But there is enough information in Ryan’s proposal to arrive at some reasonable predictions of outcomes. Let’s just focus on some of the main health care ideas. Ryan would turn Medicare into a voucher program, sending seniors and people with disabilities into the private insurance market.  He would block grant Medicaid, severely cutting federal funds (more on that below). And he would repeal Obamacare, with its projected coverage for 36 million Americans who would otherwise be uninsured. The Center on Budget and Policy Priorities estimates that these measures would add 50 million Americans—that’s right, 50 million with an “m”— to the ranks of the uninsured.

Who pays for that? Well, start with the uninsured, who will pay cash for any health care they do get (or go bankrupt), and who will otherwise pay through pain and suffering and a reduced life span. Also states and localities will be forced to levy property taxes to pay for safety net health care systems and other supports. Employers will pay by having more sick and unproductive workers. Families will suffer health and financial stresses. The tens of thousands of uninsured veterans who are not served by the VA system will continue to lack access to health care. And those of us with private insurance will pay higher private premiums in the great cost-shift that supports hospital care for the uninsured. Gee thanks, Rep. Ryan.

Ryan also proposes a Medicaid block grant. This is a colossal trap for the states, coaxing ideological governors aligned with Ryan to betray the financial self-interest of their states. Medicaid currently is a federal-state “matching” program. Whatever the state spends, the federal government matches at a rate that is at least 50%, and in some states is much higher. This system assures the states that if they want or have to spend more money on the program (for example, during a recession when more people fall within the Medicaid income range, or because of a demographic trend such as the aging of the baby boomers, or just because or health care inflation), the federal government will come along. Switching to a “block grant” means that the federal government pays only a capped amount. The entire burden of any need for an increase in spending is on the states—they must either raise the money or cut the program. A block grant would eliminate one of the main ways the federal government helps the states in hard times, and it would squeeze the program so that it covers fewer and fewer people over time. 

The Ryan budget has been said to be dead on arrival. Good.

There are 47 percent of the people who….are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it. That that's an entitlement. And the government should give it to them…And so my job is not to worry about those people—I'll never convince them that they should take personal responsibility and care for their lives.

It turns out that, in addition to conveying an abhorrent message, Romney was pretty far off on his numbers. According to a new report by the Pew Research Center, “A Bipartisan Nation of Beneficiaries”:

• 55% of the American people have received benefits from at least one of the six best-known federal entitlement programs – unemployment benefits, Social Security, Medicare, SNAP (formerly Food Stamps), Medicaid and/or cash welfare. These six programs generate the vast majority of federal spending on the social safety net.
• 71% of the American people are part of a household where one or more people have received at least one of these benefits.
• If veterans’ benefits and federal college grants and loans are also counted, 86% of the American people—6 of every 7 Americans—are part of a household where one or more people have received at least one of these benefits.

Nor can Romney blame his election defeat on the “beneficiaries” of government largesse who, he also said, would “vote for the president no matter what.” As it turns out, there is not much difference in the political beliefs of those who have received benefits from one of the six major entitlement programs and those who have not:

• 57% of conservatives, 53% of liberals, and 53% of moderates say they have received benefits.
• 60% of Democrats and 52% of Republicans say that have received benefits.
• 59% of the people who voted for Obama and 53% of the people who voted for Romney say they have received benefits.

Even 2 in 5 relatively wealthy Americans—persons whose annual earnings exceed $100,000—say they  have received benefits from one of the six major entitlement programs.

Less surprising is the finding that women, blacks, and rural residents are more likely to have received benefits than their counterparts.

The Pew report also measured public attitudes towards benefits.  Fifty-seven percent of the public said that it is the government’s responsibility to care for those who cannot take care of themselves, with only a small difference between those who have received benefits (60%) and those who have not (55%).

There was a much greater difference on this point between people with different political orientations. Seventy-four percent of Democrats say that it is the government’s responsibility to care for those who cannot take care of themselves, but only 57% of independents and 38% of Republicans agree.

The report also found that some benefits are more popular than others. Providing unemployment benefits is just as popular among people who have never received them as those who have. However, among people who say the government has a duty to care for those who cannot care for themselves, there are double-digit gaps between recipients and non-recipients of Medicaid (13%), SNAP (14%), and cash welfare (17%).

President Obama and Congress have averted the fiscal cliff.  As we move on to a potential fiscal apocalypse if Congress fails to increase the debt ceiling before approximately March 1, policymakers should take careful note of the Pew report’s main findings. To reiterate, 55% of Americans have received at least one major entitlement benefit, and 7 out of 10 Americans are part of a household that includes a member who has received at least one of these benefits. Receipt of benefits is about the same across the political spectrum, with conservatives actually more likely to have received benefits than liberals or moderates. And 57% of the American people, including majorities of those who have and have not received benefits, believe that it is the government’s responsibility to care of those who cannot take care of themselves,.

Right-wing think tanks like the Heritage Foundation and others will continue to decry people who receive benefits as “takers” and disparage safety net programs for “breeding a culture of dependency on government.” As the Pew report shows, a solid majority of the American people has had a different life experience and rejects this view.

The major victories for low-income people secured by President Obama in ATRA consist of:

• A one-year continuation of extended unemployment insurance benefits for the long-term unemployed. Without this action, two million long-term unemployed people would have been immediately cut off benefits, and more than five million would have been cut off over the course of 2013.
• A five-year continuation of the 2009 improvements to two low-income tax credits, the child tax credit and the earned income tax credit. These improvements lift a million people out of poverty. Also a five-year continuation of a college tuition tax credit.
• No cuts of any significance to low-income programs including Medicaid and SNAP.

On the negative side of the ledger, no action was taken to prevent expiration of the temporary two-percent reduction in the payroll tax. This will significantly reduce take-home pay, driving down consumer demand and resulting in higher unemployment.

ATRA postpones sequestration--large automatic cuts to domestic and defense discretionary spending--until March 1. This is also when the government is expected to exhaust its borrowing limit, which would require Congress to raise the debt ceiling.  

The last time Congress had to raise the debt ceiling, in 2011, House Republicans insisted on a dollar-for-dollar reduction in spending, resulting in $1.5 trillion in spending cuts. The House Republicans have vowed that they again will use the need to raise the debt ceiling as leverage to exact huge spending cuts. This is a potent weapon, since failure to raise the debt limit would cause the United States to default on its obligations, with catastrophic consequences for the worldwide financial system.

The pressure to make big spending cuts is exacerbated by the fact that ATRA wound up raising only $563 billion in new tax revenue over ten years, about $1 trillion less than the $1.6 trillion originally sought by President Obama. The President has said that he will continue to fight for additional revenue through reform of the tax code as part of any future deficit reduction package. 

Those who favor large cuts in government spending can be expected to push a number of proposals that would cause grave harm to low-income people, such as:

• A “per capita cap” that would limit states to a fixed dollar amount per Medicaid beneficiary. This is another version of a block grant, which would shift increasing health care costs to the states and lead to major cuts in the services available to low-income Medicaid participants.
• Raising the retirement age for Medicare and/or Social Security from 65 to 67.
• Turning Medicare into a private insurance voucher program, thereby exposing seniors to unaffordable increases in the cost of medical coverage.
• Reducing future Social Security benefits by changing the indexing mechanism to a “chained” CPI (consumer price index).
• Additional deep cuts and structural changes to federal programs, including possible block granting of the Supplemental Nutrition Assistance Program (SNAP).

The major victories that President Obama secured for low-income people in ATRA should be celebrated. At the same, it is urgent that we immediately confront the looming threat of overwhelming spending cuts.

The answer: Each of these deficit reduction options is more popular with the American public than reducing federal funding for programs that help lower income Americans.

Polling released by the Pew Research Center last week compared the public’s support for different deficit reduction strategies and found that cutting funding for programs that help the poor is “particularly unpopular,” disapproved by the public by a margin of 58-38%.

The most popular deficit reduction options put the burden on those who are able to afford it, including raising the income tax on income over $250,000 (69-28% approve), limiting tax deductions, raising taxes on investment income, and reducing Medicare and Social Security benefits for higher income seniors.

