Key Findings:

• Kentucky, Michigan, Ohio, and Texas have recently enacted gross receipts taxes. It is likely that these taxes cannot be legally imposed on Internet access providers because the taxes appear to satisfy the definition of a prohibited “tax on Internet access” under the Internet Tax Freedom Act (ITFA).
• The new gross receipts taxes in these four states serve as general business taxes. They substitute for or supplement a corporate income tax. Corporate income taxes serve as the general business tax in the vast majority of the other 46 states.
• There is an explicit protection in ITFA for corporate income taxes imposed on Internet access providers, but not for gross receipts taxes.
• Accordingly, these four states would suffer a disproportionate loss of revenue if ITFA is, as expected, renewed.
• If Congress wished to prevent such an outcome, it would have to add explicit protection for these four states’ taxes to ITFA.

Key Findings:

• Making the 1998 “Internet Tax Freedom Act” permanent — as proposed by S. 156/H.R. 743 — could adversely affect state and local government revenues, and therefore the availability of funds for important services like education, health care, and law enforcement, in three ways:
• Potentially block states and localities from extending their normal sales taxes to music, movies, and television programming delivered over the Internet, which is rapidly becoming a major marketplace for such services.
• Allow Internet access providers to try to escape a host of general taxes that other businesses must pay, such as sales taxes on equipment purchases;
• Deprive nine states of $80m-$120m in annual revenues from non-discriminatory and heretofore grandfathered taxes on Internet access services;

The enactment of this legislation is unwarranted:

• Studies by GAO and U. of Tennessee economists show that existing taxes on Internet access have not adversely affected household subscriptions to access or the availability of broadband access in particular locations.
• All of the 14 developed nations that outrank the U.S. in broadband adoption do tax Internet access services. Taxation is not the issue.

Key Findings:

• The Medicare provisions in the House SCHIP bill would produce significant net gains for Medicare beneficiaries, particularly those with low incomes.
• The House bill would strengthen Medicare’s finances by phasing out overpayments to private Medicare Advantage health plans. This would add three years to the life of the trust fund and significantly reduce the size of the benefit cuts (or Medicare tax increases) that ultimately will be required to sustain the program. It would also slow the rate of growth in Medicare premiums.
• Furthermore, the bill would expand the programs that help lower-income beneficiaries with their premiums and out-of-pocket costs under Medicare, including the Medicare drug benefit.
• In addition, the bill would improve access to preventive care and other services (including mental health services and screening for colon cancer) for all beneficiaries.

Key Findings in this Report:

•  The share of unemployed workers receiving unemployment insurance has declined in recent decades and now stands at just 37 percent. This is a sign that the UI program, designed in the 1930s, does not reflect the realities of work and family life today. Many workers who lose their jobs receive no UI benefits; others exhaust their benefits before finding a new job.
• Now is an opportune time for UI reform. Renewing the Federal Unemployment Tax Act surtax scheduled to expire this year (as President Bush has proposed) would provide about $7 billion over five years that could be used to encourage states to institute UI reforms.
• Legislation introduced in the House and Senate (H.R. 2233 and S. 1871 ) would use these funds to give states financial incentives to extend coverage to more low-wage and part-time workers (who are often women), people in extended training programs for high-demand occupations, and those whose job loss was due to compelling family circumstances (such as domestic violence or a family member’s illness).
• In addition to addressing gaps in coverage due to outdated eligibility criteria, the current UI extended benefit program needs to be reformed to better serve the needs of the long-term unemployed.

Key Findings:

• According to CBO, the Senate bill would provide coverage by 2012 to 4 million children who otherwise would be uninsured.
• Some 3.5 million (85 percent) of these children would have incomes below states’ current eligibility limits. (Only about 600,000 of them would become eligible for public coverage as a result of state actions to broaden their programs.)
• The bill would make significant progress in reaching the lowest-income uninsured children — those with incomes low enough to qualify for Medicaid (generally, below the poverty line). Some 1.7 million of these children would gain coverage under the bill.
• The bill the House has approved would make even greater progress, covering 5 million uninsured low-income children by 2012, 3.1 million of whom would have incomes low enough to qualify for Medicaid. [1]

Key Findings:

