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One of Senator Edward M. Kennedy’s legacies in the new health care law, intended to allow the chronically ill and people with disabilities to continue living in their homes, is too costly to survive without major changes, Obama administration officials now say.

Republican lawmakers, who have vowed to repeal the health care law, cite the administration’s acknowledgment as yet another reason to do so. But the health and human services secretary, Kathleen Sebelius, says the law gives her plenty of authority to make the necessary changes to the program without Congressional action.

To make the program viable, Ms. Sebelius said, she is considering changes in the eligibility criteria, including employment and earnings requirements, to ensure that only active workers may enroll. She also said she favored adjusting premiums to rise with inflation.

Senator Tom Harkin, Democrat of Iowa and chairman of the Senate health committee, encouraged the administration to make any changes that might be required to keep the program fiscally sound, so “no one with a disability will be forced to live in an institution.”

Under the current law, the program will allow workers 18 and older to buy insurance from the government to cover the costs of long-term care. After paying premiums for at least five years, they are then eligible for benefits if they become unable to perform basic activities of daily living because of chronic illness or crippling injury. The program is meant for people with severe disabilities who want to live in the community, though benefits can also be used to help pay for nursing home care or assisted living.

An employer can arrange for workers to be enrolled automatically, with premiums paid through payroll deductions. An employee can opt out at any time and, apparently, re-enroll later.

Advocates for older Americans and for people with disabilities say the need for such help will explode as baby boomers age. President Obama’s 2012 budget seeks $93.5 million for a huge “information and education” campaign, with the goal of having 7.7 million people in the long-term care insurance program by 2015.

In debate on the health care bill in late 2009, Republicans and moderate Democrats repeatedly warned that sicker people were more likely than healthy ones to sign up for the long-term care plan. Enrollment is voluntary, but the law stipulates that premiums must be set high enough to guarantee the solvency of the program over 75 years. Higher premiums would discourage healthier people from participating, economists and actuaries say.

Administration officials, who played down such concerns 15 months ago, say they now share them. Under questioning by a Republican at a Senate hearing last week, Ms. Sebelius said the original version of the program, known as Community Living Assistance Services and Supports, or Class, was “totally unsustainable.”

She told the House Ways and Means Committee, “We very much share the concerns that have been expressed that, as written into law, the framework of the program was not sustainable.”

But Ms. Sebelius resisted Republican demands for the program’s repeal. Instead, she said, she is considering changes to make the program “significantly different than the framework that the law itself describes.” A main goal, she said, is to attract more healthy people, thus spreading the financial risk across a larger group.

For example, Ms. Sebelius said, she may alter eligibility criteria, including employment and earnings requirements, to make sure people are established workers when they enroll.

Federal officials have not specified the amount of premiums or benefits. The Congressional Budget Office estimated that nearly 10 million people might enroll in the program by 2019 and said that premiums would start at $123 a month for benefits expected to average $75 a day. Medicare actuaries estimated that 2.8 million people would participate within three years and said premiums needed to be about $240 a month to cover program costs.

Under the current law, Ms. Sebelius said, a person’s premiums will generally stay the same, but cash benefits will increase with inflation. She said she favored adjusting premiums to rise with inflation, a change that could deter some workers from participating.

Federal officials said they were also looking for ways to discourage workers from dropping out and re-enrolling.

The law governing the program specifies that “no taxpayer funds shall be used for payment of benefits,” a provision Ms. Sebelius said was “nonnegotiable.” The health secretary can, however, adjust premiums as needed to maintain the program’s solvency. Her power to revamp it in other ways is unclear.

“Secretary Sebelius seems to believe that she has more flexibility to change the program than Congress gave her,” said Senator John Thune, Republican of South Dakota.

The law also says that up to 3 percent of the program’s premiums may be used to pay administrative expenses, but since no premiums have been paid, Mr. Obama is seeking the $93.5 million to publicize the program.

“The program’s financial solvency and viability will depend on the enrollment of large numbers of participants,” the White House said in its 2012 budget request. “Employers and individuals will need to have access to information about the need for long-term services and supports and the benefits of the program. It will be crucial to educate employers about how to enroll their employees and to inform individuals about how to enroll directly.”

Public confidence in the program is essential if the government expects millions of people to enroll starting next year. But economists and actuaries have raised many questions.

Richard S. Foster, the chief actuary at the federal Centers for Medicare and Medicaid Services; Alicia H. Munnell, director of the Center for Retirement Research at Boston College; and leaders of the American Academy of Actuaries all said the program would be unstable if, as expected, it attracts disproportionate numbers of people with health problems.