These poll findings demonstrate strong public support for rejecting deficit reduction measures that increase poverty, hardship, and inequality. The Bowles-Simpson National Commission on Fiscal Responsibility and Reform expressly endorsed this principle in crafting its deficit reduction package, and every previous deficit reduction agreement has adhered to it.

The Pew polling found that an overwhelming majority (74%) agree that deficit reduction must be accomplished by a balance of tax increases and spending cuts, with only 7% saying the focus should be on mostly tax increases, and 11% saying the focus should be mostly on spending cuts.

The Pew polling also yielded a number of political findings – notably that President Obama’s job approval rating is up, that he is viewed as making a serious effort to work with Republicans, and that the Republican Congress and Speaker Boehner are viewed very unfavorably and will be blamed if a deficit reduction agreement is not reached.

Polling findings, however, do not equate with political outcomes. The budget written by Rep. Paul Ryan and passed by the full House of Representatives earlier this year would have cut taxes for the average millionaire by $265,000, paying for this largesse with massive spending cuts. Two-thirds of these spending cuts would have come from programs for low-income people like the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) and Medicaid.

Hence, there is a very wide chasm between what the House Republicans want and what President Obama, joined by a strong majority of the American people, wants. This chasm must somehow be bridged if there is to be a deficit reduction agreement that avoids the fiscal cliff.

If Congress and the President don’t act, several things will happen automatically on January 1; the convergence of these things comprises the fiscal cliff. The Bush tax cuts, the payroll tax cut, and the 2009 improvements to low-income tax credits would all expire, causing taxes to increase on all Americans and by an estimated $2,200 for the average, middle class family. Discretionary federal spending, both defense and non-defense, would be cut drastically through a process called sequestration. Head Start, child care, WIC, housing assistance, and other low-income programs would all be affected. In addition, over two million people would immediately lose their unemployment compensation, since all extensions beyond 26 weeks would expire.

Economists agree that this combination of substantial tax increases and deep spending cuts would put the economy into recession. Therefore, President Obama and Congress will be working towards a deficit reduction agreement that would take effect before January 1 and that would spare us from going over the cliff.

For low-income people it’s of paramount importance that any deficit reduction agreement does not increase poverty or income inequality. Every previous deficit reduction agreement has adhered to this bedrock principle, as did the Bowles-Simpson Bipartisan Commission on deficit reduction.  

The items of greatest and most direct concern to low-income people in the fiscal cliff showdown are the fate of Medicaid and the 2009 improvements to the low-income tax credits.

Cutting Medicaid, the health insurance program for low-income Americans, would not only harm those who are already participating but would jeopardize the Affordable Care Act’s (ACA) Medicaid expansion. The U. S. Supreme Court, in upholding the ACA, said that states may not be penalized if they choose not to expand Medicaid. The ACA makes expansion financially attractive to states as the federal government picks up 100% of the cost in the first years and 90% thereafter. Cuts to Medicaid, however, may cause states to worry that future changes would make this matching formula less favorable, discouraging them from proceeding with the Medicaid expansion.

The budget adopted by the House Republicans last year would have turned Medicaid into a block grant to the states. Election results have pushed block granting Medicaid off the table. However, those who want to cut Medicaid substantially may now push for a per-person cap on the federal Medicaid match, another version of a block grant that would shift the entire risk of increasing health care costs onto the states.

The second major objective for low-income people in the deficit–reduction debate is to extend the 2009 improvements to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These improvements increased the EITC for families with three or more children and reduced the level of earnings a family must have before it can qualify for the CTC.  Failure to extend these provisions will drive nearly one million children into poverty.

The fate of these tax credits is related to the debate about how to raise more revenue.  President Obama has insisted that the marginal tax rate on the wealthiest 2%--individuals with income over $200,000 and couples with income over $250,000--return to the pre-Bush tax cut level of 39.6% from the current 35%. The Republicans have pushed to increase revenue by reducing tax expenditures rather than raising tax rates. There are two problems with this. First, reducing tax expenditures would substantially limit the value of the charitable tax deduction to upper-income people, resulting in fewer and smaller donations to charities that provide vital services to low-income people. Second, the low-income tax credits are themselves tax expenditures and would be vulnerable to being cut if the revenue increases are achieved by reducing tax expenditures rather than raising tax rates.

The future of the Medicaid expansion, low-income tax credits that lift a million families out of poverty, unemployment compensation for 2 million people, and massive cuts in programs that serve low-income people—all are hanging in the balance.  Our message to the politicians is simple and clear—reach a deficit reduction agreement that does not increase poverty or income inequality.

Senate Majority Leader Harry Reid offered a bill that would have ended the Bush tax cuts on income over $200,000 for individuals and $250,000 for couples (the 2% of taxpayers above this income level would continue to benefit from the Bush tax cuts’ lower rates on the first $200,000/$250,000 of their income). Reid’s bill also extended the 2009 improvements to refundable tax cuts for the working poor.

Senator Hatch offered a bill that would have fully extended the Bush tax cuts and ended the 2009 improvements to the refundable tax cuts for the working poor.

How the Hatch bill’s elimination of the 2009 improvements to the refundable tax cuts for the working poor squares with his pledge (and that of 39 other Senators who voted for his bill) to Grover Norquist not to raise taxes on anyone, ever, is unclear. Perhaps a footnote excluded taxes on the working poor from that pledge. 

Senator Reid’s bill carried by a vote of 51-48; all Republicans voted against the bill and all Democrats but one voted in favor. Senator Hatch’s bill went down to defeat 54-45.

This week we’ll see more of the same in the House, which will vote on proposals very similar to the Reid and Hatch bills. Expect opposite results.

Extending the Bush tax cuts on income over $200,000 for individuals and $250,000 for couples would reduce the average millionaire’s taxes by $140,000. 

Congressman Ryan’s even more costly budget plan, besides extending all of the Bush tax cuts, would add four new tax breaks that are heavily skewed to the wealthy, with 39% of the new tax breaks going to millionaires. Under Ryan’s plan, the average millionaire would pay $400,000 less in taxes, for a 12.5% increase in after-tax income. Meanwhile, Ryan’s elimination of the 2009 improvements to the refundable tax cuts for the working poor would cause the after-tax income to fall for Americans with income below $30,000.

These persistent efforts to give massive tax breaks to the wealthiest people in our society conflict with public opinion on tax policy. Americans think that making the tax system fairer is the most important goal for reforming our tax system; according to a recent poll conducted by Hart Research Associates for Americans for Tax Fairness, Americans believe, by a two-to-one margin, that we should raise income taxes on the richest 2% of households.

Hence, those who continually seek any opportunity to cut taxes at the top of the income scale are fundamentally out of step with the prevailing majority opinion that the wealthy should pay more in taxes, not less.

The $1.6 billion in cuts to medical assistance included the elimination of programs, restrictions in eligibility, new co-payments, and utilization limitations. Here are some of the more significant and potentially worrisome cuts:

• Elimination of the Illinois Cares RX program, which made it possible for 180,000 poor elderly and disabled people to afford prescription medications. Advocates are asking Governor Quinn to amendatorily veto the budget bill to eliminate this cut or at least delay it until January to allow people to adjust and try to minimize the damage.
• Reduction in Family Care income eligibility from 185% to 133% of the federal poverty level, terminating medical assistance to 26,000 parents whose children receive medical assistance.
• Elimination of restorative dental, including fillings, crowns, and dentures. Only emergency dental—teeth-pulling—will be covered.
• Imposition of maximum allowable co-payments for prescription drugs and services received at health clinics.
• Hiring of private vendor to verify income and residency. Accuracy in eligibility determinations is a good thing, but the concern is that private vendors have a history of inaccurate, over-aggressive, profit-motivated caseload reduction.

To its credit, the General Assembly spared children from the medical assistance cuts entirely, including undocumented immigrant children who remain eligible for the AllKids program. The General Assembly also avoided even deeper cuts by raising $800 million in new revenues through an increase in the cigarette tax, an enhanced hospital assessment, and federal matching funds.

