federal budget deficit

Politics of the Charitable Deduction, Part II

/ The Old Crank

(Updated below)

Earlier today the White House released a new report from the National Economic Council) that argues forcefully against the idea of a fixed-dollar-amount cap on tax deductions for taxpayers at all levels of income as a viable deficit-reduction strategy. This follows a White House blog post from last Friday by Jason Furman and Gene Sperling, two of President Obama’s top economic advisers, that was also critical of the idea; and a story in The Washington Post, also from last Friday, about a document “being shared with congressional Democrats and other White House allies” that contained “a rebuttal to Republican arguments that eliminating loopholes and deductions could raise just as much money for deficit reduction as raising the income tax rates on top earners.”

In all cases, the administration’s analysis has been focused on a $25,000 fixed-dollar-amount cap on deductions. (I don’t believe the Republicans have actually made a specific proposal yet regarding a cap on tax deductions, other than general support for the idea of limiting deductions and loopholes.)

In addition, the administration’s initial set of objections to the idea of a fixed-dollar-amount cap never appear to have mentioned the President’s own longstanding proposal to lower the cap on deductions at 28% for those earning more than $200,000 a year (and married couples earning more than $250,000 a year), which led me to speculate whether the administration was quietly tabling that idea as well. In the Post article from last Friday, for example, there was a specific reference to a White House desire to “preserve tax breaks for charitable giving,” and no mention of their earlier proposal that would do just that (although in a much, much less substantial way than a fixed-dollar-amount cap would do).

But by late yesterday, just as nonprofit interest groups were leaving town after a huge lobbying effort this week to protect the charitable deduction, that 28% proposal started seeing some daylight again. Most significantly, it was specifically mentioned as an alternative in that National Economic Council report issued this morning. This report contains a more detailed argument as to why a dollar amount cap is a bad idea, (in a nutshell, they argue that it basically wipes out the charitable deduction because under a fixed-dollar-amount cap, after people take their mortgage deduction and other automatic deductions, they’ll hit or already be above the cap). But now they are also making a reinvigorated pitch for the President’s 28% deduction cap on top earners as a responsible alternative.

In an earlier post I suggested that the specific critique coming from the White House last week didn’t matter as much as the fact that the they were coming out so strongly against a cap on deductions at all, without mentioning the President’s earlier proposal. I initially thought that the absence of any reference to that earlier proposal might have meant they were backing off of it completely, which was not the case.

What’s interesting to me about all this is that the nonprofit interest groups, while obviously much more alarmed about the impact of a fixed-dollar-amount cap, (and I think the administration has made a strong case that there is in fact a big difference between a fixed-dollar-amount cap on all taxpayers and a 28% cap on top earners only) were really unhappy about the 28% cap idea when the President first introduced it. Have those groups softened their opposition? If so, is it because the administration has convinced them that the 28% cap is not going to have a significant impact, or is it because they are convinced that at least it’s not as bad as what the Republicans want to impose? (It’s also worth noting again that just after the election, both parties were talking about deduction caps, and less of a distinction was made between Romney and the President’s approaches.)

UPDATE 12/10/12: As I mentioned above, groups that represent the nonprofit sector in D.C. had been pretty clear that were opposed to any changes to the charitable deduction rules. Here is an article from The Philanthropy Journal from just after the election that summarizes this opposition.

Again, White House is now positioning their earlier proposal to limit deductions to 28% for high-income taxpayers as a responsible alternative to what essentially was Mitt Romney’s proposal to limit deductions. I’m still not clear to what extent anyone since the election is still really pushing the fixed-dollar-amount cap he proposed.

