want to shield the Pentagon from the $20 billion cut it faces.

At the same time, some leading Republicans insist that the total discretionary spending level the BCA imposes must remain the same. That’s not possible, of course, unless that $20 billion is shifted over to the non-defense side of the ledger.

It’s doubtful we’ll see this sort of deal. But a deal that preserves the existing NDD cap would still leave LIHEAP vulnerable because Congress could decide to trim it in order to boost spending on other programs, as the President’s proposed budget did.

Even if Congress can’t agree on anything more than a continuing resolution, more low-income households could be left without home energy assistance because, as the NEADA press release indicates, level funding won’t be enough to help even as many households as were helped last winter — unless grants are further reduced.

No (or less) energy assistance could mean no heat this winter — perhaps no indoor lighting or ability to cook either. The loss would affect some of the most vulnerable people in the country, according to a survey NEADA conducted several years ago.

Seventy-two percent of the households served then had a family member with a serious medical condition. Of these, 26% relied on medical equipment that used electricity. Even with a LIHEAP grant — or perhaps before they received it — 19% got sick because their homes were too cold.

Merely restoring LIHEAP to its Fiscal 2010 level would leave more than 99.8% of the estimated budget for other purposes.*

Something I would hope members of Congress think about as they sit snug and warm in their homes this weekend.

* This figure reflects the result yielded by the Center for Economic and Policy Research responsible budget calculator.

Drilling Down on the Debt Ceiling Crisis

October 15, 2013

I’ve been trying (unsuccessfully) to ignore the steady stream of reports and commentary on the debt ceiling crisis. And I’d no intention of writing about it until I noted a disturbing shift in the conversation.

I’m not talking here about the statements welcoming a default from a couple of the House Tea Party types — Congressman Ted Yoho (R-FL), for example, who claims “it would bring stability to world markets.”

My concern is rather that some are saying the crisis isn’t all that bad because the government could still pay bondholders — and thus, there’d be no default.

Moody’s Investor Services gave this narrow definition credibility with a widely-reported memo that implicitly defined “default” as only failure to pay interest and principal on publicly-held debt.

This is something, it said, the Treasury Department could clearly do, even after it had exhausted the time it’s been buying through extraordinary measures.

Needless to say, right-wing sources seized on the memo to debunk Treasury’s warnings about the macroeconomic impacts of even a prospective default, e.g., a jittery stock market, higher borrowing costs.

It’s all a not-to-worry, said the Heritage Foundation, among others, because Treasury will take in enough revenues to satisfy its bond obligations and most of the government’s “non-debt obligations” over the course of the year.

In the meantime, it can “prioritize payments,” i.e., defer paying those “non-debt obligations” in order to keep current with bond interest and repayment of principal on dates due.

Some Republicans in Congress have been making this argument for awhile now. Others of various political persuasions have said it’s not that simple.

Treasury may not have the legal authority to pick and choose which bills to pay. Besides, its payment systems aren’t set up to prioritize, as its Inspector General reported to the top Republican on the Senate Finance Committee during the run-up to the last debt ceiling crisis.

Now we’re hearing more about what would happen if Treasury did prioritize — virtually all of it that I’ve seen on a macroeconomic scale.

Goldman Sachs economists estimated the impacts of the required pullback in spending at 4.2% less economic growth over the course of a year — enough to send us back into a recession.

New York Times columnist Paul Krugman argues that we could be looking at a 10% decline — and a 5% rise in the unemployment rate — because the government would have to make more spending cuts to offset the loss of tax revenues and rise in safety net spending that always occur during a downturn.

Still, we’re told, Treasury could perhaps postpone some payments — not interest on the debt, of course, but other big-ticket obligations, e.g., reimbursements to Medicare and Medicaid providers, Social Security and food stamp benefits, veterans benefits and military pay.

Wonkblogger Ezra Klein borrows a table from the Bipartisan Policy Center to show what that could look like over the short-term.