In addition to the cuts to medical assistance, many other programs that primarily serve poor people were hit hard.  This included:

• The education budget was cut by $210 million, including a $160 million cut to General State Aid and a $25 million cut to the Early Childhood Block Grant that funds Illinois’s Preschool for All pre-kindergarten program.  Funding for Preschool for All has been cut by $80 million since FY 2009, eliminating services to 26,000 at-risk children.
• Child Care Assistance – program cut of $46 million, most of which will be realized by steep increases in parent copayments. In addition, the state will not adhere to the principle of parity whereby center rate increases have matched home increases negotiated by the Service Employees International Union, which represents home providers.
• Temporary Assistance for Needy Families (TANF) – the effective date for assistance was changed to 30 days after application rather than the date of application. This yields $10 million in savings by eliminating one month’s payment to TANF applicants whose applications are approved.  Thirty-thousand families per year will lose a month of benefits.  
• The budget for the Department of Children and Family Services (DCFS), the state’s child welfare agency responsible for abused and neglected children, was cut by $86 million. It is not yet clear how this will affect the services the agency provides.

Many of the “savings’ generated by these cuts are illusory. Persons whose medical assistance is terminated will seek care in emergency rooms, at much greater cost to the state. Eliminating preventive services will result in much greater costs later from problems that could have been avoided. Every child denied Preschool for All will, later in life, cost the state an average of seven times more in special education, welfare, incarceration, and other costs than the cost of the investment in preschool education would have been. Those who supported the medical assistance and other cuts to poor people’s programs claimed they were doing so in the name of not saddling future generations with unsustainable debt, but the fact is that their short-sighted and expedient decisions will impose far greater costs on future generations.

The Responsible Budget Coalition and others proposed revenue-raising measures that would have ameliorated the need for cuts. These ideas included:

• Closing five corporate tax loopholes ($700 million).
• Broadening the sales tax to include selected consumer services ($550 million).
• Reinstituting sweeps of surplus revenue from non-GRF funds ($300 million).
• Using excess revenue from the Road Fund for the Secretary of State and State Police ($250 million).

In addition to these immediate sources of additional revenue, the most important long-term revenue initiative is the Fair Tax Coalition’s proposed constitutional amendment to eliminate the flat tax provision of the Illinois Constitution and permit a graduated income tax. Until this occurs, Illinois’s revenue shortfalls will be chronic and increasingly severe.

Watch for future issues of the Shriver Brief that will provide more detail on the resolution of medical assistance and other FY 2013 budget issues as well as other substantive issues of significance to low-income people.      

John Bouman contributed to this blog post.

Illinois’s state budget deficit still stands at over $13 billion, including over $6 billion in unpaid bills. The state’s unpaid public worker pension liabilities exceed $83 billion and this could reach an estimated $140 billion by 2030 if nothing is done to close this deficit. 

In March 2011 Governor Quinn signed the Internet Tax Law, Public Act 096-1544, or so called “Amazon Tax Law”, which requires online retailers that work with affiliates in the state to collect sales tax on items purchased by Illinois residents and businesses. Before this the law was enacted, online companies only had to charge sales tax if they had a brick and mortar location within the state. For example, Sears was required to collect taxes because it is both headquartered and also has retail stores in Illinois. Amazon.com, on the other hand, did not have to collect sales taxes because it had no physical presence in the state.  By expanding the definition of “physical presence” beyond warehouses, factories and offices, and including affiliate companies (i.e., companies that are typically associated with coupon website generators), the state now has the authority to require online sellers to collect these sales taxes.  

Illinois was also one of the first states to offer an amnesty program to allow residents to retroactively pay sales taxes on items they had previously purchased online. However, the program only brought in $10 billion of the estimated $150 billion that potentially could have been paid. 

Illinois is not alone in its efforts to collect sales taxes on Internet sales. New York was the first state to pass legislation requiring online retailers to collect sales tax in 2008, and North Carolina and Rhode Island followed suit in 2009. States such as Iowa, Maryland, Mississippi, New Mexico, and Tennessee and many others have also introduced similar legislation. California even cut a deal with Amazon.com where the company agreed to drop a lawsuit challenging the pending legislation in return for the push back of the tax collection date by one year. 

Although the Illinois law could have brought in millions of dollars in tax revenue for the state, dramatically decreasing the budget deficit, it was recently ruled unconstitutional by Cook County Circuit Judge Robert Lopez Cepero. The complaint, which was filed by the Performance Marketing Association against the Illinois Department of Revenue, alleged that the law violated the Commerce Clause and the Federal Internet Tax Freedom Act (IFTA). The suit also claimed that the tax would be burdensome on Internet retailers, which was the defense for catalogue companies’ years ago, but thanks to technology is no longer a valid excuse. The judge held that the law was superseded by the Internet Tax Nondiscrimination Act, which prohibits taxes on electronic commerce until the end of 2014, and was therefore unconstitutional. 

When the law initially passed Amazon cut ties with all of its Illinois-based affiliates, and it is unclear whether or not it will enter into new contracts with such affiliates.  

While Internet retailers are applauding the ruling, the state is still reeling from the economic downturn and trying to climb out of a deepening budget deficit. In response to the ruling, the Department of Revenue said “We respectfully disagree with the court's ruling and are reviewing our appeal options with the Attorney General's office, and we need to protect ‘brick and mortar’ stores from an unlevel playing field and we need to recoup some of the estimated $153 million that was not paid by online merchants prior to the law being implemented.”

All over the country, legislators are taking steps to ensure that online consumers pay state sales taxes during these times of economic uncertainty. Illinois may have hit a roadblock, but advocates will not stop fighting big business to get the revenue that the state is entitled to.  

For more information on the “Amazon Tax Law” see our previous Shriver Brief posts here and here. 

This blog post was co-authored by Alison Terkel.

There is a lot to be concerned about in the Governor’s proposed budget. Most troubling is his call for $2.7 billion in unspecified cuts to the Medicaid program. Such savings cannot be achieved without doing severe harm to health care for the poor. We’ll have much more to say about this in a future post. 

The proposed budget also includes major cuts to the child care assistance program, home visiting programs, community care programs, and emergency and transitional housing. Also it would reduce lifetime eligibility for the Temporary Assistance for Needy Families (TANF) program from five to three years. 

On the plus side, the proposed budget would significantly increase funding for the Preschool for All and TANF programs. 

The Heartland Alliance has issued this release, which gives an excellent description of the threats posed to poor people by the proposed state budget.

The Illinois General Assembly got it right when it voted in December to double the state’s earned income tax credit (EITC).

The EITC is a refundable income tax credit, which is available to low-income families on their federal income taxes. The American Recovery and Reinvestment Act (ARRA) provided a temporary increase in EITC and expanded the credit for workers with three or more qualifying children for the 2009 and 2010 tax years. Many states also provide a state EITC, usually based on a percentage of the federal credit. Previously, Illinois had one the smallest EITCs among all the states at only 5% of the federal EITC.

In 2010, 46 million Americans lived in poverty, the highest number in our country’s history. The EITC, the government’s largest anti-poverty program, has been credited with lifting millions of people out of poverty. In fact, when President Reagan signed the federal EITC into law, he called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” In Illinois, for example, over 950,000 families benefited from the EITC in 2010, and experts estimate that number will climb to 1 million this year due to the economic downturn.  

We commend Illinois and Governor Quinn for taking such concrete steps by increasing the EITC. Unfortunately other states are not being so wise. Oklahoma, Indiana, Kansas, and others are proposing legislation to eliminate the EITC, while Michigan is attempting to reduce the program by 70%.

Oklahoma, for instance, has created a tax task force that has recommended that the state abolish personal income taxes all together, along with the EITC. If this tax package passes, 67% of Oklahoma’s citizens will pay higher taxes, and the 80% who rely on EITC refunds for a boost at tax time won’t receive them. Abolishing the personal income tax would further impoverish these families since sales and use taxes or other taxes might be increased to cover this lost tax revenue.