• As an alternative to bipartisan Senate legislation that would provide coverage to 4 million uninsured children, Senate Minority Whip Lott and Senate Minority Leader McConnell have introduced a SCHIP plan that would fail to make progress in reducing the number of uninsured low-income children.
• By 2012, one-third of the states would face funding shortfalls under the plan. Although the proposal includes sufficient overall funding to maintain all states’ current SCHIP programs, it would distribute these funds inefficiently across states and then let substantial sums revert to the Treasury unspent even as many states were experiencing shortfalls and being forced to cut back their programs.
• The proposal sharply restricts existing state flexibility in covering children and lacks new tools or financial incentives for states to enroll children who are eligible but uninsured.
• The plan also would preempt various state laws designed to keep insurance affordable for small businesses that have less healthy workforces and to ensure that insurance companies cover certain important health care services.
• Provisions in the bill to modify or expand Health Savings Accounts would do little to help the uninsured afford coverage, but be likely to weaken employer-based coverage by encouraging some employers to stop offering insurance to their workers.

Key Findings:

• Charges that the House SCHIP bill would enable undocumented immigrants to obtain Medicaid and SCHIP coverage are false. Undocumented immigrants have never been eligible for regular Medicaid or SCHIP. The House bill maintains this prohibition.
• The House bill would give states more flexibility in how to ensure that children applying for Medicaid are citizens or eligible legal immigrants. This would address severe problems caused by a poorly designed documentation requirement imposed in 2006, which has shut tens of thousands of U.S. citizen children out of Medicaid while identifying virtually no undocumented immigrants.
• The bill tightens controls to ensure that no federal Medicaid funds go to undocumented immigrants. It requires all states to conduct annual audits to ensure that undocumented immigrants are not participating in the program; states whose audits find any undocumented immigrants would be required to fully repay the federal government.
• The bill would also allow states to provide Medicaid or SCHIP coverage to legal immigrant children and pregnant women during their first five years in the country, as the National Governors Association and the National Conference of State Legislatures have called for on a bipartisan basis.

Key Findings:

• Claims that the House SCHIP bill would vastly expand public health programs, by providing coverage to large numbers of middle-class children who already have private coverage, are incorrect.
• According to CBO, the bill would provide SCHIP or Medicaid coverage to 5 million uninsured children by 2012. Some 4.6 million (90 percent) of these children would have incomes below states’ current eligibility limits. (Only about 500,000 of them would become eligible for public coverage as a result of state actions to broaden their programs.)
• The bill would provide coverage to the large majority of uninsured children whose incomes are low enough to qualify for Medicaid (generally, below the poverty line). Some 3.1 million of these children would gain coverage under the bill.

Key Findings:

A recent letter from America’s Health Insurance Plans (the trade group representing private health insurers) to two House committees employs a number of misleading claims regarding the House proposal to curb federal overpayments to private "Medicare Advantage" plans:

• Claim: The House bill would disproportionately affect low-income and minority beneficiaries.

  Reality: Low-income and minority beneficiaries do not disproportionately enroll in Medicare Advantage.

• Claim: Cutting overpayments to the private plans would hurt beneficiaries’ quality of care.

  Reality: There is no evidence that private plans provide better care than traditional Medicare.

• Claim: The elimination of the overpayments would translate directly into the loss of the extra benefits the plans provide.

  Reality: While some of the overpayments go to additional benefits, a substantial share go to profits and to marketing and administrative costs.

• Claim: The bill’s proposed regulatory changes to Medicare Advantage have not been thought through and would create inconsistency across states.

  Reality: The bill would restore (and strengthen) the joint federal-state regulatory framework that was in place before the 2003 Medicare drug law.

• Claim: The private plans should not be required to report the share of their payments that go to providing health care.

  Reality: The bill would close a gap in the oversight of the private plans that results from the lack of standards on how much of plan payments can go to administration, marketing, and profits, rather than to providing health care.

Key Findings

• The Administration is seeking to revive congressional interest in its proposed tax deduction for the purchase of health insurance by presenting it as a better way to expand health coverage than the SCHIP bills now before Congress.
• The Administration plan, however, would do little to help most of the uninsured buy coverage, since they owe little or no federal income tax.
• In addition, the plan would weaken employer-based coverage by eliminating the tax advantage for employer-sponsored health plans, but would provide no alternative way to "pool" healthier and sicker workers to keep coverage affordable for all.
• In addition, workers who face higher health premiums even though they are not enrolled in an overly generous health plan, such as many people who work for small businesses, could face a tax increase under the plan. Also, the value of the standard deduction would erode substantially over time. These factors would make it more difficult for many people to afford health insurance.