We see that the last round of Social Security payments for October would be two days late. The next round nearly two weeks late. And then …?

I single these out because a post by Dean Baker at the Center for Economic and Policy Research evoked a down-to-earth, personal response of the kind we haven’t heard enough of.

Baker was essentially pooh-poohing the alarm bells about higher interest rates. “Hitting the debt ceiling would undoubtedly be bad news, ” he said, “but an earth-shaking disaster is pretty unlikely. Everyone will get their money, with interest, even if it is a big late.”

Which prompted the following: “I don’t know about you, but I pretty much live from Social Security check to the next Social Security check, and toward the end of the month I go to cheaper brands of cat food (not from steak to chicken like those plutocrats advocating the Great Betrayal). To me, ‘a little bit late’ means ‘a little big hungry.'”

I suppose food stamp recipients, whose benefits could also be put into the pipeline to conserve cash for bond interest, would say the same. Likewise some veterans and families of active military servicemembers.

And what would happen to people who need health care from Medicare and Medicaid providers who’ve been told their reimbursements are on hold is anybody’s guess. We have a tiny window into the prospects here in the District of Columbia, where Medicaid payments are on hold until Congress approves our budget.

Sure, all these de-prioritized payments could have large-scale economic impacts — and these would surely have personal consequences. But let’s not forget the hardships that would set in swiftly for those who rely on social insurance and safety net benefits.

I understand that these concerns may seem irrelevant now, what with the deal the Senate leaders are reportedly putting the final touches on. But even if House Speaker John Boehner lets it pass without a majority of his caucus in favor (big if), we’ll be right back in the same place in February.

Everyday ordinary people pawns in political brinkmanship games — and under the radar of most economic prognosticators too.

Sequester Scarier Than Washington Post Claims

July 8, 2013

A catchy headline in a late-June issue of the Washington Post. “They said the sequester would be scary. Mostly they were wrong.”

“They” are the Obama administration, which, as the reporters say, “issued specific — and alarming — predictions” about what would happen when the across-the-board cuts began.

The article cites a half dozen, then says, “But none of these happened.” The casual reader would surely infer that the administration blew the whole sequester thing out of proportion.

In fact, it’s hard to read the piece as saying anything other than the sequester isn’t all that bad, though it does casually acknowledge “real hardship to many people.”

It rightly points out that Congress averted some of the predicted harms. In a couple of cases, it provided some additional funds. In others, it let agencies move money around, rather than cut every program and activity equally, as the law initially required.

But none of this means we should breathe a sigh of relief. Even the Post‘s research shows this, though we have to burrow into the details elliptically offered via a graphics box on the front page.

Here we find that the Post generally began with predictions that federal agencies had made in response to a request from the chair of the Senate Appropriations Committee.

It then apparently contacted the agencies to find out whether 48 of the predictions had come true. No explanation of why it chose these. My best guess is that it picked only potential impacts the agencies had quantified — and only those that might already have come to pass.

Thus, for example, the Post checked the Labor Department’s dire (and accurate) prediction of impending federal unemployment benefits cuts, but not what it said about lost employment and training services or weaker enforcement of worker protections.

And it checked none of the Education Department’s predictions because most of them address the upcoming school year. Dire, but unverifiable. So we’re not even told what they are.

Predictions agencies confirmed were said to have “come true.” And, of course, predicted impacts that Congress and/or the agencies had altogether averted were counted as not coming true.

But the Post also counted predictions in the “did not come true” category merely because a numerical estimated proved too high — at least for now.

The federal judicial system, for example, did — or will — furlough public defenders, but not initially for as many days as it earlier thought it would.

So there will be an impact. And pretty scary, I think, for low-income defendants who are behind bars, possible denied their right to a speedy trial and relying on lawyers who’ll have less time to prepare their cases.