A similar story is unfolding in Indiana, where the EITC has proven to be a successful measure in stabilizing the incomes of nearly 500,000 low-income working Hoosiers who have felt the devastating affects of increased poverty and decreased wages as a result of the Great Recession. In Kansas, Governor Sam Brownback claims that fraud is the reason to eliminate the EITC; however advocates and legislators strongly disagree. Without this tax credit, 4,000 more Kansas children will live under the poverty line, and families will be denied the $90 million in credits. The result would be devastating for these families and children.

The EITC is beneficial not only because it puts extra money in the pockets of those in need, but also because it includes work incentives, grows the economy and can help lift families out of poverty. The country has not yet recovered from the recession’s economic fallout, and now is not the time to cut such vital support for the most vulnerable populations.

EITC Awareness Day is today, January 27, 2012. This is a national, grassroots effort spotlighting this potentially life-changing tax credit. Join with other charitable organizations, elected officials, state and local governments, employers, and other interested parties to educate your communities about the EITC, encourage those who are eligible to apply for it, and prevent it from being cut.  

The EITC, a refundable tax credit to low- and middle-income workers, is critical for achieving tax fairness. It is also one of the best ways to stimulate economic growth and job creation. Given the anemic performance of our economy, nothing is more important than that.

The EITC is a cost effective way to stimulate economic growth and job creation because businesses grow and hire new workers when they see increased demand for their products. Wealthy people, given an extra dollar, are likely to save it, while low- and middle-income people are much more likely to spend it. This spending increases demand, spurs economic growth, and creates jobs. That’s why the non-partisan Congressional Budget Office estimates that providing refundable tax credits like the EITC for low- and middle-income households creates two to three times more jobs and economic growth than extending the Bush II tax cuts.

Increasing the EITC also makes our tax system fairer. Over the past 30 years, the wealthiest 20% of Americans have seen their income grow by 95% compared to only 25% for everyone else. For the wealthiest 1%, it’s even more dramatic—their income has grown by 281%, and they’ve gotten 58 cents of every dollar of economic growth generated over the past 30 years.

The last thing our tax system should do is make income inequality worse. But due to our over-reliance on sales taxes and other factors, low-income people in Illinois spend over 13% of their income on state and local taxes, while upper income people spend less than 6%% of theirs. Increasing the EITC helps redress this imbalance.

It is unconscionable that nearly 100,000 people in Illinois who work full-time, year-round still live in poverty. The EITC is a cost-efficient way to encourage work and help these and other low-income workers make ends meet. It also lifts more children out of poverty than any other tool.

Now that CME and Sears have demonstrated that holding a gun to the politicians’ heads works, we can expect a parade of “too big to leave” companies to visit Springfield with their hands out. Maybe some, unlike CME, will say thank you and promise not to take the money and run. We can also expect a new round of across-the-board corporate tax giveaway proposals. Perhaps the taxpayers will even be asked to subsidize multi-millionaires directly, such as by the increase in the estate tax exemption included in this week’s tax package.

The important thing to remember, though, is that George Bush I was right when he called this voodoo economics. The EITC is not just about fairness, lifting full-time workers and children out of poverty, and reversing the 30-year trend of greater income inequality. It’s also about tax policy that will lead businesses to grow, create jobs, and make the economy work for all of us.

That Illinois is experiencing a crippling budget crisis is old news. Illinois’s budget deficit has grown to

One way that states have tried to plug these deficits is by cracking down on the collection of the sales tax on items bought on the Internet. It’s estimated that states will lose approximately $23.3 billion in 2012 from being prohibited from collecting sales tax from online and catalog purchases, and a six-year forecast puts this number at $52.1 billion lost. With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers, and other much-needed programs. The catch has been that several Supreme Court cases precluded states from requiring a retailer to collect the tax. These cases, which dealt with catalog companies, held that requiring out-of-state companies to collect different state and local sales codes was a violation of the Commerce Clause because it imposed unreasonable burdens on them. As a result, only states in which a company has a nexus, through the presence of retail outlets or distribution centers, can be required to collect sales taxes. Even though retailers were not required to collect the tax, purchasers were still required to pay it, however, few even knew of this obligation let alone paid it.

Yet, technology and the e-commerce boom have changed the landscape and the rationale behind the previous court decisions. As a result, New York enacted a law defining “nexus” or presence more broadly in order to be able to require internet sellers to collect sales taxes. Six other states—Rhode Island, North Carolina, Illinois, Arkansas, Connecticut and California—have followed New York's lead, adopting similar laws that require online retailers with sales affiliates based within their borders to collect sales tax. California's law also extends the obligation to collect sales taxes to online retailers that have subsidiaries or affiliated companies in the state. South Dakota and Colorado have also passed laws requiring online retailers to notify their customers that they owe the state's use tax on purchases in which sales tax is not collected.

Illinois and North Carolina were among the first states to enact an amnesty program. Illinois’s program allowed residents to pay sales taxes on items they purchased online from June 30^th, 2004 until December 31^st, 2010 without penalty, hoping to bring in some revenue. Unfortunately the program only brought in $10.2 million of the estimated $150 million lost in Internet sales tax revenue the state could have gained with a federal law mandating Internet companies pay a sales tax. North Carolina’s program, on the other hand, specified that if Internet retailers commenced collecting sales tax on products sold to North Carolina state residents the state would, in turn, forgive taxes, penalties and interest for periods, and it would not seek information about customers who bought from them.

Additionally, in March Illinois’s Governor, Pat Quinn, signed the Illinois Internet tax law (Public Act 096-1544), which requires online retailers that work with affiliates in the state to collect sales tax on purchases made by Illinois residents and businesses. By defining and expanding the meaning of “physical presence” beyond a warehouse, factory, or office, Illinois has basically said that, regardless of whether or not a company has a brick and mortar presence in the state, if the company uses websites (either their own or by contacting with affiliates in the state) to refer business to an online retailer, it is subject to the sales tax. This is equivalent to a call center or warehouse, both of which would be considered a sufficient “nexus” under the law.  

For years Internet companies like Amazon and Overstock.com vehemently opposed such laws. Not being required to collect sales taxes provided them with a business edge over brick and mortar stores. When New York passed its law, Amazon refused to collect sales tax and brought suit challenging it. It also cut its ties with its affiliates in New York and other states that had passed similar laws expanding the definition of “nexus.”

Yet, recently Amazon agreed to began collecting the tax in California. The reason for Amazon’s change of heart after battling so long against it appears to be two-fold. First, Amazon had more of a presence in that state that any other, and it had too much to lose to try to move its business operations. Amazon has a technology division in California that developed the Kindle. Second, there were simply too many jobs in California that it would have to move across state lines, like the company had been doing in the past to avoid such laws. Finally, the amount of revenue Amazon generated from California sales encouraged it to concede.

Amazon isn’t keen on cutting the same deal with other states—it maintains divisions in several other states where it currently does not collect sales tax, claiming that its e-commerce operations are a separate company. But now that it will be paying in one state it will be harder not to do it in others.

In the meantime, legislators are realizing that federal legislation on the issue should be passed. Such legislation, the Main Street Fairness Act, (S. 2701 and H.R. 2701), was introduced in 2011 by Illinois’s own Senator Dick Durbin, and similar legislation was introduced in 111^th, 110^th,  109^th, and 108^th Congresses.

Similarly, the  Streamlined Sales and Use Tax Agreement coalition is trying to create a model uniform Internet  sales tax law. Thus far, at least 24 states have signed on to it: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

Technology has discredited the ”burdensome” excuse, and with budget deficits increasing and potential revenue sources limited Internet companies will not have the ability to evade collecting sales taxes much longer. With Amazon opening the flood gates by making a deal to begin paying the tax in California in 2013, states are sure to increase their pressure on companies as well as the federal government to pass the Main Street Fairness Act. 

This blog post was coauthored by Alison Terkel.

Public policy is about making choices. It is about making the best use of the scarce resources that are available to accomplish our desired policy result. Resources used one way cannot be used another; we have to make choices. Now, in the midst of the worst national economic crisis since the Great Depression, with meager rates of national economic growth and persistently high and extended periods of unemployment, the stakes riding on our policy choices have never been higher.

