“Death Tax” Dead, But Not For Long

Back in 2001, New York Times columnist Paul Krugman suggested that the Bush tax cut package should perhaps have been called the Throw Momma From the Train Act because it phased out the estate tax, ending with a total repeal this year.

But only for this year. If your multi-millionaire mom dies before New Year’s Day, you’ll inherit everything she left you tax-free, unless you live in the District of Columbia or one of the 18 states that collects an estate or inheritance tax applicable to descendants.

If you wait till next year to throw her from the train, you’ll owe the fed a top 55% tax rate on the total value of her estate over $1 million — assuming that Congress lets the Bush tax cuts expire.

But it won’t. So no reason to take your momma on a train ride.

Deficit hawks may choke at the budgetary impacts of extending unemployment benefits, COBRA health insurance subsidies and the higher federal match on state Medicaid costs. But I doubt they’ll grab the chance to add billions a year to the federal treasury by letting the estate tax revert to its pre-Bush level.

Nor apparently will more moderate factions in Congress. The starting point for the debate seems to be President Obama’s proposal to make the 2009 stage of the phase-out permanent. This would essentially give a lot of potential revenues to the heirs of quite wealthy people.

Specifically, the first $3.5 million of an estate left by an individual and the first $7 million left by a couple would be exempt from the tax. Assets above these amounts would be taxable up to a top rate of 45%. The Tax Policy Center says these rules would reduce federal revenues by $234 billion over the first 10 years.

I’ve asked myself why Obama would embrace such a large tax giveaway. Sure, he promised not to raise taxes on the middle class. But people with $3.5 million in assets aren’t, to my mind, middle class folks.

Perhaps he figured he’d got enough fights on his hands — health care reform, reform of the financial system, meaningful climate change legislation, etc. But it won’t be easy to get the 2009 estate tax reinstated.

Senator Jon Kyl (R-AZ) plans again to push for the bigger tax giveaway that he and Senate Blanche Lincoln (D-AZ) proposed last year. They want to raise the exemptions to $5 million for an individual and $10 million for a couple, while also dropping the top tax rate to 35%.

Senator Charles Grassley (R-IA) is all for this “bipartisan compromise.” And he’s got company on both sides of the Hill.

Senator Kyl has reportedly said that the plan would be “almost as good as full repeal” of the estate tax. And indeed it would. Last year, the Tax Policy Center figured that only 0.3% of estates would owe any tax in 2011 if the President’s proposal were adopted. The Kyl/Lincoln proposal, it said, would cut the number by almost half.

Wonk Room blogger Pat Garafalo reports that Senator Kyl will try to attach the proposal to a small business bill that may come up for a vote in a couple of weeks.

But first Kyl’s got to find an offset for the extra $80 billion or so it will cost. Remember, this is not the total cost — only the projected additional cost as compared to the President’s proposal and only for the first 10 years.

In May, Kyl told reporters that he’d pretty well figured out the pay-for. He and some other leading estate tax opponents in the Senate had come up with a couple of gimmicks that would mask the actual costs. The coalition has fallen apart. Hard to know whether this means the gimmicks have been shelved.

Another clever idea that’s been floated would allow people to prepay their estate tax. No details here, but the bottom line is that it would improve the 10-year cost score by forfeiting tens of billions later.

But say that Senator Kyl and colleagues came up with an offset that wasn’t just smoke and mirrors. Why should Congress be giving away billions more to the wealthiest fraction of Americans?

Is there nothing better to do with the money? Do we or don’t we have a long-term deficit problem?

Senate Health Care Bill Puts Cost Burdens On Low-Income People

Bear with me for a moment. There’s been such an over-plus of proposals, polls, pontificating and  propaganda that I’ve half-forgotten why we decided to plunge into health care reform to begin with. And it seems I’m not the only one.

As I recall, the idea was to make good health insurance affordable for everyone because most people can’t get the health care they need without it. Bringing down health care costs was a means to this end, though it’s taken on a life of its own.

I’ve gone back to the basics because I think they’re a lens for looking at what the bill the House passed and the bill the Senate’s debating will do to ensure that low-income people can get sufficient, affordable health care.

I’ve already put in my two cents on the employer responsibility provisions. So what about affordable health insurance for those who won’t be able to get it through their jobs?

On this score, the House bill does more for poor and near-poor people. It would extend Medicaid, which offers good coverage at very low cost, to individuals and families up to 150% of the federal poverty line. The Senate bill would cut off Medicaid eligibility at 133% of the FPL.