Mr. Foster said his analysis showed the program faced “a significant risk of failure” because people who are or expect to be sick or disabled were more likely to sign up. In a study issued this month, Ms. Munnell, an economic adviser to President Bill Clinton, said more stringent work requirements and an effective national advertising campaign could help attract young, healthy people to the insurance pool.

Even so, she said, “premiums may never reach an affordable level for middle-class households,” so “the program faces enormous challenges.”

Mr. Obama’s debt-reduction commission, a bipartisan advisory body, said in its report late last year that Congress should “reform or repeal” the program.

“The program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger,” the panel said, “so that sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function.”
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Source: The New York Times

In Massachusetts, which has had a government-run health insurance marketplace for four years, people typically file paper applications for subsidized coverage offered by one of five state-approved insurers.

In Utah, employees of small businesses can go to a state Web site and sign up for insurance over the Internet, almost as easily as they download music from iTunes.

The success of President Obama’s health care overhaul, with its promise of affordable coverage for all, depends on the creation of such retail shopping malls, known as health insurance exchanges.

Massachusetts and Utah provide a glimpse of the future, and they offer radically different models for other states. The battle over health care is shifting to the states, and the design of insurance exchanges will be one of the most pressing issues for state legislators when they convene early next year.

“Utah and Massachusetts may well serve as bookends for other states,” said Norman K. Thurston, the policy coordinator at the Utah Health Department.

The Congressional Budget Office predicts that by 2019, about 24 million people will have insurance through exchanges, with four-fifths of them getting federal subsidies that average $6,000 a year per person. People with incomes up to four times the poverty level (about $88,000 a year for a family of four) will be eligible for subsidies.

The Utah Health Exchange organizes the market, allowing consumers to compare a wide variety of health plans sold by any insurers that want to participate.

In the Massachusetts exchange, known as the Connector, the state serves as an active purchaser, soliciting bids from insurance companies and negotiating prices and benefits in an effort to secure the best value for state residents. Health plans cannot be sold through the Connector unless they receive its seal of approval.

“Massachusetts has been more selective and aggressive in contracting,” said Jon M. Kingsdale, who was executive director of the Massachusetts exchange from its creation in 2006 until June of this year.

Matthew A. Spencer, manager of the Utah exchange, said: “We are on the other end of the spectrum from Massachusetts. Our exchange is wide open for any carrier that wants to participate. We define the minimum benefits that plans need to offer. But we step back and allow carriers to compete within the exchange, setting their own prices.”

The idea of an insurance exchange has bipartisan appeal.

Liberals and conservatives alike see it as a way to concentrate the purchasing power of individuals and small businesses.

The federal law was shaped, to a large degree, by the experience of Massachusetts. But Senator Orrin G. Hatch, Republican of Utah, said: “Utah is not Massachusetts. Nor does it want to be.”

Other states will probably fall somewhere along the continuum from Boston to Salt Lake City as they try to figure out the right mix of regulation and competition.

State legislators are asking: Can we get a better deal by limiting competition in the exchange or by accepting all qualified health plans? Should states negotiate premiums or rely on market forces to set rates?

David Clark, a Republican who is speaker of the Utah House of Representatives, said: “In our exchange, the government is a market facilitator, not a contracting agent. We believe in the invisible hand of the marketplace rather than the heavy hand of government.”

Utah has no interest in putting its exchange plans out for bid, Mr. Thurston said. “Any attempt to standardize benefit designs tends to discourage competition and entry into the market, and limits choice,” he said.

In Massachusetts, State Senator Richard T. Moore, a Democrat who is president of the National Conference of State Legislatures, said: “We took a much more governmental approach. But both models make sense. Small states might find Utah is a good model. Bigger industrialized states might go the route we went.”

Massachusetts officials point to the state’s near-universal coverage as evidence that their approach is working. The Census Bureau says 95.6 percent of Massachusetts residents were covered by health insurance last year, compared with 83.3 percent for the nation as a whole and 85.2 percent for Utah.

“We have the lowest uninsured rate in the nation, and we are immensely proud of that,” said Glen Shor, executive director of the Massachusetts Connector.

The White House has provided $49 million to states to help them set up exchanges, which are envisioned as a kind of bazaar where insurers will offer their products side by side, so consumers and employers can make intelligent comparisons.

Congress assumed that insurance would also be sold outside the exchange. But federal subsidies, to help pay for insurance, will be available only to people who enroll in health plans through an exchange.

Exchanges will also play a crucial role as gateways to Medicaid and other public health programs. If people are found eligible, the exchange will help them enroll. In Massachusetts, the same application form is used for Medicaid and for subsidized private insurance purchased through the Connector.