The Republicans’ consensus position is clear. Do not raise taxes. In Speaker Boehner’s words, “ It’s a very simple equation. Tax increases destroy jobs.” Grover Norquist’s pledge to oppose any and all tax increases has been signed by 236 of 242 Republican members of the U.S. House of Representatives (98%) and 40 of 47 Republican members of the U.S. Senate (85%).

The first question to ask about the Norquist no tax pledge is whether it is fair, that is, is it fair that the wealthy pay no more than they do now and that our budget deficit be reduced solely by decimating programs that most Americans need? Simply considering where the gains in wealth have gone over the past 30 years, the answer is hell no, that's not fair.

From 1979 to 2007, income grew by 95% among the wealthiest 20% of Americans while it grew by only 25% among the other 80% of Americans. Even more shocking, income among the top 1% of Americans grew by 281%. Put another way, for every dollar of real economic growth generated over the past 30 years, 58 cents has gone to the top 1% of households. Case closed.

But fairness does not end the inquiry. Indeed, if raising taxes on the wealthy would hurt the economy and destroy jobs, as Speaker Boehner contends, then while it might be fair it would not be good public policy. The fact is, however, that concentrating wealth in the hands of the few is not only unfair, it is ruinous to the economy. 

That is why the bipartisan Congressional Budget Office (CBO), in its January 2010 report, “Policies for Increasing Economic Growth and Employment in 2010 and 2011,” concluded that extending the Bush tax cuts for the wealthy, when compared to other policy alternatives, would be the worst possible way to spur economic growth and job creation. The reason, according to the CBO, is simple. When the economy is weak, spending is needed to stimulate it. But wealthy people, given an extra dollar, are much more likely to save it while lower income people are much more likely to spend it, and spending it is what increases demand, spurs economic growth and creates jobs.

The CBO report compared the impact on economic growth and job creation of various policy alternatives. The CBO found that compared with extending the Bush tax cuts for the wealthy:

• Extending unemployment insurance benefits would generate 5 times as much economic growth and create 4 times more jobs.
• Reducing employees’ payroll taxes would generate 2 times as much economic growth and create 1.5 times more jobs.
• Reducing employers’ payroll taxes would generate 3 times as much economic growth and create 3 times more jobs.
• Investing in infrastructure would generate 4 times as much economic growth and create 3 times more jobs.
• Providing aid to states for purposes other than infrastructure would generate 3 times as much economic growth and 2 times more jobs.

The jobs plan announced by President Obama on September 8 includes all of the elements that the CBO found would stimulate economic growth and create jobs. His proposal would extend unemployment insurance benefits for another year; halve the payroll tax paid by employees to 3.1% through 2012; create new reductions in payroll taxes for certain employers; invest in infrastructure including building, repairing and modernizing roads, bridges, railroads, airports and 35,000 schools; and provide aid to states to pay for teachers and first responders.

The deficit reduction plan proposed by President Obama on September 19 would largely pay for his jobs plan, and reduce our long-term budget deficit, by ending the Bush tax cuts for wealthy Americans.

Earlier this year, Congressman Paul Ryan proposed a long-term budget and deficit reduction plan. Ryan’s plan would have dismantled Medicare and turned it into a private insurance voucher program with massive cost shifts to beneficiaries. It also would have cut funding for the Supplemental Nutrition Assistance Program (formerly Food Stamps) by nearly 20% and converted it into a block grant completely unresponsive to increased need during a recession.

Ryan’s proposed budget was the first salvo in the new Congress’s economic mantra of achieving deficit reduction and stimulating the economy solely by cutting spending while abiding by their pledge to Grover Norquist never to raise taxes. This dogma, so misguided and destructive to restoring our country’s prosperity, was put in perspective by David Stockman, President Reagan’s leading economic adviser as his Director of the Office of Budget and Management, in his assessment of Ryan’s plan:

"I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes."

The author wishes to thank Shriver Center policy intern Michael Elsen-Rooney for his research assistance.

The agreement raises the debt ceiling by $2.1 trillion, enough that it won’t have to be raised again until after the next presidential election in November 2012. The agreement also provides that the deficit will be reduced by more than $2 trillion over the next 10 years, with deficit reduction occurring in two steps.

Step one is a spending reduction of $900 billion over the next 10 years, accomplished with binding caps on annual appropriations bills. All of these cuts will be made to “discretionary spending”. Entitlement spending, including safety-net entitlement programs for low-income people, is exempt from being cut. In addition to the “big three” entitlement programs – Social Security, Medicare and Medicaid – other non-discretionary programs exempted from being cut include:

• child care mandatory assistance;
• child nutrition entitlement programs, e.g., school meals;
• Children’s Health Insurance Program (CHIP);
• child support enforcement and family support programs;
• Pell Grants;
• foster care and permanency programs;
• Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps);
• Supplemental Security Income (SSI);
• refundable tax credits, including the Earned income Tax Credit and Child Tax Credit; and
• Temporary Assistance for Needy Families (TANF).

Discretionary programs that are subject to the caps that will result in $900 billion in cuts over the next 10 years include:

• discretionary (non-mandatory) child care assistance;
• Head Start;
• Women, Infants and Children (WIC) nutrition program for low-income women, infants and small children;
• maternal and child health;
• Title X family planning services;
• low-income housing assistance;
• low-income energy assistance; and
• Older Americans Act congregate and home-delivered meals.

Step two is complicated. It begins with the congressional appointment of a 12-member deficit reduction super committee, with three members appointed by each legislative leader. The super-committee’s charge is to come up with a deficit-reduction package that saves at least another $1.5 trillion over the next 10 years. The super committee is free to consider all possibilities, including more cuts in discretionary spending, cuts in entitlement spending, and revenue-raising measures. If a majority of the super committee agrees on a proposal, then it will be submitted to Congress for an up-or-down vote by the end of this year.

If, as largely expected, the super committee does not reach an agreement on a deficit-reduction package -- or Congress does not approve the package or the President vetoes it -- then federal spending will automatically be reduced by $1.2 trillion over the next 10 years through a process called “sequestration.” Entitlement programs (listed above) would be exempt from cuts, and revenue would not be increased. Rather, all of the cuts would come from discretionary programs, with half of the reduction coming from domestic programs and the other half from defense spending. This would amount to a 9 percent decrease in both domestic discretionary spending and defense spending – an amount that many believe would seriously compromise national security. The cuts made by sequestration would not go into effect until January 2013.

Speaker Boehner has already announced that the U.S. House of Representatives will not approve any revenue increases that the super-committee may recommend. To understand what the impact of a “cuts only” proposal would be, it’s worth considering the deal that President Obama and Speaker Boehner recently discussed. That ultimately unsuccessful deal would have:

• raised Medicare’s eligibility age and cost-sharing charges;
• shifted significant Medicaid costs to states;
• modified cost-of-living adjustments in Social Security and other benefit programs (and in the tax code); and
• instituted other entitlement savings.

All of those steps would have saved $650-$700 billion over 10 years, representing only one-half of the cuts that the super committee will have to produce.

One other noteworthy provision in the Budget Control Act of 2011 is an agreement to allow an up-or-down vote of the House and the Senate this fall on a constitutional amendment to balance the budget, threatening to enshrine this popular but fiscally ruinous principle in the U.S. Constitution.

To sum up, the most disturbing aspect of the Budget Control Act of 2011 is that it achieves all of its savings through spending cuts despite polling that shows a large majority of Americans across all population sectors supports a balanced approach that includes increasing taxes on the wealthy and big corporations to help reduce the deficit. This cuts-only approach sets an extremely disturbing precedent for future budget and spending battles.

Second, although some of the most extreme proposals floated this year, such as a global spending cap or super-majority requirement to raise taxes or the debt ceiling, were not included in the final agreement, it does include the mandatory spending reduction mechanism of sequestration. And, while low-income entitlement programs are exempt from sequestration, discretionary programs on which low-income populations rely enjoy no such protection and are, in fact, under a direct threat to be heavily cut.