Above these thresholds come a range of actuarial values, i.e., levels of subsidized coverage provided by insurance purchased through the exchange. These decrease as income brackets go higher. Put them together with the Medicaid cut-offs and you’ve got significant cost differences.

The Center on Budget and Policy Priorities has updated its comparative table. As it shows, the Senate bill would keep costs lower for individuals and families at higher income levels by shifting the costs to those who have less.

• Individuals and families who would be covered by Medicaid under only the House bill would pay nearly two-thirds more under the Senate bill–$613 more for families and $362 more for individuals.
• Those at 150% of the FPL would pay somewhat over a third more under the Senate bill–$462 more for families and $252 more for individuals.
• The situation reverses at 300% of the FPL, with families paying $100 less and individuals $65 less under the Senate bill.
• By 400% of the FPL, the point spread has increased to $1,611 less for families and $953 less for individuals.

Similarly, the House bill would provide cost-sharing assistance to families up to 350% of the FPL, while the Senate bill would cut it off at 200% of the FPL. At the same time, actuarial values are lower under the Senate bill at all levels except for 400% of the FPL.

This means that low-income households would have to pay larger deductibles and co-pays than under the House bill. And again, the differences would be greatest for those in the lowest income brackets.

CPBB estimates that a family of three at 175% of the FPL would be responsible for $3,867 in deductibles and co-pays if the Senate plan were in effect now. That would be more than 10% of its annual income. And it would already have paid $2,307–6.3% of its income–for the premium.

Yes, the family would have insurance. But would it be able to afford the health care services it needs. I rather doubt it. And there goes one of the bill’s two main objectives–“to provide affordable, quality health care for all Americans.”

And if the family can’t afford the out-of-pockets, its members are likely, as now, to wind up in emergency rooms–a very costly alternative to preventive and maintenance care. Or it may decide simply to pay the relatively modest penalty for not having health insurance. One way or the other, there goes the bill’s other main objective–“to reduce the growth of health care spending.”

Will the bill that comes out of the Senate come closer to these objectives? More likely getting those precious 60 votes will mean even more compromises at the expense of those who need health care reform most.

Low-Income Children Could Be Worse Off After Health Care Reform

Last Wednesday, hundreds of concerned citizens answered the Children’s Defense Fund’s call to join a “stroller brigade” to the U.S. Capitol. Other brigades strolled in at least 16 communities across the U.S.

These brigades were to demonstrate grassroots support for “comprehensive, affordable, accessible health care for all children, no matter where they live.” This is by no means an inevitable result of federal health care reform.

CDF warns that the health care reform bills Congress is debating give short shrift to the needs of millions of uninsured and under-insured poor and near-poor children. They could, in fact, leave many worse off than they are now.

CDF and the “champions for children” it’s organized want Congress to do three things.

1. Guarantee all children access to the full range of health benefits they need, i.e., the early and periodic screening, prevention, diagnosis and treatment (EPSPDT) services children can get under Medicaid. There are four related concerns here.

• Only some children enrolled in the State Children’s Health Insurance Program (SCHIP) get comparable benefits because states can offer more limited coverage.
• Under the bills now pending, children whose families purchase insurance through the newly-created exchange will not be covered for all EPSPDT services.
• These children will eventually include those enrolled in SCHIP. The bill the House will vote on would sunset the program in 2013. The final Senate bill will probably extend it to 2019. But even before then, SCHIP children will be shifted to the exchange if a state runs out of funds for the program.
• Premiums and out-of-pocket costs in exchange plans will be higher than what families pay under SCHIP. As a study for First Focus shows, the difference could be as great as 33%.

2. Eliminate the unjust lottery of geography. Here again, the problem is that SCHIP benefits and eligibility vary from state to state. In some states, SCHIP is structured as an expansion of Medicaid, thus ensuring EPSPDT benefits. Other states have separate, more limited programs. Twenty-two states permit enrollment of children up to 300% of the federal poverty line. The eligibility cap in the remainder is lower.

So what CHN wants in the final health care reform package is mandatory coverage under SCHIP for all children under 300% of the FPL, federal funding to ensure states can enroll all eligible children and, I infer, a nationwide benefits standard comparable to EPSPDT. It also wants SCHIP retained until the alternative can be shown to provide coverage at least as good.

3. Address bureaucratic barriers that keep children eligible for Medicaid or SCHIP from getting the care they’re entitled to. CHN says that complex application and enrollment processes and frequent renewal requirements now keep about two-thirds of eligible children out of these programs. It wants Congress to require a simple, streamlined process.

