Budget Debate Is About Values, Not Numbers

New York Times columnist Richard Stevenson provides a good overview of the budget debate underway on Capitol Hill. It’s a “fundamental reassessment of the role and size of government,” he says.

But, as his article suggests, what we’re witnessing is actually a conflict of value systems — core beliefs that extend beyond theories of government.

Republicans are arguing that drastic spending cuts are the only way to avert fiscal disaster — and to create jobs. Most oppose any changes in the tax code that would increase revenues — at least until the unemployment rate has dropped to pre-recession levels. They’re “job killing,” you know.

But neither shrinking the deficit nor boosting job creation drives the Republicans’ agenda. The fact that both reflect the priorities of a wide spectrum of voters gives them an occasion to advance major policy changes consistent with their values.

By and large, Republicans want to whittle the federal government down because their value system puts individual — and corporate — liberty first.

You’re free to choose what you do. And you’re free to keep what you get, less what’s needed for a “robust defense” and presumably other functions that enable businesses to freely grow and prosper.

Thus, the budget resolution the Republican House majority just passed defines government’s “limited but noble mission [as] securing every American’s right to pursue a destiny of his or her own choosing.” And it calls for tax reforms that will let “individuals keep more of what they earn.”

The Democrats have argued that spending cuts right now would cause job losses, but they’ve decided they can’t hold the line. Some would say that the Democrat-in-chief didn’t try hard enough.

But we can’t discount the hard-won recognition that Republicans in Congress can — and will — extort spending cuts as the price for averting national crises. A government shutdown yesterday. Default on the federal debt this summer.

Democrats are nevertheless still coming at our fiscal situation from a different value system. Basically, they’re promoting an agenda that tilts toward our obligations to one another and the good of the whole — obligations that we fulfill through our public institutions.

In other words, they’re placing a high value on the nation as a community. To some extent, this means that individual liberty, as the Republicans conceive it, gives way to “the general Welfare” that’s also envisioned as a goal of the government created by our Constitution.

Beyond this, the agenda reflects the view that we need to act collectively, through our government, to expand opportunity — a necessary, though not sufficient condition for a more equal sharing of the profits generated by economic growth.

Thus, for example, the President wants more funding next year for both Head Start and Title I of the Elementary and Secondary Education Act, the main source of federal funding to improve the education of disadvantaged kids. House Republicans voted to cut current funding levels for both.

I’ve got serious reservations about other parts of the President’s proposed budget — and even more serious reservations about his seeming readiness to embrace even deeper spending cuts.

But I all but stood up and applauded at the end of his speech on his approach to deficit reduction. Because it so clearly articulated the clash in basic values that underlies the current budget debate — one the House budget resolution obfuscates in its claim to “strengthen the social safety net.”

“From our first days as a nation,” the President said, “we have put our faith in free markets and free enterprise…. But there has always been another thread running throughout our history — a belief that we are all connected.”

And “part of this belief expresses itself in the conviction that each one of us deserves some basic measure of security.” So we collectively contribute to programs like Medicare, Social Security and others we commonly refer to as the safety net.

The vision in the House Republicans’ budget plan, he said, “is less about reducing the deficit than about changing the social compact in America.” I think that’s right on target.

And, as Stevenson observes, Republican leaders and their supporters objected to “the implication of heartlessness, but not necessarily to his assessment of their ambition.”

Low-Income Energy Assistance Gets The Ax

Some of us recently get a brief taste of what it means to have your electricity shut off in the dead of winter. As the hours go by, it get cold … and colder. Also very dark.

So you bundle up, scrabble around to find a flashlight, light a fire in the fireplace if you’ve got one, maybe trek over to a friend’s house where the power is still on. Still, you know the discomfort is temporary.

But what if your electricity — or your gas, for that matter — is shut off because you’ve fallen behind in your payments? What if you’re told it will be, but you can’t come up with the cash? What if you’ve got one of those old-time furnaces and can’t afford any more heating oil?

Seems that you’ll have to … well, I don’t know what. Because both the House Appropriations Committee and the Obama administration have decided to demonstrate their deficit-reduction bona fides in part by cutting back on funding for LIHEAP (the Low Income Home Energy Assistance Program).

The Appropriations Committee’s spending cut list includes a cut in the LIHEAP Contingency Fund — $390.3 million less than what was approved for Fiscal Year 2010 and $590 million less than what the President requested for the current fiscal year.

The Contingency Fund is a pot of money that the U.S. Department of Health and Human Services may release to states and other recipients, including the District of Columbia, when needs for home energy assistance rise due to a spike in prices, a natural disaster or some other “emergency,” including unusually cold weather.