California is another pioneer. On Sept. 30, Gov. Arnold Schwarzenegger, a Republican, signed two bills establishing the California Health Benefit Exchange, with broad powers to “negotiate on behalf of the public” and select qualified health plans.

The legislation generated intense lobbying, and the governor’s intentions were unclear until the last minute. Mr. Obama had urged him to sign the bills and was thrilled when he did, aides said.

The fight in Sacramento offers a preview of what other states can expect. In a letter to California lawmakers in August, Natalie Cárdenas, regional director of government relations for Anthem Blue Cross, a unit of WellPoint, complained that the exchange would have the power to pick winners and losers in the insurance market.

“Federal law will already limit the types of products that carriers can offer,” Ms. Cárdenas said. “Beyond that, the marketplace should determine what products consumers and small employers can purchase, not a government bureaucracy.”

The California Chamber of Commerce urged a veto of the bills, saying they “could lead to unnecessary cost increases and limited choice for employers.”

But Betsy M. Imholz, a lobbyist for Consumers Union, said the California laws struck the right balance.

“At first,” Ms. Imholz said, “the exchange may want to have a large number of health plans participating. But then the state needs to winnow down the number so consumers can see where they will get the best value.”

The California law says the exchange should choose health plans that “offer the optimal combination of choice, value, quality and service.”

Massachusetts requires people to have insurance. Utah does not.

Massachusetts provides more generous subsidies. But, Mr. Kingsdale said, the biggest difference is the magnitude of the two state programs.

In Massachusetts, more than 154,000 people receive subsidized coverage through the exchange, and 40,000 receive unsubsidized coverage, which can be bought on the Web. The Utah exchange, created under a 2008 state law, began enrollment this year. About 1,200 people have coverage through the Utah exchange, and the number is expected to grow to 10,000 by July 2011.

“We anticipate exponential growth,” Mr. Spencer said.

Under the new federal law, the exchanges must be in operation by January 2014. Federal officials will assess states’ progress as of Jan. 1, 2013, and will run the exchange in any state that is unable or unwilling to do so.

The exchanges will have a huge number of duties. They must evaluate health insurance plans and publish “standardized comparative information.” They must set up telephone call centers to answer consumers’ questions. They must determine who is eligible for subsidies and who will be exempt from the penalties imposed on people who go without insurance. They must build new computer systems to exchange data with state Medicaid agencies, insurance companies, employers and federal agencies.

While the exchange cannot explicitly control prices, it can exclude health plans that show a pattern of “excessive or unjustified premium increases.”

State officials worry that sick people will gravitate to the exchange, while healthier people who do not need subsidies will buy insurance outside it. However, insurers must agree to charge the same prices inside or outside the exchange.

Moreover, the law stipulates that members of Congress must get their health insurance through an exchange. So lawmakers will presumably be alert to problems.
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Source: The New York Times

The director of the nonpartisan Congressional Budget Office said on Thursday that permanently extending tax cuts put in place under President George W. Bush would provide a “considerable” economic boost over the next several years but would result in substantial increases in the federal deficit, placing the country in a precarious fiscal situation by 2020.

In offering this assessment, Douglas Elmendorf underscored the difficult choice facing lawmakers as they debate whether to extend any or all of the tax breaks, which are scheduled to expire at the end of the year.

The CBO’s analysis was part of a broader report released Thursday in which the agency projected that the federal government’s budget deficit for this year would be $1.34 trillion. The figure is slightly below last year’s total, but the CBO warned that policymakers face “daunting” challenges in the years ahead in trying to return the country to fiscal sustainability.

Concerns about the federal deficit have been figuring prominently in congressional debates over whether to spend more money on programs to stimulate the economy and to help the unemployed, as well as over the Bush-era tax cuts.

The CBO examined the impact if most of those cuts are extended. This scenario assumed that the breaks for higher-income taxpayers would expire.

“Under that . . . scenario, economic growth would be stronger next year; unemployment would be lower next year,” Elmendorf said. But he added that “over time, that extra borrowing — and it’s a good deal of extra borrowing — would have negative consequences on the economy.”

Republicans and many representatives of business have pushed for a permanent extension of all the tax cuts, arguing this would jump-start economic growth. They warn that allowing taxes to rise could stifle the recovery.

The Obama administration and Democratic leaders in Congress are seeking to extend tax cuts for Americans earning less than $250,000 a year, while letting expire some of those for wealthier individuals. Democrats say this would help stimulate the economy and cost the government less than if all cuts were extended.