Those of us who didn’t stroll can support CHN’s agenda by signing on to its letter to Members of Congress.

As Washington Post columnist Harold Meyerson observes, “children–most particularly, children of non-affluent parents–have no clout whatever in the political process.” They depend on us and venerable champions for children like CHN.

Senate Finance Committee Health Care Bill Better and Worse

The Senate Finance Committee worked hard, if not collaboratively, on the health care bill introduced by its chairman, Senator Baucus. A whopping 564 amendments considered. What it’s come up with has something for everyone to dislike. And I’m no exception.

Set aside the hot button issues like the lack of a public option and prospective cutbacks in Medicare. The committee failed to resolve two major problems in the Baucus bill that would adversely affect low-income people. In fact, it made at least one of them worse.

One big problem is affordability. The Finance Committee bill made some improvements here. However, both premiums and out-of-pocket expenses for low and moderate income households would still be much higher than under either the main bill pending in the House of Representatives or the bill passed by the Senate Health, Education, Labor, and Pensions Committee.

The Center on Budget and Policy Priorities has again crunched the numbers. As its new brief shows, for people below 200% of the federal poverty line, premiums would be two to four times greater.

If the bill were effective now, deductibles and co-pays for families at 250% of the FPL could be as high as $5,800 a year. For a family of three, this would be on top of an initial $4,349 premium–9.5% of its total income. And, for reasons explained in my earlier posting, premiums would eat up an increasing percentage of income over time.

The Finance Committee apparently recognized that health care would still be hard for many people to afford. But rather than adopt a different cost-sharing scheme, it waived the penalty for not having insurance for households whose premium costs for the lowest-cost plan in the insurance exchange would exceed 8% of their income.

CBPP says the waiver would apply to people with incomes between about 220% and 400% of the FPL. Given the costs of the insurance, many might decide to remain uninsured. Others might opt for the expanded “young invincible plan,” which isn’t just for young people any more. Under this plan, coverage would kick in only after people have met a high deductible–$5,800 for individuals and $11,600 for families.

One way or the other, a lot of low to moderate income people would still not have insurance that enables them to get the health care they need. Those most likely to opt out would be the healthiest–those who feel they’re invincible. But of course they’re not. Major illnesses and injuries can happen to anyone. And if the healthiest opt out, the risk pool would include mostly people with higher health costs. Up go the premiums. Up go the number of people who can opt out.

Another big problem in the Baucus bill was the “free rider” provision, i.e., the requirement that employers who don’t offer health insurance with benefits up to a minimum standard pay a fixed amount only for employees who are eligible for subsidies and work at least 30 hours. The fee would also apply if the insurance they offered was unaffordable for these employees.

Needless to say, this provision give employers a strong incentive to hire only people who don’t qualify for subsidies. It could also prompt them to convert current full-time, low-wage employees to part-time. Hardest hit would be near-poor single parents with dependent children because fees for them will be highest.

The Finance Committee bill strengthens this perverse incentive in two ways. First, it denies employers the right to deduct the costs of the fees as a business expense, even though health insurance is deductible. Second, it changes the formula for calculating the fees in such as way as to make them more costly.

The Finance Committee was trying to reduce the impacts of health care reform on the federal budget. Impacts on low-income people seem to have been of less concern. It could have done a better job if it had adopted a standard pay-or-play option for employers and tapped revenue sources outside the health care system, as the Coalition on Human Needs has recommended.

Senate Majority Leader Harry Reid has the thankless task of reconciling the Finance Committee bill with the Senate HELP Committee bill–and with an eye toward getting the 60 votes needed to get his version passed. It’s bound to have something that everyone–not just the all-but-solid Republican opposition–dislikes.

But will so many Senators, organized interest groups and we grassroots Americans dislike so much of it so much that it fails?

Baucus Health Care Reform Bill Needs Reform

I told myself I was going to leave health care reform to more expert bloggers. But I’ve changed my mind because the bill Senator Baucus has introduced would compromise away vital interests of poor and near-poor individuals and families. Several provisions are at issue here.

One is the scheme for subsidizing the health insurance premiums they’d pay. It’s pretty complicated, but essentially involves a sliding scale for offsetting the costs of premiums for individuals and families up to 400% of the federal poverty line.

The Center on Budget and Policy Priorities has crunched the numbers. Its analysis shows that the required premium contributions would be more than many low-income people could afford–and much greater than the contributions that would be required under either the bill pending in the House of Representatives or the bill produced by the Senate Health, Education, Labor, and Pensions Committee.