So what does the future hold? For one thing, it appears that Medicaid is now in the cross-hairs. Conservatives in Congress have consistently signaled a desire to scale-back Medicaid. They receive strong support for this agenda from conservative governors who seek the power to generate state budgetary savings if Medicaid is changed to allow them to cut the program and roll-back eligibility. It’s hard to see how any of this can be squared with implementation of the Affordable Care Act, whose health care reforms rely on expansion of the Medicaid program to insure 16 million currently uninsured people.

Now that the debt ceiling has been raised for the time being, the next flashpoint will be the adoption of a budget for the next federal fiscal year beginning October 1. Typically, no agreement is reached by that date, and the government continues to operate based on a series of “continuing resolutions” until a full-year budget is agreed upon. If one of these continuing resolutions runs out without an agreement to extend it, then the federal government shuts down. A sizable majority of the House Republicans just demonstrated their willingness to risk a global financial cataclysm to achieve their policy ends. There is little reason to doubt that they will be willing to engage in such brinksmanship again. Indeed, they may attempt to extract even greater concessions when all that is at stake is the continued operations of the federal government, since they will feel there is less to lose in provoking a crisis. The template for resolving such a crisis, as established by this debt ceiling deal–substantial spending cuts, no revenue increases, a mandatory mechanism to enforce deficit reduction–sets a bad precedent for future policy negotiations, unless different tactics are adopted by proponents of important spending priorities for struggling Americans.

Beyond that, there are a number of events that will be occurring in the lame-duck session just after the next presidential election in November 2012. The Bush tax cuts will be expiring; the January 2013 automatic sequestration cuts (assuming no super committee agreement that becomes law), including deep cuts in national defense, will be taking effect; and the debt ceiling will have to be increased again. The battles that were just waged thus are simply the prelude for many more to come. 

The general trend of this budget is both better and worse than it could have been. Illinois needed to take major steps in a balanced approach to solving the state’s immense fiscal crisis. It needed to generate significant new revenue while also getting control of the spending side. In January, the General Assembly passed and the Governor signed legislation that made major progress on the revenue side. Without that step, the carnage in the budget would have been unthinkable, and Illinois would probably be in default on many fronts. On the spending side, however, while austerity was needed and expected, the final budget includes far deeper cuts in programs that serve Illinois’s most vulnerable populations, and some of its most important priorities, than were needed.

The final state budget includes about $2 billion less in spending than Governor Quinn had proposed at the start of the FY12 budget process in February. Some of the most damaging cuts for low-income people and other vulnerable populations are:

• General State Aid to schools. The final budget is $400 million less than the Governor’s proposed budget. In addition, $400 million in federal funding that had been provided pursuant to the American Recovery and Reinvestment Act has ended. The greatest impact will be felt by school districts that rely more heavily on state aid because they are low-income and have lower local property tax revenues.
• Community mental health services – cut by $55 million, or 20%.
• Temporary Assistance for Needy Families (TANF) – 1/3 less funding allocated to TANF in FY12 than the amount needed to serve the current caseload, which has grown due to the recession, persistent high rates of long-term unemployment, and improvements in program access.
• Elimination of the Transitional Assistance program that provided a small amount of income support to 9,000 not employable adults in Chicago.
• Cuts of up to 50% in programs for very high-risk children, including teen after school and children’s mental health programs.
• Early Childhood Block Grant – cut $17 million, a 5% reduction on top of last year’s 10% reduction. Will result in 4,000 fewer three- and four-year-olds being enrolled in preschool for all and 1,000 fewer high-risk children aged 0-3 receiving developmental screenings and other services.

These severe cuts have been justified as necessary to “live within our means,” but the truth is that these cuts were not dictated by economics but rather were the product of political considerations.

The adoption of a temporary increase in the state income tax from 3% to 5% during the January “lame duck” session, just before the newly-elected legislators took office, triggered the series of events that led to these cuts. Speaker Madigan’s immediate concern in the wake of the Democrats’ decision to approve a tax increase was the size and strength of the backlash his members would face for that vote. He used the FY12 budget process to attempt to insulate them from this backlash.

The first thing the Speaker did was to make the budget process in the House bipartisan, a departure from past practice. Speaker Madigan and Minority Leader Cross collaborated closely throughout the budget process, and rank-and-file Republican members were included in budget deliberations.

The next step was to adopt a lowball revenue estimate that would necessitate bigger than needed cuts. The House ignored the revenue estimate of the General Assembly’s own bipartisan revenue-estimating agency and instead worked off an estimate prepared by the Governor’s Office of Management and Budget, making some downward adjustments. As a result of the lowball estimate it used, the House had $1 billion less to appropriate than the Senate. When, later in the session, the Governor’s office, based on more recent economic information about the performance of the Illinois economy, revised its estimate upward to the Senate level, the House did not come along.

Next the House locked itself into the lowball revenue estimate by passing a resolution that required any revenues collected in excess of the lowball estimate be solely devoted to paying off old bills, preventing such additional revenue from being used to ameliorate the effects of harsh budget cuts.

The House and Senate passed separate budgets based on different revenue estimates. There was no real effort to reconcile the two budgets, as House members adhered to their resolution and refused to apply any additional revenues to reduce the cuts. No compromise was offered as the May 31 deadline for adopting a state budget without needing a super-majority loomed. Rather than bring the Senate Republicans, who had earlier proposed a budget with several billion more in cuts, into the budget process, the Senate Democrats capitulated to the Speaker and passed the House budget.

Senate President Cullerton made a last-ditch attempt to restore about half of the House’s cuts by attaching an amendment to the bill authorizing the expenditure of funds on capital projects, e.g., roads. When Gov. Quinn announced that summer construction projects would be halted in mid-June if the capital bill was not passed by both Houses, it appeared that he and President Cullerton might have teamed up to exert leverage on the Speaker. But in the end, Gov. Quinn called on the Senate to give in and drop the amendment so that construction could continue as scheduled. 

How could deeper-than-necessary cuts have been avoided? The Responsible Budget Coalition and others championed a number of reasonable proposals to obtain the revenue needed to avoid devastating cuts without raising taxes. The most obvious one of these was to revise the revenue estimate upwards. Another recommendation was that Illinois “decouple” from a change in federal tax law that accelerated the depreciation schedule for big corporations that make large equipment purchases. Under Illinois’s tax code, absent action by the General Assembly, Illinois tax law would automatically provide this tax break as well. In the past, Illinois has de-coupled from similar changes in federal tax law to avoid major revenue losses. But this time around decoupling was falsely labeled and rejected as a “tax increase,” even though no one’s taxes would have gone up (they just wouldn’t have gotten a windfall reduction in state taxes). Decoupling would have saved the state $600 million in lost revenue and allowed the state to avoid making all of the painful cuts described above.

So what are the prospects for the future? We said above that the general trend was at least partially positive because the revenue increase balanced the state’s approach to the fiscal crisis. Now Illinois needs to return to policy considerations (instead of just political ones) before making any further cuts to vital programs and priorities. It needs to find better ways to deploy state revenues, so that more is dedicated to high priorities in the general revenue fund as opposed to lower priorities in special funds that are off budget. It needs to find a way to address the state’s $4 billion of unpaid bills.

What this budget also shows is that there was very little fat to cut. Much of what was cut was not fat at all, shortchanging wise investments like early childhood education and tragically abandoning vulnerable people. The income tax increase enacted in January is only temporary, with a large part of it phasing out after four years. The Illinois revenue problem was structural -- we did not have enough revenue to pay for the important priorities that Illinois residents rightly expect from their government. That problem was well known before the recession hit. This year’s budget includes the new revenue, makes the pension payment for the first time in years, was overly austere on the spending side – and STILL did not pay the bills. Illinois needs to reconcile itself to the fact that the revenue increase must be permanent. 

Officially, the recession ended in June 2009. But for many Americans, the recession is still in full force. New research shows that the recovery is not being evenly shared. Overall, workers’ earnings are down because the jobs that are hiring pay less than the jobs that were lost. Minorities face much higher unemployment and live disproportionately in states which have the worst economic climate. Young people face especially daunting job prospects. So perhaps it’s no surprise that a

Meanwhile, politicians in Washington are discussing budget cuts that could derail the recovery and undermine our long-term competitiveness. Right now, we need to invest in the infrastructure of job training and education, which is a driver of our economy and will help put Americans back to work.  

