Think Tanked

Tax Policy Center Offers Tax Calculator on the Bush Cuts

Thanks to the Tax Policy Center, you can now see for yourself what your income will look like depending on whether or not the 2001-2003 Bush tax cuts are extended.

The Tax Policy Center, a joint center of the Urban Institute and the Brookings Institution, has developed an online tool to help taxpayers understand current tax policy and what would happen to their income whether the Bush tax cuts expire, or if those cuts expire only for high income taxpayers.

The calculator is a tool to help you understand how current tax policy affects real families and what would happen if we changed that policy. With this version, you’ll be able to compare today’s law—with all of the 2001-2003 tax cuts still in place—against two alternatives to see how different taxpayers would make out:

1. tax law if all the 2001-2003 tax cuts (often called the "Bush tax cuts") expire, as is scheduled to happen in 2011;

2. tax law as proposed in President Obama's 2011 Budget, which would let the 2001-2003 tax cuts expire only for high-income taxpayers.

You can estimate your own taxes with several variables on the Tax Policy Center page. I'll be curious to hear what kind of reactions people have on this.

Roberton Williams, Senior Fellow at the Tax Policy Center, gives the background on the policy options related to the expiring Bush tax cuts, how those options would affect taxpayers, and what that all means for the budget deficit.

AEI's Henry Olsen: Look at the Employment Numbers

Henry Olsen, AEI Vice President and Director of the National Research Initiative, has a different take on the unemployment numbers released on Friday--just try taking a look at the employment numbers and our situation looks even worse.

In contrast to the better-known unemployment rate, which measures the percentage of adult Americans who are actively seeking jobs but do not have one, the civilian employment-population ratio could be called the employment rate, measuring the percentage of adult Americans who have a job.

The August report, released Friday, pegged the employment rate at 58.5 percent, the same as June and only a tad higher than July's rate of 58.4. These numbers are approaching the dismal employment rates of the early 1980s, when the rate bottomed out at 57.1. Since the start of this summer, nearly 400,000 Americans have entered the labor force, but only 130,000 have found jobs according to the BLS release.

The graph and Olsen's explanation of what it means are over at the AEI blog.

CFR's Peter Orszag Kicks Off NYT Column

Peter Orszag, Office of Management and Budget director-turned think tanker, began his newly-announced New York Times column this week. Earlier in the summer, Orszag announced he would depart OMB and rumors floated that he would head back to the think tank world--most likely Brookings, where he had previously been a senior fellow. Instead, in early July, the Council on Foreign Relations announced Orszag would be joining them as a distinguished visiting fellow.

From the release:

Peter Orszag, economist and former director of the Office of Management and Budget, will become a contributing columnist for The New York Times Op-Ed page. Beginning Tuesday, Sept. 7, his columns will appear one to two times a month in The Times and online at NYTimes.com/opinion and will cover a broad range of economic and domestic issues, including national fiscal policy, education and health care. In addition to his columns, he will examine these and other relevant issues on The Times's Opinionator blog.

"We welcome Peter Orszag's expertise and insight to our Op-Ed lineup," said Andrew Rosenthal, editorial page editor of The New York Times. "As a Washington insider and one of the most recognizable names in economics, his writing will provide a unique perspective on the national landscape."

Mr. Orszag is a distinguished visiting fellow at the Council on Foreign Relations. As President Barack Obama's first budget director, he worked on the 2009 stimulus package and helped craft the health care legislation passed in 2010. He was an outspoken proponent of the idea that reducing health care costs would be key to maintaining the federal budget and preparing for the country's economic future.

Washington Post's Ezra Klein likes the move, saying it's a step in the right direction over the other former administration officials who typically get columnist spots.

...the fact that speechwriters made the most natural columnists doesn't mean they're the ones with the most interesting insights: The policy people, the people building the bills and running the negotiations and navigating the legislature -- that's more interesting stuff, actually. But how did you know if they could write? Well, with Orszag, it was his blogging. Same goes for Keith Hennessey, who ran George W. Bush's National Economics Council and now writes a very good blog. Academics like Tyler Cowen and Brad DeLong also belong on this list. Paul Krugman, as it happens, got his big break at Slate, which isn't that far off. Now that there are forums for people who aren't professional writers to do public writing, we're finding that some of those people are perfectly good writers, and then we get the benefits of their writing and their life spent doing something other than writing. It's an encouraging trend.

And what did Orszag write about for his first column?

Our dueling deficits: jobs and the budget.

In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.

Brookings' Bill Frenzel on Our Economic Concerns

Brookings: Exports a Path to Recovery

CAP's Sima Gandhi Explains Tax Expenditures

Cato & CAP Debate Unemployment Benefits

Last night on PBS' Nightly Business Report, Jeff Miron of the Cato Institute and Christian Weller of the Center for American Progress debated the extension of unemployment aid with PBS' Tom Hudson.

With the decision up for a vote in the Senate today, both agreed that it will pass, likely with a slim margin. And they both agreed there needs to be a limit to unemployment benefits counterbalanced by compassion, although they weighted each side of that equation a little differently.

But from the transcript below, the questions about impact are the serious points of contention.

HUDSON: ...We saw earlier in Darren's piece from Bill Boteler, $290 a week. That doesn't go very far. What do we know about the economic impact of these checks?

WELLER: We know that these checks make a real difference obviously in peoples' lives, those who are hurt the most by the current crisis. But in the aggregate, we're talking about $30 billion. The money will be spent very quickly because these are people who have been struggling for quite some time. You're extending the unemployment benefits. The money won't be saved. It will go very quickly to consumption. It will boost retail sales which is the big worry of businesses at this point that they may fall off. Forty percent of businesses worry about sales not being high enough. That's the biggest worry for them. So it will help the private sector and will protect the private sector momentum that we've seen that since the end of 2009. It's strengthened the recovery to help us continue building jobs in the private sector.

