The new year: same as the old year

The new year: same as the old year

State policymakers had a terrific opportunity last year to repair Louisiana’s long-term structural budget shortfalls, but chose to do nothing.

Number of the Day

74 - Percentage of households that would see a net reduction in income under the GOP’s tax plan, once it’s paid for through reductions in benefits. (Source: Brookings Institution)

State policymakers had a terrific opportunity last year to repair Louisiana’s long-term structural budget shortfalls, but chose to do nothing. That means that despite a low unemployment rate and steadily growing economy, Louisiana faces another political year that will be dominated by the $1.5 billion fiscal “cliff” that looms when temporary taxes expire on July 1. The AP’s Melinda Deslatte reports:

The governor believes the urgency of the “fiscal cliff” that hits July 1 may change some minds, since no one has offered a plan to cut $1 billion in general state tax dollars from the $28 billion operating budget. Officials estimate that shortfall could balloon to $4 billion in cuts with loss of federal matching dollars. House Speaker Taylor Barras, a Republican, has described it as a “difficult exercise” to make the full amount in cuts, saying he doesn’t see a way such reductions in spending could spare colleges, the TOPS free college tuition program and health care services. Edwards will have to propose a way to make such reductions to comply with the law. He owes a budget for the upcoming budget year to lawmakers in January, and he has to craft it with only the money available — without the $1 billion in temporary sales taxes that expire July 1.

Governing magazine sent a reporter to Baton Rouge to see how Gov. John Bel Edwards is doing at the midpoint of his term. J.B. Wogan spoke with a host of Capitol insiders for his in-depth profile, and noted that the critics who say Louisiana spends too much money are missing some critical context:

It’s true that state spending is about $1 billion higher today than in 2005, but the main drivers for that increase have nothing to do with annual appropriations or recent budget practices. One contributor is old debt payments for employee pensions, which are mandated under the state constitution and were scheduled to start small in 1989, peak around now and then taper off at the end of the 40-year pay period. The annual cost of pension debt in the 2016 fiscal year was nearly $1 billion more than it was in 2005. After taking into account those debt payments and a few other mandatory items, Louisiana actually spends $300 million less today.


Who pays for the Trump tax cuts?

When evaluating the winners and losers in the Tax Cut and Jobs Act – the $1.5 trillion tax cut bill signed by President Donald Trump right before Christmas – it’s important to note not just which households get a tax cut, but which programs will be cut in order to pay for them. The Brookings Institution’s William G. Gale did just that, using data from Congress’s own accountants, and finds that low- and middle-income households will end up as the biggest losers. Gale’s calculations assume that each household will pay the same amount to cover the cost of the tax cut.

This might occur through a combination of cuts in government spending (which would mainly affect low-income and to some extent middle-income households) coupled with an income tax increase (which would mainly affect high-income households). Under the equal-dollars-per-household financing scenario, each household would have to pay about $1,610 in 2018 to cover the costs of the tax cuts in that year. As a result, the combination of the tax cuts and the financing raises net burdens on the bottom 60 percent of households on average (Table 1). After-tax incomes for the bottom 20 percent would decline by an average of 11 percent, or $1,560 (rounding to the nearest $10). Average after-tax income would fall by 1.2 percent, or $690, for middle-income households. On the other hand, households in the top 40 percent would be better off on average after the financing is included (relative to a baseline without tax cuts). Those in the top 0.1 percent would still gain, on average, more than $190,000.


Poverty and ‘big data’

It’s long been assumed that the emergence of artificial intelligence (or A.I.) will wreak havoc on low-income workers, as robots take over a whole range of jobs – from truck driving to clerical tasks – that are currently handled by humans. But Elizabeth Mason, the founding director of the Stanford Poverty and Technology Lab, writes that the coming age of A.I. might also help alleviate poverty. Writing for The New York Times:

Poverty, of course, is a multifaceted phenomenon. But the condition of poverty often entails one or more of these realities: a lack of income (joblessness); a lack of preparedness (education); and a dependency on government services (welfare). A.I. can address all three. First, even as A.I. threatens to put people out of work, it can simultaneously be used to match them to good middle-class jobs that are going unfilled. Today there are millions of such jobs in the United States. This is precisely the kind of matching problem at which A.I. excels. Likewise, A.I. can predict where the job openings of tomorrow will lie, and which skills and training will be needed for them.


Health-care costs: It’s the prices

America spends more money on health care, both in total and as a percentage of the overall economy, than any country on earth. It’s not because Americans use more health care than other countries by going to the doctor more often or taking more prescription drugs. Rather, it’s because the prices paid for these services are higher than in other countries. Austin Frakt and Aaron Carroll explain for the New York Times’ Upshot blog:

For example, one study found that the spending growth for treating patients between 2003 and 2007 is almost entirely because of a growth in prices, with little contribution from growth in the quantity of treatment services provided. Another study  found that U.S. hospital prices are 60 percent higher than those in Europe. Other studies also point to prices as a major factor in American health care spending growth. There are ways to combat high health care prices. One is an all-payer system, like that seen in Maryland. This regulates prices so that all insurers and public programs pay the same amount. A single-payer system could also regulate prices. If attempted nationally, or even in a state, either of these would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies — and pretty much every other provider of health care in the United States.


Number of the Day

74 – Percentage of households that would see a net reduction in income under the GOP’s tax plan, once it’s paid for through reductions in benefits. (Source: Brookings Institution)