Last year, HHS used the entire $590 million that had been budgeted. The Appropriation Committee’s cut would bring the appropriation down to $200 million. Virtually all of it has already been spent.

Meanwhile, the President’s proposed Fiscal Year 2012 budget cuts the regular LIHEAP block grant by about 50%. This, says an unnamed administration official, would bring total program funding, “in real terms” to what it was during the Clinton administration. Why the booming days of the mid-1990′s should be an appropriate measure is anybody’s guess.

I can’t help wondering why LIHEAP has been targeted for any cut at all. In terms of the total $3.73 trillion budget, the savings would be miniscule. The impact on low-income households wouldn’t be.

According to the National Energy Assistance Directors’ Association, 8.3 million households benefited from LIHEAP last year, when the program was funded at $5.1 billion.

Yet only one in five eligible Americans received help from the program because the money wasn’t there for the rest — this according the National Conference of State Legislators and allies, including NEADA.

With funding at $4.1 billion — the level in the current continuing resolution — NEADA expects the average grant to cover only 42% of home heating costs and the number of households served to drop by about a million.

Another unnamed source, presumably in the administration, says that “energy prices are well below their levels … when Congress decided to increase LIHEAP funding to $5.1 billion.”

But average home heating costs are forecast to increase this year, especially in the chilly Northeast. And it’s fair to guess that the number of people in poverty is still at or near the record level the Census Bureau reported for 2009.

No reason I can see to think that energy prices will revert to pre-recession levels or that significantly fewer households will have to choose between heating and eating. No one expects the economy to start generating enough more jobs to put the majority of unemployed people back to work any time soon.

Even if it did, millions of households would still need help with their home energy bills — low-wage workers with families to support, seniors and younger severely disabled people who rely on Social Security, etc.

Matthew Cooper at the National Journal floats a couple of theories on why the President has zeroed in on a small popular program that keeps vulnerable people from freezing — or dying from extreme heat because they can’t pay to keep their air conditioners or fans running.

He’s trying to show that he’s really tough on the deficit, to reposition himself for the next election, to generate fear that will galvanize allies to fight against bigger spending cut threats.

I’ve no idea what’s motivating the President. All I can say is that we’ve got more than enough politicians telling us what tough choices they’re making when they slash spending that’s a life and death matter for the poorest Americans.

Tough on whom?

President Opts for Business Tax Breaks Over Near-Term Job Creation

Far be it from me to say that the President shouldn’t do what he can to protect the endangered Democratic majorities in Congress. But the sop he’s offered to win support from the “business community” and its allies isn’t the sort of thing I’d hoped for from someone who only recently said that jobs aren’t “being created as fast as they need to be.”

I’m talking, of course, about the President’s new business tax cut proposals.

One of them would make the research and development tax credit permanent and the “simplified” option for claiming it more profitable. Washington Post blogger Ezra Klein reports that the latter change would increase the credit from 14% to 17%. Price tag about $100 billion over 10 years.

The other proposal would allow businesses to write off the entire costs of new equipment purchases through 2011. This would extend and expand a small business expensing provision that was originally part of the Bush administration’s Economic Stimulus Act. The write-off would be doubled and available to all businesses, including the largest corporations. Price tag about $30 billion over 10 years.

Now, it could make sense to put a permanent R&D credit in place. Congress has extended the “temporary” credit ever since it was enacted. No reason to believe it wouldn’t do so again. In the long run, the permanent extension would thus cost no more than a series of periodic extensions.

But it won’t do much for the vast majority of small businesses — those putative incubators of most new jobs. When the General Accountability Office last looked at the credit, it found that corporations with annual receipts over $1 billion claimed more than half of the total.

True, small start-up companies may also claim the credit, but only if they’re already turning a profit, paying taxes and able to afford the relatively high costs of documentation. Not the next Google being developed in someone’s garage. Not your typical mom and pop store either.

Nor, I think, will the R&D extension produce game-changing breakthroughs that wouldn’t have been developed any way. After all, companies invest in research and development because they think the results will ultimately generate significant products. They’re not going to give it up just because they can’t offset part of the costs with a credit — let alone because they’re not sure they’ll have the credit for years to come.

Let’s look at the credit from another angle. Perhaps the President’s proposal would bring some R&D jobs back home since only expenses for R&D conducted in the U.S. can be claimed.

Klein’s interviewee — the far-from-disinterested president of the Information Technology and Innovation Foundation — says that U.S. companies have expanded their R&D expenditures, but in other countries, e.g., China and Taiwan. No clear evidence that this choice was affected by any uncertainty about the credit or its limited value — quite the contrary.

So not many new jobs for Americans any time soon. And very few if any created will be opportunities for the workers hit hardest by the recession — those with no more than a high school diploma.