Key Findings:

• In contrast to the CHAMP Act, which would provide coverage to nearly 5 million uninsured children, the SCHIP bill introduced by Representatives Barton and Deal would significantly increase the number of uninsured children.
• By 2012, some 27 states would face funding shortfalls under the bill that are equivalent to the cost of covering nearly 2 million children throughout the year.
• The Barton-Deal bill also would sharply reduce states’ flexibility in covering children.
• In addition, the bill contains no new tools or financial incentives for states to enroll more of the eligible but uninsured children.
• The bill would eliminate federal standards that prevent SCHIP funds from being used to pay for private coverage that includes inadequate benefits and unaffordable cost-sharing.

Key Findings

• The current tax treatment of “carried interest” allows private equity firm managers to pay tax on a large portion of their compensation at the 15 percent capital gains rate, rather than at the 35 percent top income tax rate that would otherwise apply.
• As financial industry billionaire Warren Buffett has noted, this means managers earning $500 million can easily end up paying a smaller share of their income in taxes than many middle-income Americans do.
• Further, by treating carried interest differently than other comparable forms of compensation, the tax break creates economic distortions. Rather than helping the economy, taxing carried interest at low rates likely makes the market for financial services somewhat less efficient than it otherwise would be.
• Some have claimed that eliminating the tax break for carried interest would greatly harm state employee pension plans and other investors. This argument does not withstand scrutiny and has been rejected by pension plans themselves.
• The carried interest controversy also illustrates how taxing capital gains at much lower rates than other income creates powerful incentives for tax schemes designed to reclassify regular income as capital gains.

Key Findings:

• As an alternative to strengthening SCHIP, the Administration has proposed creating a tax deduction for the purchase of health insurance (and has indicated it could accept a tax credit instead). But even with such a tax benefit, most low-income families would not be able to buy adequate coverage in the individual health insurance market.
• One recent study found that 72 percent of low-income people who tried to buy insurance in the individual market found it very difficult or impossible to find coverage that was affordable; 26 percent were refused coverage or charged more because of a pre-existing health condition.
• Other studies show that individual-market coverage could cost one-third of a low-income family’s income, when both premiums and the plans’ high out-of-pocket costs are considered.
• The high out-of-pocket costs often required in individual health insurance plans could also force families to do without needed care. Studies indicate that low-income people often cope with high cost-sharing in their health plans by going without necessary health-care services.
• In addition, tax subsidies for the purchase of individual health insurance would likely encourage some employers to cease offering health insurance to their workers, on the assumption that workers could obtain coverage on their own.

Key Findings

• The SCHIP-Medicare bill before the House would repeal the requirement that the President submit next year (and in succeeding years), and that Congress consider, proposals to keep general revenues from making up more than 45 percent of total Medicare funding. 
• The 45-percent threshold is a misleading measure of Medicare’s financial health. Medicare was designed to be financed in large part by general revenues (as well as payroll taxes), in part because payroll taxes are regressive. 
• The effect of the threshold is to take certain options for improving Medicare financing off the table. For example, it prevents Congress from eliminating a modest share of Medicare’s funding gap by closing abusive corporate tax shelters or scaling back the tax cuts for the wealthiest Americans. Reform options would be limited to increases in regressive payroll taxes and beneficiary premiums, as well as cuts in benefits and payments to health care providers. 
• Medicare’s financing problems are large enough that a combination of measures, including added general revenues as well as reforms in Medicare, are likely to be needed.

Key Findings

• The bipartisan Section 8 Voucher Reform Act (SEVRA) would make important improvements to the housing voucher program, which the Administration characterizes as “one of … the Federal Government’s most effective programs.”
• SEVRA would build on this success through reforms to rules governing voucher funding policy, tenant rent payments, and other aspects of the program that should make the program more efficient and effective.
• Unfortunately, SEVRA also contains an unnecessarily large expansion of a demonstration program under which state and local agencies can operate outside most program rules. If SEVRA is not modified to place more manageable limits on the size of the demonstration, oversight and evaluation of the demonstration are likely to be compromised. In addition, more than 800,000 low-income families could be exposed to rent increases or other untested policies that may have adverse effects.