The Post‘s approach also minimizes sequester damages because it takes no account of the impacts of cuts agencies made to avert — or partly avert — the impacts they’d predicted.

I note, for example, that the Social Security Administration has reduced the hours its field offices are open. Hard to believe this hasn’t affected frail seniors and people with disabilities, who already had long waits for help with benefits — and subsequent red-tape tangles.

The Defense Department will preserve health services for eligible beneficiaries who aren’t on active duty by furloughing 650,000 civilian employees.

How many of them and their families can easily get along on less income than they were counting on? What will happen to our economy as they cut back spending?

More importantly, over a quarter of the selected predictions couldn’t yet be verified, including those for major programs that serve low-income people’s needs.

The Department of Housing and Urban Development, for example, reportedly “declined to provide” new estimates for the number of formerly homeless people who’ve lost their housing or their beds in emergency shelters.

Ditto for the number of households who won’t have federally-subsidized housing vouchers.

The Health and Human Services Department says it doesn’t yet know how many children won’t have access to Head Start services — or how many teachers and aides will lose their jobs.

Nor does it know how many seniors will get fewer — or perhaps no — meals home-delivered or served in a group setting, e.g., at a church or community center.

Yet we already have considerable, if fragmentary evidence that the sequester is, in fact, shrinking access to these and other critical services.

The Coalition on Human Needs has been publishing weekly collections of news reports on sequester impacts since early March.

I don’t recall a week without several on Head Start programs that will be serving fewer children — and few weeks without an item on cutbacks in Meals on Wheels and related food-service programs.

The Center for American Progress has also been publishing a weekly series on sequester impacts. Again, we see contractions in Head Start programs, as well as other heterogeneous impacts.

Economist/blogger Jared Bernstein posts still another weekly set of sequester impact news clips.

Some of the reported impacts are prospective because local agencies and nonprofits are still figuring out how they will handle the funding losses. But some aren’t.

Federal agencies can’t yet compile totals to verify all their earlier predictions. Nor can advocates pull together reliable, nationwide numbers. But that doesn’t mean the sequester really isn’t all that bad.

This is especially true because the cuts aren’t a one-time thing. Congress is supposed to cut next year’s appropriations for non-defense programs by $37 billion — this on top of the cuts already in effect.

And, as Bernstein points out, agencies won’t have the same opportunities to blunt the effects, e.g., by counting leftover funds they couldn’t spend.

What the Post had done is okay so far as it goes. But its framing of the results strongly suggests that we can discount what the administration will say when it “seek[s] to make the threat reappear” in an effort to mitigate the next round of cuts.

Need I say that would be a big mistake — even if it turns out that fewer than 70,000 low-income children have thus far been denied access to Head Start and Early Start?

My Two Cents on the DC Council’s $50 Million Spend

July 1, 2013

I had every intention of publishing a post last Thursday on what the DC Council finally decided to do with the Budget Support Act.

But I hadn’t planned on having no internet connection during the debate — and for a l-o-n-g time thereafter.

So I’ll confine myself here to some thoughts on one of the big issues the Council dealt with: How to spend $50 million more than it had already appropriated.

As you may already know, the Chief Financial Officer released a new set of revenue estimates last Monday. The estimate for the upcoming fiscal year was $92.3 million higher than the one the budget was built on.

The Council had already decided it would decide how to spend up to $50 million more if the new estimates permitted — this instead of accepting (or modifying) the “wish list” for uses of higher estimated revenues that the Mayor had included in his proposed BSA.

The Mayor had a new, quite different “wish list” anyway, based on the Council’s $50 million cap.

The same three top priorities as before, but others high on the original list had been dropped in favor of a brand new $23 million extra for the D.C. public and charter schools.

Council Chairman Phil Mendelson clearly had his own ideas. So, as you might imagine, did other Councilmembers.

The governing principle behind the final package seems to have been getting as many Councilmembers on board as possible.

