Bipartisan budget deal
House and Senate leaders in Washington, D.C. released a year end spending and tax bill that includes good news for working families struggling to make ends meet. It also includes some provisions that leave the Center on Budget and Policy Priorities’ Bob Greenstein a bit concerned. Here’s the good news:
The deal makes permanent three significant improvements in the Earned Income Tax Credit (EITC) and the low-income component of the Child Tax Credit (CTC), along with the American Opportunity Tax Credit (AOTC) — all of which were originally enacted as part of the 2009 Recovery Act. Under current law, these EITC and CTC improvements as well as the AOTC, which helps low- and middle-income families defray college costs, are set to expire at the end of 2017. Making the EITC and CTC improvements permanent would rank among the biggest anti-poverty achievements, outside of health reform, in years. These improvements lift about 16 million people, including about 8 million children, out of poverty or closer to the poverty line each year. With these improvements, the EITC and CTC keep more children out of poverty than any other federal program, which would no longer be true if the improvements expired.
Mr. Greenstein’s concern lies in the health tax provisions of the bill and the possibility that they could do much more harm than good:
The deal delays for two years the excise tax on high-cost health insurance plans (the “Cadillac tax”) that would otherwise take effect in 2018, suspends for two years the medical device tax (which is already in effect), and suspends for one year the tax on health insurance companies (also already in effect)… If policymakers treat the delays or suspensions of these taxes themselves as a new kind of “extender,” repeatedly renewing the delays and suspensions and never letting the taxes take effect, the adverse long-term consequences would be big. The federal government would have substantially less revenue…In addition, economists widely believe the excise tax on high-cost insurance plans would play a significant role in slowing the rate of growth of health care costs throughout the U.S. health care system. Higher health-care cost growth ultimately has adverse effects on federal and state budgets, on consumers, and on the economy.
Another facet of the spending bill announced by Congress is a provision that could lift a 40-year ban on U.S. exports of crude oil. The Advocate’s Richard Thompson explains that it may take a while for Louisiana to see benefits from the change due to low oil prices:
The abundance of low-cost energy brought on by new drilling technologies, coupled with oil prices that have fallen from $110 a barrel to $35 in the past 18 months, has put renewed focus on the ban but also could dampen the effect of lifting it. Some economists offer tempered expectations and contend lifting the ban would’ve made more sense a few years ago before oil prices fell and exporting lost some of its shine. Gregory Upton, an assistant professor at the LSU Center for Energy Studies, believes that promises of huge economic windfalls are “grossly overstated.”
“When viewed holistically, basic economic principles alongside the data paint a very humdrum picture for both proponents and opponents of the export ban,” Upton said in a report last month. Upton found that ending the ban is unlikely to lead to major economic benefits for Louisiana since the price differential between domestic and foreign crude has narrowed.
Poverty harder on U.S.
People born in the United States tend to suffer the effects of poverty more than those born in European countries, according to a study by researchers at The University of Texas at Austin and the University of Edinburgh in Scotland. Ryan O’hare of the Daily Mail explains:
Poverty can have a dampening effect on the genetics of intelligence. According to the study, low socioeconomic status could be holding back the next generation of Albert Einsteins and Stephen Hawkings in the US. However, the effects were countered and even reversed in Western Europe and Australia. Differences in the education systems in the countries may also play a role. The researchers behind the study added that the results could prove useful in helping to tackle gaps between socioeconomic groups. They said that providing more uniform access to education and healthcare can counter and even reverse the negative effect of poverty on genes involved in IQ. Professor Timothy Bates, a researcher in the School of Psychology at Edinburgh and co-author of the study, said: ‘Once such characteristics are identified, they could inform policies directed at narrowing test score gaps and promoting all of the positive consequences of higher IQ, such as health, wealth, and progress in science, art, and technology.’
Price tag for coastal erosion
Land lost due to coastal erosion could impact the national economy to the tune of $5.8 billion to $7.4 billion in the next 50 years. But if another major hurricane hits in the next 50 years, the Pelican State could be hit with $133 billion in economic damages. These are the sobering findings of a two-year study commissioned by the Coastal Protection and Restoration Authority and conducted by Louisiana State University Economics and Policy Research Group and the RAND Corp. Kevin Litten of Nola.com/The Times Picayune has more:
The study also examined how much the state must pay to replace commercial, residential and network infrastructure lost by the disappearing coastline. That estimate ranges from $2.1 billion over 25 years to $3.5 billion after 50 years. Much more severe than land loss, according to the study, is the damage of hurricanes to the economy…The study did not consider any of the efforts that the coastal authority has made to halt land loss since 2012. The damage estimates are based on assumptions that the state will continue to see its coastline eroded over the next 50 years at the pace scientists have already documented. The new findings are significant because the coastal authority has long sought a way to quantify the economic effects of coastal erosion in Louisiana. It’s a complex problem that is not always easily explained to lawmakers and federal officials…”Every dollar we spend today on coastal restoration and protection will save us many, many more dollars in the future,” authority board Chairman Chip Kline said. “This study by LSU and RAND is important in making our case to Congress and the nation that it is better for many reasons to spend now rather than later.”
Number of the Day
$133 billion – The estimated cost of economic damages to Louisiana if a major hurricane hits again in the next 50 years. (Source: Nola.com/The Times Picayune)