Maybe more jobs some day if some companies develop products that generate significant expansion and don’t outsource production, sales and other work. But that latter is a big if.

What about the equipment purchase write-off? We’re given to understand that corporations are sitting on a vast amount of cash. Will the opportunity to write off expenditures faster get them to spend it now?

As Howard Gleckman at the Tax Policy Center observes, “today’s economic malaise is caused largely by a lack of consumer demand.” Companies that foresee a near-term uptick they can’t manage with their existing equipment will buy more, with or without the extra incentive. Companies that don’t won’t.

But just say for the sake of argument that some companies decide to shift equipment purchases forward. Will that create jobs for American workers? Unless I’m missing something, the equipment doesn’t have to be manufactured in the U.S. Could this be a nice stimulus for, say, China or India?

Former Labor Secretary Robert Reich looks at the longer-term impacts. Big corporations, he says, like the tax break for equipment purchases because they’re investing in automation to permanently reduce the need for workers. Insofar as the more generous provision worked, it would be subsidizing more job cuts — and not, I suspect, in big companies only.

Granted, the business tax breaks are a political strategy aimed at boxing Republicans into a corner and/or co-opting the small business argument against letting the top income tax brackets revert to their pre-Bush levels.

But they’re part of a larger picture. According to the White House blog, the President’s vision for America is “a place where we don’t just think about today; we think about tomorrow…. Where we lead the world in the things we make and sell, not just in the things we consume.”

Seems to me he’s not thinking enough about today — that he’s fixed his eyes on the future because he doesn’t have the gumption to do battle for measures that would tackle the jobs crisis we face right now.

He’d probably lose, but not in the minds and hearts of jobless and other anxious voters. And the odds aren’t much better for his latest “stimulus” initiatives any way.

A Brighter Idea For The Estate Tax

While Senator Jon Kyl (R-AZ) is leading the charge for a smaller estate tax, five liberal Senators have come up with a more progressive scheme.

They call it the Responsible Estate Tax (S. 3533) because, as principal sponsor Senator Bernie Sanders (D-VT) says, it would “ensure that the wealthiest Americans … pay their fair share” and, in the process, help reduce the federal debt.

The bill starts from the same place as President Obama’s proposal — a reinstatement of the 2009 stage of the estate tax phase-out, plus some loophole closers worth an estimated $24 billion over the next 10 years.

Specifically, the first $3.5 million of estates left by individuals and the first $7 million left by couples would be exempt from the tax. This would, at least initially, give a free pass to all but about 0.3% of estates. Above the exempt levels, the first $10 million would be subject to a 45% top tax rate.

The President’s proposal would extend this same rate to estates worth billions. Under the Sanders bill, the rates would step up.

• Estates valued at over $10 million but less than $50 million would pay 50%.
• Those over $50 million would pay 55%.
• Those over $500 million for an individual or $1 billion for a couple would also pay a 10% surtax.

Sanders says that his proposal would raise $264 billion over the first 10 years. Try as I might, I haven’t been able to find a current estimate of what the President’s proposal would bring in.

One thing is certain. Sanders and colleagues could have done even more to reduce the deficit if they’d ignored the oft-debunked, but still live hoo-hah about how the estate tax spells the death of family farms.

Last year, the Tax Policy Center estimated that only 100 family farms and other small businesses would owe any estate tax. (This figure has been variously cited as 110 and, by Sanders, as 80.)

TPC has also estimated the average effective tax rate for family farm estates at 11.3% — well below the overall average rate of 18.9%. This is in part because farms have benefited from some special protections. The Sanders bill would significantly expand two that apply only to farms.

One is a unique deduction for the value of land covered by a conservation easement, i.e., an agreement that transfers land to a government agency or qualified nonprofit with restrictions on development that preserves assets like open space and natural habitats.

Another is a provision that allows a higher exemption for farmland and certain other assets. Basically, one can reduce the valuation of these assets by a set percent of their market value, e.g., what the land would be worth if it were used for, say, commercial development. Last year, the maximum exemption was $500,000. As with other provisions in the estate tax, it doubled for couples.

The Sanders bill would increase the maximum deduction for easements from $500,000 to $2 million and also increase the base percentage by 20%. The maximum for the reduced valuation would be increased to $3 million for a couple. As in the 2009 rules, this amount would be indexed to the rate of inflation.

Sanders and most of his initial cosponsors represent states with significant farming interests. So they may see a political advantage in these giveaways. I’m guessing they also hope to win over other Senators, especially Republicans, from states with similar interests.

If they can — and I’m rather doubtful — it would be a small price to pay for what would certainly be a more reasonable estate tax than anything else that’s been proposed.