Distribution of the new-found wealth was part of this. So was a reduction in the sales tax, plus a set-aside to offset prospective tax cuts — near and dear to the heart of Councilmember Jack Evans, among others.

The plan worked. Only Councilmember David Catania voted against the final bill.

In a fit of pique because his colleagues wouldn’t agree to an amendment that would have used virtually all the additional revenues to fund one of his initiatives aimed at boosting academic performance among the District’s lower-income students.

The DC Fiscal Policy Institute provides an item-by-item account of how the $50 million was allocated.

As you can see, the Council generally tried to spread the money around — and to include diverse pet projects, e.g., a boost for the film incentive fund that Councilmember Vince Orange has championed.

It did, however, approve the entire $11 million the Mayor had asked for to provide more subsidized childcare slots for infants and toddlers and, at long last, do something about the woefully inadequate provider reimbursement rates.

Two other especially noteworthy items for those of us concerned about the well-being and future prospects of low-income District residents.

First, the Council allocated an additional $4 million for adult literacy and career and technology education programs. This had been quite high on the Mayor’s original “wish list,” but totally eliminated in the final.

The increase should give the Office of the State Superintendent of Education most, if not all of what it asked for to support local nonprofits so that they can help prepare their students for the soon-to-be-tougher GED and National External Diploma exams.

Second, the Council provided an additional $3 million for the Local Rent Supplement Program, the District’s locally-funded housing voucher program. This brings the total increase for next fiscal year to $9.75 million.

The infusion is especially timely because the District stands to lose even more federal funding for housing vouchers unless the House and Senate agree to scrap sequestration (unlikely).

So LRSP seems the best hope now for homeless families and others who need more than just a short-shot form of housing assistance.

But some of the District’s poorest and most vulnerable residents got left out of the windfall allocations.

These are families headed by a parent with an infant to care for — one of the groups the Council previously agreed should be exempt from the five-year time limit it had hastily established for those in the Temporary Assistance for Needy Families program.

According to DCFPI’s own wish list, the one-time exemption for these families would have cost $1.5 million.

Doesn’t seem like a lot to me to temporarily stop the time clock for new mothers and their children, especially when we’ve no assurance there will be enough childcare slots for babies.

Two hundred more slots for infants and toddlers won’t make much of a dent in the waiting list for the former — reportedly more than 3,500 last year.

But the families will be subject to the benefits phase-out leading up to a final cut-off anyway.

And the Council did nothing about the shortage of job training slots for TANF parents, who are now — and will be — on waiting lists while the cut-off clock keeps ticking for them.

Nevertheless, a supplemental spending plan that addresses some critical human needs. And when we look at what the Council had already agreed to, we should feel pretty good, I think.

Even more so when we consider the enormous improvements made in the Mayor’s proposed amendments to the Homeless Services Reform Act.

Politics is, after all, the art of the possible. And the possible, in this case, meant making a majority of Councilmembers happy enough to vote for the BSA — and the Mayor happy enough to indicate he’ll sign it.

See how mellow being off the ‘net can make one?

Billions More for Defense, But Less for Low-Income Moms and Kids

June 10, 2013

Two lesser-known facts about WIC (the Special Supplemental Nutrition Program for Women, Infants and Children).

First, unlike most of the major federal nutrition assistance programs, it’s funded by annual appropriations.

This potentially exposes it to cuts designed to bring total non-defense discretionary spending below the caps Congress agreed to as part of the Budget Control Act, the same law that gave us this year’s across-the-board cuts.

Second, WIC does more than provide low-income mothers with coupons or the equivalent to help ensure that they and their young children get enough of the foods and beverages they need for a healthful diet.

WIC also offers participating mothers breastfeeding counseling. The counselors are other mothers who’ve got both the experience and the training to encourage breastfeeding and help with problems some nursing mothers experience.

The Breastfeeding Peer Counselor program was created in 2004 on the basis of compelling evidence that breastfeeding reduces a range of health risks for both babies and their mothers.