Decades-Long Decline in Federal Spending on Job Training and Workforce Development

/ The Old Crank

In a recent article for the Center for American Progress, Joy Moses lists 10 reasons why cutting poverty programs to address the government’s fiscal issues is a bad idea. Reason number three is that spending on many individual programs is “stagnating or declining.” She cites workforce and job training programs as a prime example:

Chart from "Top 10 Reasons Why Cutting Poverty Programs to Resolve the Fiscal Showdown Is a Bad Idea"

Source: Joy Moses, “Top 10 Reasons Why Cutting Poverty Programs to Resolve the Fiscal Showdown Is a Bad Idea”

I went and looked at the OMB spreadsheet she cites as a source and it looks like those numbers make sense, although I wonder if there is a bit of an apple/oranges problem when comparing federal job programs from 1972 with 2012. I’m also not sure why she compares the 2007 investment with 1972’s expenditure, when it looks like job training spending spiked even higher in the late 70s-1980. (I assume there is a good reason, I just don’t know what it is.) But none of that takes away from her overall point, which should be helpful to workforce/job training advocates.

One slightly more substantive quibble: I’m not sure that I’d describe federal job training as strictly a “poverty program,” since these services are not exclusively aimed at people living in poverty. In fact, as others have pointed out, low-income people currently represent only about half of those receiving job training or related services with federal adult employment and training funding, despite their increased rates of unemployment. It would be useful (and possibly make her argument even stronger) to look at whether the number of low-income individuals receiving federally funded job training and related services has declined in the same proportion as the overall decline in funding.

Senator Durbin: Federal Education Spending Boosts Economy

/ The Old Crank

His comments about Medicare and Social Security got most of the attention, but in his speech yesterday at the Center for American Progress, Senator Dick Durbin (D-IL) also came pretty close to taking the position that education should be firewalled off from any further spending cuts that are included in the deal to avert the year-end fiscal cliff.

According to my notes, he said that if the deal includes caps on spending, it should not apply to things that “create jobs and growth and opportunity in our economy.” In that category he included education, infrastructure, and research. In fact, he said that, if anything, we should be spending more in this category, particularly on infrastructure.

He did identify one area where savings could be found in federal education spending: financial aid that ends up at for-profit schools, citing some figures from the Harkins report on the percentage of federal college loans that goes to for-profit tuition and the high default rates on those loans.

Senator Durbin also made the point that probably can’t be said enough: if spending cuts do end up being part of the deal, it’s important to note that $1.5 trillion in savings were already created by capping funding for discretionary programs in the Budget Control Act, and a disproportionate amount of those savings came from non-defense programs. 

OMB Sequester Transparency Act Report Is Released

/ The Old Crank / 1 Comment

OMB has just released its report on sequestration, which they were required to do by the Sequestration Transparency Act passed by Congress earlier this summer. (The report is actually about a week late.)

To me, it’s mainly of interest because it provides us with OMB’s best estimate, at this time, as to what the percentage cut will be: 8.2% for nondefense discretionary spending, and 7.6% for nondefense mandatory programs. (Adult education falls under the category of nondefense discretionary spending.) This is based on an assumption that FY 2013 discretionary spending will be at FY 2012 levels (the Act mandated that they do this). For fairly tedious reasons I won’t go into here, that’s not what’s actually going to happen, and so the final percentage cut will actually be a bit different. But we are moving closer towards understanding precisely what the numbers will be.

Sequester Transparency Report Excerpt

The report does not break out Adult Education separately. I’m too tired to calculate precise numbers for adult education alone, but without looking anything up, I believe an 8.2% reduction from FY 2012 levels is going to be just shy of $50 million.

Again, bear in mind that there are several other federal programs other than Title II of WIA that fund adult education in the U.S., and all of the estimates I’ve seen only look at WIA Title II. It would be very difficult to figure out with much precision what the combined impact of the cuts to the other programs that fund adult education would be, since these programs do not exclusively fund adult education—and the extent to which they support adult education services may vary from year to year. The point is, any analysis of the impact of sequestration that looks only at WIA Title II is surely underestimating the actual impact that sequestration will have on this field.

I also think that the even bigger danger for adult education funding may lie in possible replacements for sequestration being bandied about, which could conceivably cut even more from nondefense discretionary programs in over to prevent cuts on the the defense side.

By the way, there are pages and pages in this report identifying certain categories of spending as “sequesterable” or not. As a fun weekend sequester-themed activity—and one that might also help get more people talking about the issue—try using the word “sequesterable” in conversation at some point. Here is an example to get you started: “Boy, I am really in a sequesterable mood at the moment—I think I will go and sit in the closet.”