Key Findings:

Various Administration claims regarding the emerging SCHIP legislation do not reflect reality:

• Claim: It would advance a “Washington-run, government-owned” health plan designed to pave the way for a single-payer system.
• Reality: SCHIP and Medicaid are not single-payer systems, and most SCHIP (and Medicaid) beneficiaries receive coverage through private managed care plans with which their state SCHIP and Medicaid programs contract. The AMA and the trade associations for the private insurance companies and the drug companies — hardly supporters of “government run” health care — support expanding SCHIP to cover more uninsured low-income children.
• Claim: The bill would primarily shift already-insured people “with good incomes” from private to government coverage.
• Reality: The legislation being developed on Capitol Hill is targeted at low-income children who otherwise would be uninsured, as the CBO analysis of the Senate Finance Committee bill clearly shows.
• Claim: SCHIP expansions will be inefficient since they will “crowd out” private coverage.
• Reality: The CBO figures show “crowd-out” would be modest under the Senate bill, and the economist whose study on SCHIP crowd-out is touted by the Administration has found that expanding programs like SCHIP is considerably more efficient as a way to cover the uninsured than alternatives like tax credits.

Key Findings

• The Administration has threatened to veto the Labor-HHS-Education bill and six other appropriations bills, purportedly on fiscal grounds. Yet these bills would cost less in 2008 than they did in 2002-2006, on average, after adjusting for inflation and population growth.
• The Labor-HHS-Education bill, which funds such programs as Head Start, child care, Pell Grants, and the National Institutes of Health, averaged $158 billion in 2002-2006. (This amount is adjusted for inflation and population growth.) For 2008 the Senate and House would reduce this amount to $152 billion and $154 billion, respectively. The President has proposed a much larger cut, to $141 billion.
• At the same time, the Administration has not threatened to veto five other appropriations bills that would cost considerably more than those bills averaged in 2002-2006.
• Thus, it is difficult to conclude that the planned vetoes are motivated by a desire to restore fiscal discipline by vetoing bills with “excessive” funding levels.

Key Findings

• The Deficit Reduction Act (DRA) of 2006 and HHS’s interim regulations significantly reduce states’ flexibility to design TANF programs that meet the diverse needs of their low-income families.
• Congress can make legislative changes to address some of the most serious concerns that states and others have raised about the DRA and the interim regulations.
• For example, Congress can give states more flexibility to design employment-related programs for persons with disabilities, to integrate training and work experience with job readiness and job seeking activities, and to reduce the paperwork required to track hours of participation.

Key Findings

• Despite the Administration’s sharp criticism of the planned congressional appropriations levels, the overwhelming bulk of the $53.1 billion increase in appropriations that Congress plans for 2008 — 81 percent of it — consists of increases the Administration itself has requested in military and homeland security programs.
• The main dispute between the Administration and Congress is over a $21 billion difference in domestic appropriations.
• The Administration proposes to cut these programs $16 billion below the 2007 levels (after adjusting for inflation) and threatens to veto bills that do not contain these cuts. Congress would reject these cuts and instead provide a modest increase for these programs of $5 billion, or 1.4 percent. The main dispute between Congress and the Administration is thus whether to cut programs funded in domestic appropriations bills, not whether to make large increases in them.
• Under the funding levels that Congress plans, domestic discretionary programs would grow more slowly than revenues, and thus would not create pressure for tax increases.

Key Findings

• Property tax revenue caps do nothing to change the rising costs facing localities; they only make it harder for localities to provide the services residents demand and need.
• Increased state aid may help localities avoid cutting services in the short run, but such aid is often unreliable over time.
• Localities may pass overrides or increase other local sources of revenue, but such actions can increase funding inequities among localities and make the revenue system more regressive.
• When localities have not been able to replace lost property tax revenue, the quantity and quality of services such as schools, public safety, and infrastructure has declined.
• Homestead exemption and circuit breaker programs offer ways to lower property taxes without jeopardizing public services.

Key Findings

• CBO has found the Senate immigration bill would have little effect on the federal budget over both the short and long run.
• CBO’s ten-year cost estimate finds the bill would bring in more than twice as much in new tax revenues from immigrants as it would cause to be paid out in new entitlement expenditures; thus, the provisions related to changes in policies regarding legal status would reduce the deficit.
• If the new discretionary spending the bill authorizes, primarily for border enforcement and employment restrictions, is funded in full, and if none of these expenditures are offset by reductions in other discretionary spending, then the bill as a whole will increase the deficit by $17.8 billion over ten years, or one one-hundredth of one percent (0.01 percent) of GDP.
• This small net cost would stem from the enforcement provisions; if the new enforcement funds were provided and the rest of the bill dropped, costs would be higher, not lower.
• The long-run fiscal effects also are small, CBO found, essentially amounting to a wash (“several billion dollars” in 2027).
• The CBO report and an earlier analysis by the Social Security actuaries also indicate the bill would modestly strengthen Social Security’s finances.