HUDSON: Jeff, how about that? In order to stimulate job growth, you need folks spending money. At least this gets people to have some dollars in their pocket to spend.

MIRON: I think it's a very unpersuasive position. First of all, the check that we're sending the unemployed came from somewhere. They came from the taxes of other people who are for the most part employed. So if transferring money to these people who are unemployed helps stimulate the economy, then taking it away from the people who are paying the taxes to pay for it de-stimulates the economy. Overall it's hard the see how that is on net a beneficial thing. More broadly, the fact that we're consistently trying to promote sort of redistribution in helping people rather than trying to create rules and a system which is productive gives the private sector pause. It makes the private sector think we're not getting the deficit and the debt under control. It makes them think we're not worry about productivity. That's in the long term much worse for people having jobs and being employed than the temporary aspect related to the recession.

HUDSON: Jeff, it's estimated that since the extended unemployment benefits expired back in early June, about $3 billion has not been spent. Over that same month interest on the U.S. debt in June was $107 billion. We seem to be, you know, talking about spending pennies or saving pennies when we're spending dollars.

MIRON: I totally agree. It's a very small amount of money. The fact that it's a very small amount of money also means that any possible effect in stimulating the economy is also very trivial because we're talking about a very small amount of money. The broader thing is it creates the wrong incentive. There's clear evidence that people who are unemployed tend to leave unemployment just before their unemployment benefits run out. It's not just a question -- it's not the right way to think about it -- are there jobs? The right way is are there jobs at what wages? If people lower their wage demands, if they offer to take say their old job for 50 percent of what they were getting, there would be a lot more jobs out there. That's the adjustment that needs to happen in many cases. But unemployment insurance and especially very, very long-term unemployment insurance impedes that kind of adjustment.

HUDSON: Guys less than a minute left. Christian, I want to address that job demand issue.

WELLER: That's just simply robbing Peter to pay Paul. If we lower our wages to create more jobs, ultimately the overall consumption won't change and sales won't change. The important point is that unemployment benefits are incredibly targeted, very good. Benefits for the economy, every dollar spent on unemployment increases economic activity, $1.6 . So it makes economic sense. It helps the most vulnerable and ultimately boosts economic growth. I think this is the time is right at this point to extend the unemployment benefit.

Read the full transcript at Nightly Business Report.

Brookings' Dynan: No to Big Stimulus, Yes to Unemployment

Heritage Foundation: Welfare Reform 101

This Heritage Foundation video was released today to accompany a new paper published last week by Kiki Bradley and Robert Rector, "Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps."

At its core:

Reform should be based on five principles:

1) Slowing the growth of the welfare state. Unending government deficits are pushing the United States toward bankruptcy. The U.S. simply cannot afford the massive increases in welfare spending planned by President Barack Obama. Welfare spending is projected to cost taxpayers $10.3 trillion over the next 10 years. Congress needs to establish reasonable fiscal constraints within the welfare system. Once the current recession ends, aggregate welfare spending should be rolled back to pre-recession levels. After this rollback has been completed, the growth of welfare spending should be capped at the rate of inflation.

2) Promoting personal responsibility and work. Able-bodied welfare recipients should be required to work or to prepare for work as a condition of receiving aid. Food stamps and housing assistance, two of the largest programs for the needy, should be aligned with the TANF program to require able-bodied adults to work or to prepare for work for a minimum of 30 hours per week.

3) Providing a portion of welfare assistance as loans rather than as grants. Welfare to able-bodied adults creates a potential moral hazard because providing assistance to those in need can lead to an increase in the behaviors that generate the need for aid in the first place. If welfare assistance rewards behaviors that lead to future dependence, costs can spiral out of control. A reformed welfare policy can provide temporary assistance to those in need while reducing the moral hazard associated with welfare by treating a portion of welfare aid as a loan to be repaid by able-bodied recipients rather than as an outright grant from the taxpayer.

4) Ending the welfare marriage penalty and encouraging marriage in low-income communities. The collapse of marriage is the major cause of child poverty in the U.S. today. When the War on Poverty began, 7 percent of children in the U.S. were born out of wedlock; today, the figure is over 40 percent. Most alarmingly, the out-of-wedlock birthrate among African–Americans is 72 percent. The outcomes for children raised in single, never-married homes are greatly diminished.

Current means-tested welfare programs penalize low-income recipients who get married; these anti-marriage penalties should be reduced or eliminated. In addition, government should provide information on the importance of marriage to individuals in poor communities who have a high risk of having children out of wedlock. Particular emphasis should be placed on the benefits to children of a married two-parent family.

5) Limit low-skill immigration. Around 15 percent ($100 billion per year) of total means-tested welfare spending goes to households headed by immigrants with high school degrees or less. One-third of all immigrants lack a high school degree. Over the next 10 years, America will spend $1.5 trillion on welfare benefits for lower-skill immigrants. Government policy should limit future immigration to those who will be net fiscal contributors, paying more in taxes than they receive in benefits. The legal immigration system should not encourage immigration of low-skill immigrants who would increase poverty in the nation and impose vast new costs on already overburdened taxpayers.

In addition, the government should not provide amnesty or “earned citizenship” to illegal immigrants, which would provide illegal immigrants with full access to the U.S. welfare system. Of the 11 million to 12 million illegal immigrants in the U.S., at least 50 percent lack a high school degree. Giving this population amnesty and access to welfare would lead to a staggering increase in future welfare costs.

Brookings on This Jobless Economic Recovery