But that’s only part of it. At the end of the first year, the caps on contributions would shift from a fixed percent of income to a fixed percent of the cost of the insurance premium. So low-income people would wind up paying an ever-greater share of their income for insurance because premiums will almost certainly rise faster than incomes.

And that’s still only part of it. The Baucus bill would mean high out-of-pocket costs for low-income people. Essentially, this has to do with the actuarial values the bill assigns to the various levels of insurance that would be available. The higher the actuarial value, the lower the deductibles and co-pays. People in the lowest income bracket would be entitled to the plan with the highest actuarial value, people in the next-lowest bracket to the plan with the next-highest actuarial value, etc.

So far, so good. But the Baucus bill sets actuarial values lower than either the House or the Senate HELP Committee bill. This translates into higher out-of-pockets. According to CBPP, if the plan were in effect now, a family of three at 250% of the federal poverty line would have to pay 12.6% of its income for deductibles and co-pays before assistance kicked in. And that’s in addition to the 10.5% of its income it would have to pay for the insurance premium. Affordable health care this ain’t.

Last, but far from least, the Baucus bill egregiously limits the “pay or play” scheme that’s a standard element in many health care reform proposals, including the House bill and the HELP Committee bill. Washington Post blogger Ezra Klein calls this “the worst policy in the bill, and perhaps in the world.” Here’s why.

Under the Baucus bill, employers that don’t provide health insurance would have to cover the costs of the subsidies that most of their eligible workers would receive when they purchased health insurance. Employers that do provide health insurance would also have to cover the costs of subsidies for those of their workers who had to pay more than 13% of their income for the premiums in the employer-sponsored plan. But employers would get a “free rider,” i.e., incur no cost at all, for the rest of their workers.

So there’s an incentive here to hire workers whose family income puts them above the subsidy level and workers covered under a family’s insurance plan. And there’s a big disincentive to hire low-income workers entitled to subsidized family plans since these, of course, cost more than individual plans.

Why hire a single mother who’s struggling to support her children when it’s cheaper to hire a well-off teenager–or one of those illegal immigrants who’ve become a favorite talking point for the Republican opposition?

As New York Times columnist Paul Krugman says, we’ve known for a long time that any health care bill that Congress produces will fall short of reformers’ hopes. The question is how bad does a bill have to be to make it too bad to vote for.

The Baucus bill is right on the threshold. It would be a dreadful shame to wind up with a plan that left low-income individuals and families with unaffordable health care costs–plus new challenges to employment. But would it be better to scrap the whole thing if that would leave us with the grossly inequitable, unsustainable system we’ve got?

Perhaps there’s still hope for a bill that won’t force this choice.

U.S. Prison System Needs Reform

The posting that follows is the first of what I hope will be many by my friend and fellow advocate Matt McKillop. Matt is one of the smartest and most thorough policy analysts I know. He’s also a top-notch strategist and a great partner. KB

For three decades, the U.S. has been engaged in a mass incarceration experiment. The resulting growth in the number of people in our prison system has been explosive and extraordinarily expensive for our states.

According to a recent report by the Pew Center on the States, about 613,000 adults were behind bars in 1982. By 2007, the number had grown to 2.3 million–an astounding 274% increase. The number of people on parole or probation has grown from about 1.6 million to 5.1 million during the same period.

So there are now around 7.4 million adults–1 out of every 31–under correctional control. This is more than the combined populations of Chicago, Philadelphia, San Diego and Dallas. It’s also more than the populations of 38 states and the District of Columbia.

The explosion hasn’t been cheap. According to an earlier Pew report, state spending on corrections grew from $10.6 billion in 1987 to $44 billion in 2007. When adjusted for inflation, this is an increase of 127%.

Spending on corrections has crowded out support for programs in other important areas, e.g., education and transportation. For example, from 1987 to 2007, state spending on higher education grew by only 21% in inflation adjusted dollars.

We can’t attribute the expansion of our correctional system to general population growth. In 1982, the population was 232 million. It’s now estimated at about 307 million. That’s only a 32% increase.

Nor can we attribute it to a growth in serious crimes. Attorney General Eric Holder recently reported to the American Bar Association that the nation’s violent crime rate has dropped nearly 40% from its peak in 1991.

Instead, our corrections system has expanded because of policies that require prison time for more crimes–and longer sentences. One example is the “three strikes” policies that require courts to impose extended sentences for people who are convicted of crimes on three or more occasions.

It has also become increasingly common for states to imprison people who commit “technical violations” of their parole or probation, e.g. missing a scheduled meeting.