Well-Being Is Not Improving After the Recession
The Center on Social Exclusion went beyond just measuring gross domestic product to examine 14 indicators of well-being in four categories (housing, health, jobs, and socio-fiscal). Looking back over the last 18 months, the study found that most states had not improved their well-being. Many are still treading water, and 15-24 states have actually continued to lose ground in each of the categories. Furthermore, states with higher percentage minority populations have fared worse on these measures than predominantly white states.  

Unemployment Is Improving Slightly,
But Long-Term Unemployment Continues to Worsen
Private sector hiring is improving, but even with 216,000 new jobs in March we have a long way to go. There is still only one job opening for every four unemployed workers. We need to add 127,000 new jobs every month just to keep up with population growth. At this rate it would take five and a half years just to halve the unemployment rate down to a more acceptable 4.4%. There at 13.5 million unemployed Americans who are actively seeking work, plus 8.4 million Americans who are working part-time only because they can’t find full-time jobs, and at least another 2.4 million who would like to work but aren’t looking right now. The length of time workers are unemployed is still inching up; half of those unemployed have been looking for five months or longer (the average amount of time out of work is now nine months and rising). The overall unemployment rate is 8.8%, but the rate remains especially high for those with limited education, Hispanics (11.9%), Blacks (15.5%), teenagers (24.5%), those aged 20-24 (15.0%), veterans who’ve served since 2001 (10.9%), and persons with a disability (15.6%).  

Real Earnings Are Falling While Corporate Profits Soar
While more Americans are finding work, wages and earnings are heading in the wrong direction.

The economy has been expanding for almost two years. Real corporate profits neared an all-time high in 2010, and top CEOs earned 23% more in 2010 than 2009. But the gains in productivity generated by American workers are not ending up in their pocketbooks. Instead, the Wall Street Journal reported last month that, while productivity has climbed 5.2% in the first 18 months of the recovery, that had translated into record profits for shareholders, not higher wages for workers. In fact, since that story broke, real hourly wages have fallen more than 1% in the last two months alone. And that’s not an isolated blip. From March 2009 to March 2011, the average American worker lost 1% of their total earnings in real terms. 

Good Jobs Lost During the Recession Are Being Replaced By Low-Wage Jobs
The National Employment Law Project released a report that shows that while the recession’s job losses were concentrated in higher-wage industries (especially construction, non-durable manufacturing, finance/insurance, and information), the limited job gains since have come disproportionately in the low-wage industries (temporary jobs, retail, administrative support, and the service sector).  

We Must Re-Invest in an Equitable Recovery That Creates Jobs
We need to invest in education and training for American workers so we can innovate, grow the economy, and create jobs that pay a family-sustaining wage. The president has called on all Americans to get at least one year of education or training after high school. That extra education is critical; workers over 25 with some college or an associate’s degree currently have an unemployment rate of 7.7%, compared to 10.5% for high school grads and 15.2% for those with no high school degree. Last year, the federal Workforce Investment Act system, which provides training and job search assistance, served 8.4 million Americans and helped 4.3 million get jobs.

But our national infrastructure for job training and education is under threat. The continuing resolution recently passed by Congress to fund the government through fiscal year 2011 cut $1 billion from our nation’s investments in job training and education, though even further cuts were averted. And House Budget Chairman Paul Ryan’s long-term budget proposal, which passed the House on April 15, included naïve assumptions about Pell grants, community colleges and the workforce development system, and drastic (though still vague) cuts to these critical programs. It should be obvious, but now is not the time to cut job training and employment services. Solving our budget crisis is important, but slashing the workforce development system will undermine our future competiveness and growth. Right now, we need to get Americans back to work.

Deficit Reduction
All agree that reducing the United States’ current $14 trillion indebtedness is a critical national priority. The President’s plan would reduce the deficit by $4 trillion over 12 years, enough to stabilize the national debt so that it increases no faster than the economy. Rep. Ryan’s plan would have no perceptible impact on the federal deficit, since by his own estimation, his proposed $4.3 trillion in spending cuts are entirely offset by his proposed $4.2 trillion reduction in taxes.    

Balanced Approach and Shared Sacrifice
President Obama follows the Bowles-Simpson deficit reduction commission’s recommendation that deficit reduction be 2 parts spending cuts to 1 part revenue increases. 50/50 would be a fairer balance, but there is at least the semblance of shared sacrifice as the wealthy are asked to give up their Bush era tax cuts when they expire next year.

Congressman Ryan’s budget has no balance or shared sacrifice. At least 2/3 of his recommended spending cuts are to programs for people of limited means, and he not only asks for no contribution from the wealthy but significantly enriches them by making the Bush tax cuts permanent, further weakening the estate tax, and lowering the top tax rate from 35 to 25%.

Distribution of Spending Cuts
The President would cut defense spending by $400 billion over 12 years and would also cut agricultural subsidies. Ryan’s budget does not cut in either of these areas, thus unfairly concentrating his proposed cuts on only limited parts of the budget.

Investing for the Future
While the President’s plan makes deep spending cuts in a number of areas, it also includes spending increases in areas he identifies as drivers of economic growth, including energy innovation, education, health care reform and infrastructure. Ryan’s budget makes no investments for the future.

Health Care
The fundamental differences between the Ryan and Obama plans come into high relief when their recommendations for the publicly funded health care programs Medicare and Medicaid are compared.

Ryan’s health care plan includes no cost containment measures and would, according to the non-partisan Congressional Budget Office, substantially raise overall costs for Medicare beneficiaries. It lowers federal health care spending solely by shifting costs on to the states and the elderly, disabled and low-income people who participate in these programs. Ryan would cut Medicaid funding by $1.4 trillion over the next ten years; Illinois’s share of this cut would be $47 billion.

In addition, Ryan would “block grant” the Medicaid program, meaning the amount of federal funding the state receives each year would be fixed and would not be adequately adjusted for such cost drivers as medical cost inflation, growth in the population, and aging of the population. The impact of block granting Medicaid would be harshest during recessions, when federal funding would no longer automatically increase to assist more people who lose their jobs, income, and health insurance. This would not only increase hardship and destitution in recessions, but also would further weaken a slumping economy and lead to the loss of many more jobs. And it would deprive states of one of the most important forms of enhanced federal support during recessions, deepening state fiscal crises and crippling the ability of states to meet the greater needs of their citizens in recessions.

Ryan would also end the Medicare program, which provides guaranteed health care to all persons over 65. He would replace it with a voucher paid to private health insurance companies that would shrink in value over time, shifting more and more of the cost of health care onto the elderly.

Obama proposes to bring down the cost of coverage by bringing down the cost of health care itself, instead of just shifting the cost. He would build on the cost containment measures in the Affordable Care Act, producing $100 billion in savings over twelve years from actual cost reductions. There would be no cost shifting to the states or program participants. He would not block grant Medicaid nor would he end Medicare.

Political Courage
Rep. Ryan’s plan imposes over 2/3 of its spending cuts on the politically safest target, low-income people, while offsetting all spending savings with extremely large tax breaks for the wealthiest Americans, accomplishing no net deficit reduction at all. He asks for no sacrifice from his base, and he creates clear winners among the financial backers of his political party. 

President Obama’s plan provides a balanced approach (albeit relying somewhat too much on spending cuts and not enough on revenue increases), shared sacrifice, and real deficit reduction without undermining the fundamental structure of our health care safety net programs. There will be significant pain among core elements of his base. The President leveled with the American people, making clear that the solution will not be achieved by magical elimination of “waste and abuse” or reduction of programs like foreign aid, but instead by austerity in basic programs and services that the vast majority of Americans want or need and a shared responsibility to produce needed revenue.

The Shriver Center acknowledges the Center on Budget and Policy Priorities analysis of the Ryan and Obama plans, on which this piece relies heavily.