Now the House Agriculture Appropriations Subcommittee has decided to block spending on the program unless the U.S. Department of Agriculture is sure that WIC has enough funds to serve all eligible women, infants and children — both those enrolled now and those who will apply.

The Center on Budget and Policy Priorities doubts that the proposed funding level for WIC — about $6.65 billion — will be enough to cover the costs of food assistance for all these people.

Perhaps if the Agriculture Department uses the program’s contingency reserves to supplement the appropriation, it says.

But the reserves are supposed to be available for unexpected costs, e.g. price spikes in foods the coupons cover, downturns in the economy that increase the number of eligible mothers and children.

So using them to make up for under-funding that can be predicted now would be risky.

WIC has already been whacked by several rounds of mandatory across-the-board cuts. Before these, it had more than $7.04 billion for the current fiscal year.

The cut the Agriculture Appropriations Subcommittee passed isn’t mandated.

It’s a choice the subcommittee majority made — one prompted, but not compelled by choices the Appropriations Committee made when it set the funding allocations each subcommittee got.

And these reflect decisions by House Budget Committee Chairman Paul Ryan.

The first of these sets total spending at the level the BCA requires. Both the President’s proposed budget and the Senate’s budget plan set a higher level and still reduce the deficit because they include some revenue-raisers.

The second decision is to ignore the specific spending caps in the BCA. Defense would get more than the cap allows — $26.2 billion more than it has now, in fact.

CBPP estimates that Defense is at least $45 billion over its cap, once funding it gets from other appropriations is factored in.

The unrealized savings get shifted to the non-defense part of the budget, thus requiring larger cuts than the BCA cap itself would force.

But the House Appropriation Committee’s allocations increased funding for Homeland Security and a budget component that combines military construction and Veterans Affairs. So all the other NDD components got smaller allocations to compensate.

Agriculture didn’t fare so badly, though this is cold comfort to the families WIC is supposed to serve.

Cuts to other programs that serve basic human needs will have to be huge. Those lumped together as Labor, Health and Human Services and Education will lose a total of $27.8 billion — 18.6% of what they collectively have now.

Sequestration was dumb to begin with. The House Republican leadership is making it worse by taking a rather casual view of what the law requires — and refusing to even discuss an alternative that would include any tax increases.

Low-income people won’t be the only ones to suffer. But House Republicans seem bound and determined to target cuts where they’ll get hurt.

More Fixes Won’t Fix Sequestration’s Harms

May 2, 2013

Never let it be said that Congress can’t get anything done because bipartisanship is dead. Look at how swiftly Republicans and Democrats jointly acted when the air traffic controller furloughs started inconveniencing frequent flyers.

This isn’t the first time Congress has created a loophole in the law that mandates across-the-board cuts.

When the Agriculture Department announced that it would have to furlough the inspectors who must be in meat, poultry and egg processing plants, Congress found funding to keep the inspectors on the job.

Took part of it out of the department’s fund for grants to help more schools serve breakfast to low-income students.

I’m hardly the first to note that Congress has evinced no significant concern about other delays sequestration seems likely to cause — or those that will worsen.

Nor about other harms the cuts will cause — not merely furloughs that will create hardships for some as-yet unknown number of federal employees, but as many as 750,000 actual job losses in both the public and private sectors.

And lost benefits for jobless workers who’ve been unemployed long enough to qualify for federally-funded unemployment insurance benefits. Nineteen states have already rolled out cuts averaging $120 a week. The longer states wait, the bigger the cuts will have to be.

Some of the other cuts have also gotten considerable press coverage.

So you probably know that Head Start programs have begun paring back enrollment. Some of them already have waiting lists — a far more consequential sort of delay than some extra hours in an airport.

The U.S. Secretary of Education says that about 70,000 children won’t have the early learning opportunities and other benefitse.g., health services, that Head Start provides.