Key Findings:

• A growing number of states are providing financial incentives to encourage Medicaid beneficiaries to obtain preventive services and combat problems like smoking and obesity. Few rigorous studies have been conducted, however, to see whether incentives achieve these goals.  
• Economic rewards, when combined with other interventions, may be effective in increasing preventive care. No studies indicate that incentives are effective against smoking or obesity, however, both of which are complex problems requiring more substantial assistance.  
• West Virginia’s penalty-based incentive approach, which restricts health benefits for beneficiaries who do not follow a particular behavior plan, is unlikely to produce health improvements. In fact, it risks harming people who do not comply with the plan because of mental health or other problems, by denying them needed health care services.

Key Findings

• Census data indicate that since 2000, the number of low-income renter families with severe housing cost problems has increased by one-third, to nearly 9 million.
• The President’s budget, however, would cut HUD funding for 2008 by $2 billion below the 2007 level, adjusted for inflation, and thereby exacerbate the effects of the large cuts made in 2005 and 2006.
• Congress took critical steps to reverse the weakening of low-income housing programs in the 2007 appropriations law, by providing funding increases for core HUD programs. But additional increases, as well as policy improvements, will be needed in 2008.
• Just to prevent low-income families from losing assistance and to avert a further deterioration of public housing, Congress will need to increase funding for the three principal low-income housing programs by an estimated $2.8 billion above the President’s request. This includes $600 million for Section 8 vouchers, $300 to $900 million for Section 8 Project-Based Rental Assistance, and $1.6 billion for public housing.
• Congress also should fund “incremental” Section 8 vouchers to help stem the growing housing affordability problems that low-income families encounter.

Key Findings

• The Administration has threatened to veto any 2008 appropriations legislation that exceeds the President’s requested levels, and has portrayed the Congressional budget plans as containing dramatic increases in appropriated spending. In fact, the vast bulk of the increase in appropriations in the new House-Senate budget agreement is for defense, and it is exactly the amount the President requested in this area.
• For non-defense appropriations, the new congressional budget plan calls for $452.3 billion for fiscal year 2008, a 3.1 percent increase over the current level of funding, adjusted for inflation.
• In historical terms, this level for non-defense appropriations is modest. Relative to the size of the economy, this level would be lower than the amount provided in every year from 2001 through 2006, and lower than the average level for 1990-2007.
• Similarly, in real per capita terms — i.e., after adjusting for inflation and population growth - this level of funding would be below the levels in 2002, 2003, 2004, and 2005. It would fall more than 6 percent below the 2004 level.

Key Findings

• Currently, federal tax credits for higher education are largely unavailable to low-income students and are also unavailable to many moderate-income students.
• This limitation substantially reduces the credits’ effectiveness in encouraging students who would not otherwise attend college to do so.
• Low-income students who do attend college frequently face high costs of attendance, even after taking into account governmental and institutional aid. According to Department of Education statistics, 85 percent of undergraduates from families with incomes below $20,000 had unmet financial need in 2003-2004 that averaged thousands of dollars per student.
• Making the higher education tax credits available to low- and moderate-income students would require making the credits refundable. About a third of all households, and almost half of families with children, have no federal income tax liability. Very few of these households can benefit in full from the current, nonrefundable tax credits, and many cannot benefit at all.
• Expanding the definition of qualifying expenses also would be an important reform. Currently, non-tuition costs such as room and board and books - which make up the majority of out-of-pocket expenses for low- and moderate-income students - count as qualifying expenses for education tax incentives aimed at upper-income students, but not for the education tax credits.

Key Findings

• This analysis lays out three criteria for assessing AMT reform proposals.
• Are the reforms fully paid for, so they do not add hundreds of billions of dollars to deficits?
• Are the reforms well targeted, so they protect middle-income taxpayers from the AMT without spending billions on massive tax cuts for the highest-income households?
• Are the reforms permanent, so they actually resolve the AMT issue, instead of leaving policymakers facing even larger costs for AMT relief a few years from now?