Overall, the very worst cuts—ones that would have devastated vulnerable Americans and taken us off the road to economic recovery—were avoided. For instance, the appropriations to implement the Affordable Care Act were preserved, which will improve the lives of millions of Americans and save the federal government hundreds of millions of dollars. Our federal funding of education at all levels—from Head Start to K-12 to Pell grants for college, will hold steady. The appropriations to the new Consumer Financial Protection Bureau are intact.

However, there were many deep and important cuts that will negatively affect low-income Americans and their communities.

• 7%, or more than $500 million, cut to WIC, a food program for pregnant women and mothers.
• Nearly a billion dollars from the Community Development Block Grant, which helps communities all over the country with development goals.
• $30 million from the Legal Services Corporation which provides civil legal assistance to low-income Americans.
• $900 million from community health centers.
• Nearly $400 million from the low-income home energy assistance program.
• More than $1 billion in key job training and education programs.

There are tough choices and important work ahead, including the fiscal year 2012 budget, which is being debated now. The cuts made to the federal fiscal year (FFY) 2011 budget, difficult as they are for many low income people, are dwarfed by some of the proposals for cuts being floated for FFY 2012, including the House Republican version that passed the House today on a partisan vote. And the standoff and political difficulties that surrounded the finalization of the FFY 2011 budget six months after the fiscal year began now look easy compared to the fundamental and high-stakes debates that will take place before there is an FFY 2012 final budget. Stay tuned.

On Thursday, March 10^th, Governor Pat Quinn signed the Illinois internet tax law (

A series of U.S. Supreme Court decisions starting in the late 1960s relating to catalog and mail order companies—National Bellas Hess Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967) and Quill Corp. v. North Dakota, 504 U.S. 298 (1992)—have precluded states’ internet taxing authority. According to these cases, collecting different state and local sales taxes was too complex, placed an undue burden on catalog and mail order companies, and was an unreasonable restriction on interstate commerce in violation of the Commerce Clause. The Supreme Court therefore held that only states in which a company has a nexus, i.e., the physical presence of retail outlets or distribution centers, can be required to collect sales taxes.

Technology has since made computing sales tax effortless, and so the justification for the Court’s original ruling is gone. In fact, two other Supreme Court decisions—Scripto Inc. v. Carson, 362 U.S. 207 (1960) and Tyler Pipe v. Washington Department of Revenue, 438 U.S. 232 (1987)—have held that an out-of-state seller is deemed to have a nexus through a physical presence in a state if it uses in-state third parties to help establish a market for its goods within the state.

Modeled after a 2008 New York law, the new Illinois law expands the meaning of “physical presence” beyond a warehouse, factory, or office to include marketing or affiliate companies and website operators who earn commissions for guiding consumers to online stores. Since it has long been established that states can require out-of-state sellers to collect sales taxes if they use independent, commission-based representatives to solicit business within the state, New York’s—and now Illinois’s—laws deem a retailer to have a physical presence within the state when it has independent affiliate websites promoting sales on its behalf within the state. Such affiliates place links on their websites to the retailer’s site and receive a commission when someone follows the link and buys something from the retailer.

As states continue to struggle with the effects of the recession, many are exploring options to increase revenue through internet sales tax laws. The Illinois Department of Revenue estimates that it loses between $153 and $170 million in revenue from uncollected internet sales tax. Nationwide, uncollected online sales taxes reached $8.6 billion in 2010. Legislators in at least seven other states introduced similar bills last year, and legislation passed in North Carolina and Rhode Island, but California’s, Hawaii’s, Connecticut’s and Minnesota’s bills were vetoed by their governors.

Amazon currently collects sales tax in New York—but has a lawsuit against the constitutionality of New York’s 2008 legislation—and in Washington, where it is headquartered, and Kansas, Kentucky, and North Dakota, where it has warehouses. Thus far, Amazon’s legal challenge has been unsuccessful, but regardless of its success Amazon may be on its way out of dominance as it continues to build warehouse and fulfillment centers in more locations. Texas’ Comptroller, for instance, recently sent Amazon a $269 million bill equal to four years of sales taxes to Amazon because it has a warehouse in Texas.

In response to the passage of the new Illinois legislation, Amazon notified its Illinois affiliates that it will terminate its contracts with them and stop paying advertising fees to Illinois residents who refer customers to Amazon.com, Endless.com, or SmallParts.com on April 15^th. Overstock also notified its Illinois affiliates that it will cut ties with them as of May 1^st unless the law is repealed or the affiliates move to another state without a similar law. Amazon has also threatened to cancel its 10,000 affiliate contracts in California if California’s third legislative effort in three years to pass legislation (AB 153) is successful. In the meantime, Wal-Mart, Sears, Best Buy and Barnes & Noble have issued public invitations to the any affected affiliates to join their affiliate programs instead, and the Alliance for Main Street Fairness, a brick-and-mortar retailers’ organization, has created a new website to connect terminated affiliates with retailers who already collect online sales taxes.

Amazon’s termination of its Illinois affiliates does not have much impact on Illinois consumers. They can continue to buy directly from Amazon or through affiliate websites despite the fact that Amazon will not be collecting the sales tax. Technically, however, under Illinois’s Use Tax Act customers have always been, and will continue to be, required to pay sales tax whether or not the retailer collects it. Moreover, Illinois recently implemented an amnesty program allowing customers to pay sales and use taxes on past online purchases, between June 30^th, 2004, and December 31^st, 2010, without penalty. Under the amnesty program, which lasts until October 15^th, consumers can pay this tax as part of their Illinois Form IL-1040 income tax.

Read the Shriver Center’s previous blog on the Amazon tax law for more information.

This blog post was coauthored by Ji Won Kim.

In addition to the continuing continuing resolutions being passed by Congress, policymakers are now turning their attention to the 2012 budget. The House is expected to release a proposal soon. And the President has released his proposal for the fiscal year 2012 budget.You can check out the White House proposal in a visual format with the New York Times’ interactive budget graphic, and find highlights and analysis in our prior blogpost. Without careful analysis and a balanced approach, deficit-reduction efforts could have unintended and unwanted consequences. The economic recovery, our nation’s fiscal health, and the well being and economic security of American families all rest in the balance. In a recent post, we laid out four principles that should guide our budget cutting. Briefly, they are:

• Evenly Balance Spending Cuts and New Revenues; Austerity Is Not the Answer
• Evenly Balance Defense and Non-Defense Discretionary Spending
  
• Avoid Making Low- and Moderate-Income Households Worse-Off
  
• Make Wise Investments in the Future--to Ensure the Economic Recovery and Economic Security for All Americans
  

 Here’s how the President’s proposed budget stacks up by our principles:

Currently, the President’s 2012 proposal is to reduce the deficit with two-thirds cuts, and one-third new revenue. The budget should go further to eliminate inefficient corporate tax loopholes and governmental subsidies. By increasing revenue in responsible ways, we will reduce the need to make drastic and unwise cuts, such as the President’s proposal to slash the Low Income Home Energy Assistance Program. And the budget must share the burden of cuts more equitably. Currently, the budget calls for zero real growth in military spending, but that’s only a 5% reduction from the 2011 request.

Wisely, the President’s budget invests in our future in several ways. It increases funding for K-12 education, provides short-term spending on surface transportation that will create jobs, and long-term investments in innovative technologies and policies that will sustain our recovery. Additionally, the Obama Administration has proposed a $100 million dollar “Pay for Success Bond” program in his fiscal year 2012 budget. If carefully implemented, social impact bonds are a promising development. This funding mechanism allows the funder (which could be private foundations or the government) to pay for innovative social service provision entirely or largely based on whether the providing organization meets agreed-upon performance measures. That spurs effective, efficient programs, and ensures that those programs that don’t work end. 

We need to make cuts to control the federal deficit, but doing so blindly will cost jobs and destabilize the fragile economic recovery. Austerity is not the answer. We must be fiscally responsible and still fulfill our responsibility to the most vulnerable in our society. By investing in education and training and funding innovation, we will have a stronger economy. A stronger economy will increase tax revenues in the future and help balance the budget, while strengthening the middle class and helping Americans make ends meet and pursue the American Dream.