One Head Start director warns that parents may have to quit their jobs to tend to their children — not unlikely, since unsubsidized child care can cost more than they earn.

And sequestration has taken a bite out of the block grant that helps pay for subsidized care.

Also out of federal programs that fund subsidized housing. Long waiting lists for housing assistance are already common. And the number of years applicants wait are often far longer than the number of hours fussed airline travelers waited.

The Center on Budget and Policy Priorities estimates that 140,000 fewer households will have housing vouchers by early next year. Others, it says, may face rent increases — perhaps beyond their ability to pay.

Yet funds for homeless services will be cut too.

But I’m cherry-picking here, just as many say Congress just did. Those interested can find many other examples in the weekly reports the Coalition on Human Needs is publishing.

No one, I think, would doubt that Congress hasn’t acted to avert impacts like the aforementioned because the people affected don’t have the political clout that frequent fliers and agribusinesses do.

I think we’re looking at something more difficult to deal with than a power imbalance, however.

The air traffic controller and food safety inspector furloughs caused — or were about to cause — large, clear, nationwide impacts. In many other cases, the proverbial is only beginning to hit the fan — or more precisely, a vast number of fans.

Most of the genuine news we have about the impacts on low-income people and the programs that serve them are local — and often likelihoods rather than sure things.

This is partly because program directors, in many cases, don’t yet know what their share of the cut will be. Even those who do are mostly still figuring out how they’ll manage — and give various answers when asked.

We also don’t get a whole picture because stories tend to get written when some advocates have gotten reporters interested. And, face it, some programs have more heart-tug appeal than others.

In one respect, it’s good that we’re getting stories. In fact, this is a welcome — if unintended — side effect of the air traffic controller save.

Yet, in another respect, it’s dangerous. Because the more major media focus on a handful of programs — and the more grassroots campaigns call on Congress to save one or another — the more likely other FAA-type fixes become.

And most federal agencies, unlike FAA, don’t have a pot of money they can tap that they didn’t need to spend this year anyway.

So a reprieve for some programs will mean deeper cuts for others. Like as not they’ll be programs that benefit low-income people — especially those that don’t have an effective public voice or lend themselves so well to poignant individual stories.

House Republicans seem open to this. “The main thing,” says Congressman Tom Cole (R-OK), “is to secure $85 billion in savings. We are not wedded to where the savings come from.”

But the fundamental issue is the savings, a.k.a spending cuts. Sequestration is a singularly dumb way to address a problem that’s been blown out of all proportion, i.e., the federal deficit.

Yet, as Federal Reserve Chairman Ben Bernanke has testified, deep cuts at this point — even if not across-the-board — are likely to lead to less deficit reduction.

And the whole approach is unbalanced, since sequestration comes on top of $1.5 trillion in cuts and a mere $620 billion or so in additional revenues.

Congress ought to get rid of sequestration, which none of its members wanted — or thought would come to pass. And some, who will remain nameless, should back off their cuts-only/cuts-now solution to the long-term deficit.

That, I hope, will be the message that all who care about the well-being of our nation’s children, seniors and everyone in between will deliver. Because if we don’t hang together … Well, you know the rest.

Why Is the Chained CPI in the President’s Budget?

April 25, 2013

My last post took on some of the basic questions raised by the debate over using the chained CPI (Consumer Price Index) to adjust Social Security benefits.

I deferred the question in the headline here because the post was already quite long, and the answer isn’t simple. So here goes …

Social Security and the Deficit

Strictly speaking, Social Security doesn’t belong in the budget at all — at least, not in the package of spending and revenue proposals we ordinarily think of as such.

It has its own revenue stream — the payroll tax, plus an earmarked portion of income taxes paid on some of the benefits it provides. It also has $2.7 trillion in reserves, i.e., the unused portion of these taxes, invested in Treasury bonds, and the interest on these.

That’s all it’s got.