So are we taxpayers getting our money’s worth in increased public safety? The evidence suggests we are not. This is due to a variety of complicated reasons. But most of them boil down to the fact that we’re imprisoning too many low-level, non-violent criminals. The costs of imprisoning these criminals are far greater than the social costs of their crimes. And we’re learning that locking up low-level drug dealers just opens slots for new dealers to step in.

Because of all this and the devastating budget crises that states are facing, people as politically diverse as Newt Gingrich and Congresswoman Maxine Waters (D-CA) are calling for changes. And, in fact, many states are seeking less costly alternatives to prison.

There’s also been action at the federal level. Most promising is the National Criminal Justice Commission Act of 2009, introduced by Senator Jim Webb (D-VA). This bill would establish a blue-ribbon commission to conduct a top-to-bottom review of our entire criminal justice system and make recommendations for reform.

This is exactly the type of reassessment that the problem demands. So it’s encouraging that the bill has a bipartisan group of influential co-sponsors. As the New York Times recently editorialized, Congress should ensure that the commission is up and running as soon as possible.

Clean Energy Bill Addresses Costs for Low-Income Households

As has been widely reported, the House Energy and Commerce Committee has taken the first step toward one of President Obama’s top priorities–saving the planet from “the ravages of climate change.”

On May 21, it passed a massive bill–commonly known, after its cosponsors, as Markey-Waxman–that aims to reduce our nation’s greenhouse gas emissions through a combination of carrots and sticks. The carrots here are incentives to reduce energy consumption and/or switch from uses of fossil fuels to cleaner energy sources. The sticks are the costs of not doing that.

Both are embedded in a cap-and-trade scheme. Basically, the federal government will issue permits to emit a fixed amount of greenhouse gases, based on total caps that will be reduced over time. Companies that produce less than their share can sell their excess permits. Companies that produce more will have to buy them.

As this scheme kicks in, our home energy costs will go up. This is our incentive to use less–by switching to fluorescent lights, buying more energy efficient appliances, etc.

Costs of gasoline and other consumer products will go up too because they’ll cost more to produce and more to distribute. Last year’s spike in oil prices has already given us a taste of this.

Much of the recent debate has centered on the cap-and-trade concept–and on which interests should be fostered and which protected. We haven’t heard much about how the legislation may affect low-income households. But that doesn’t mean that no one’s been paying attention.

The Center on Budget and Policy Priorities has been working on the issue for some time. As its reports and testimony say, higher energy prices will have the greatest impact on low-income households because they spend a larger portion of their budgets on basic necessities. They are also less able to afford investments that will reduce their energy costs.

According to CBPP, the poorest fifth of households would see their costs go up by an average of $750 a year if greenhouse gas emissions were reduced by 15%. Their average annual income is just over $13,000, and the 2020 reduction target set in the Energy and Commerce bill is 17% below the 2005 emissions level.

So, sometime in the next 10 years, these households could face additional costs equivalent to 5.7% of their total income. These costs would rise as the emissions cap was lowered.

The House Energy and Commerce bill addresses rising energy-related costs in two ways. First, it gives free emissions permits to local utility companies, with the understanding that they’ll pass the savings on to their customers. This provision provides relief for all consumers, regardless of income.

Second, the bill adopts a version of CBPP’s recommendations for assisting low-income households. Basically, it commits revenues from the sale of emission permits to refunds based on how much the purchasing power of low-income households is reduced by higher energy prices.

Families that pay income taxes would receive a tax credit along the lines of the Earned Income Tax Credit. Other low-income households would receive their refunds through one of several mechanisms. For example, those who receive food stamps and/or certain other benefits would get theirs via their electronic benefits transfer cards.

That’s the good news. The not-so-good news is that the bill doesn’t address the above average cost increases that some low-income families will face–for example, because their apartments are drafty or their appliances old and inefficient. CBPP recommends more generous refunds and additional funding for the Low Income Home Energy Assistance Program.

I wonder what the prospects for these recommendations will be. The bill that Energy and Commerce passed gives away 85% of the emissions permits the government will issue. This leaves far less in revenues than would have been the case if proponents had been able to gain support for auctioning off all the permits, as President Obama wanted.

Competition for the limited revenues will be fierce. And there may be further needs to placate legislators who don’t much like the cap-and-trade scheme or want more benefits for certain industries.

In any event, the legislation has a long way to go. Eight other House committees have a piece of the action. And then there’s the Senate. Four committees have jurisdiction there, and they’ll need to produce something that can secure 60 votes.

So if ever there was a stay tuned, this is it.