A shortfall would be dreadful, but it would have no impact on the deficit — unless, as seems likely, Congress used general tax revenues to avert a sudden, big benefits cut.

This, however, is an argument for crafting a measure that will keep the program solvent, not for putting the chained CPI in the budget.

Some say that the Trust Fund is just an accounting fiction. The Treasury bonds the reserves are invested in signify money that’s being used to help pay for items in what we ordinarily think of as the budget.

When Social Security starts drawing on its reserves, as it already has, the Treasury Department has to sell some bonds to other investors in order to pay the program what it owes — or use revenues from taxes not specifically intended for Social Security.

This doesn’t mean that Social Security is contributing to the deficit, however — any more than you or I could be said to increase the deficit if we cashed in some savings bonds a grandparent once gave us.

More Revenues Without Tax Reform

The chained CPI is probably in the President’s budget in part because it would increase tax revenues without any rate-raising or loophole-closing at all.

According to Congressional Budget Office estimates, the federal government would gain $123.7 billion* over the first 10 years because tax brackets and other annually-adjusted tax provisions, e.g., the personal exemption and standard deduction, would rise more slowly.

So even a quite small increase in income could get taxed at a higher rate. The amount we’d owe wouldn’t be a whole lot greater than what we’d owe if the Internal Revenue Service continued to use the same inflation measure it’s been using.

But the tax code would be somewhat less progressive because filers at fairly low and moderate-income levels would take the biggest hits.

And at least some low and moderate-income families would get smaller reductions and/or refunds from the Earned Income Tax Credit because the maximum credit is adjusted for inflation, as are the phase-outs that gradually lower the credit when earnings reach some level above the amount eligible for the maximum.

There would be no impact on the refundable Child Tax Credit if Congress makes the current threshold for claiming it permanent, as the President has proposed.

Big if here, since we know that Congressional Republicans have wanted the EITC and the Child Tax Credit to revert to their more restrictive pre-Recovery Act forms.

Political Strategy

The revenues raised would be a small portion of the total increase the President now says he’d settle for. So it’s pretty clear the chained CPI is in the budget mainly for strategic reasons.

The received wisdom seems to be that he’s again striving for a grand bargain — offering Republican Congressional leaders the chained CPI and Medicare spending cuts they said they wanted in the fond hope they’ll agree to a scaled-back revenue-raising plan.

Or if not that, perhaps proving they’re altogether unreasonable and ought to lose their House majority next year so that Congress can get important business done.

This is what Michael Tomasky at The Daily Beast thinks the President is up to — and why he thinks no one should fret about the chained CPI.

The Nation‘s John Nichols thinks otherwise. Look, he says, at how the chairman of the National Republican Congressional Committee is already messaging the President’s proposal as a “shocking assault on seniors.”

This is likely to depress votes for Democrats next year, Nichols predicts, citing examples from past mid-term Congressional elections.

The chained CPI proposal certainly has complicated life for Democrats in Congress now, even if they ultimately don’t have to cast an up-or-down vote on it — still TBD.

The larger issue, I think, is that the President has, to some extent, legitimized use of the chained CPI as a way to “save” Social Security — and chosen it instead of lifting the payroll tax cap.

So, as Blake Zeff at Salon asks, “How hard would it be for Republicans to push cuts through, when this [the chained CPI] is now mainstream Democratic policy?”

Cuts, I’d add, that could extend to programs specifically for low-income people, which the President’s proposal would hold harmless.

Note how House Majority Leader John Boehner grudgingly welcomes the chained CPI as an acknowledgment that “our safety net programs are unsustainable.”

This implies something far more sweeping than what the President has proposed for Social Security and Medicare, which arguably aren’t safety net programs anyway.

Well, maybe the rumblings and grumblings, mine included, are just worst-case scenarios. But I’m not ready to bet on that.

* The Office of Management and Budget estimates the revenue gain at $100 billion. Differences between CBO and OMB estimates are not unusual.


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