The CBO’s baseline scenario assumes that the Bush-era tax breaks will expire, as current law provides. In that case, next year’s deficit would fall to $1.07 trillion, or 7 percent of the country’s total economic output, or gross domestic product, according to agency estimates. By 2012, the deficit would shrink to $665 billion, or 4.2 percent of GDP.

Agency analysts also projected that public debt would rise from 53 percent of GDP last year to almost 70 percent of GDP by 2020, a figure unmatched since the 1950s.

“It is an extraordinarily high level of debt by the experience of this country over the past 65 years,” Elmendorf said. “Of course, it is also an extraordinarily difficult economic situation in which we find ourselves.”

President Obama created a bipartisan commission this year to address the nation’s soaring debt. Members are considering a wide range of measures, from cuts in Medicare and Social Security to reform of the tax system. Obama has asked the group to make recommendations by Dec. 1.

On a positive note, the CBO lowered by $50 billion the estimated cost of the government’s bank bailout program, known as the Troubled Assets Relief Program. The CBO said the change was in part due to improved market conditions and a provision in the recently approved financial overhaul bill that reduced the program’s spending authority.
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Source: The Washngton Post

Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.

Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings his way.

“We’re all working for the government now,” said Mr. Bridwell on a recent sun-baked morning, steering a Hummer through subdivisions laid out like circuit boards on the desert floor.

For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office predicts that the final bill could reach $389 billion.

Fannie and Freddie increased American home ownership over the last half-century by persuading investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted, the companies promised to repay the investors.

Rather than actually making loans, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping to hold down interest rates.

“Our business is the American dream of home ownership,” Fannie Mae declared in its mission statement, and in 2001 the company set a target of helping to create six million new homeowners by 2014. Here in Arizona, during a housing boom fueled by cheap land, cheap money and population growth, Fannie Mae executives trumpeted that the company would invest $15 billion to help families buy homes.

As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.

The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and Congressional Democrats have insisted on postponing the argument until after the midterm elections.

In the meantime, Fannie and Freddie are editing the results of the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices and financing mortgage loans for the new owners.

The two companies together accounted for 17 percent of real estate sales in Arizona during the first four months of the year, almost three times their share of the market during the same period last year, according to an analysis by MDA DataQuick.

Valarie Ross, who lives in the Phoenix suburb of Avondale, has watched six of the nine homes visible from her lawn chair emptied by moving trucks during the last year. Four have been resold by the government. “One by one,” she said. “Just amazing.”

The population of Pinal County, where Mr. Bridwell lives and works, roughly doubled to 340,000 over the last decade. Developers built an entirely new city called Maricopa on land assembled from farmers. Buyers camped outside new developments, waiting to purchase homes. One builder laid out a 300-lot subdivision at the end of a three-mile dirt road and still managed to sell 30 of the homes.

Mr. Bridwell sold plenty of those houses during the boom, then cut workers as prices crashed. Now his firm, Golden Touch Realty, again employs as many people as at the height of the boom, all working exclusively for Fannie Mae. The payroll now includes a locksmith to secure foreclosed homes and two clerks devoted to federal paperwork.

Golden Touch gets more listings from Fannie Mae than any other firm in Pinal County. Mr. Bridwell said he was ready to jump because he remembered the last time the government ended up owning thousands of Arizona houses, after the late-1980s collapse of the savings and loan industry.

“The way I see it,” said Mr. Bridwell, whose glass-top desk displays membership cards from the Republican National Committee, “is that we’re getting these homes back into private hands.”

Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million.

All told, the companies spent more than $1 billion on upkeep last year.

“We may be behind many loans on the same street, so we believe that it’s in everyone’s best interest to aggressively do property maintenance,” said Chris Bowden, the Freddie Mac executive in charge of foreclosure sales.

Prices have plunged. So by the time a home is resold, Fannie and Freddie on average recoup less than 60 percent of the money the borrower failed to repay, according to the companies’ financial filings. In Phoenix and other areas where prices have fallen sharply, the losses often are larger.

Foreclosures punch holes in neighborhoods, so residents, community groups and public officials are eager to see properties reoccupied. But there also is concern that investors are buying many foreclosures as rental properties, making it harder for neighborhoods to recover.

Real estate agents tend to favor investors because the sales close surely and quickly and there is the prospect of repeat business. But community advocates say that Fannie and Freddie have an obligation to sell houses to homeowners.

David Adame worked for Fannie Mae’s local office during the boom, on programs to make ownership more affordable. Now with prices down sharply, Mr. Adame sees a second chance to put people into homes they can afford.

“Yes, move inventory,” said Mr. Adame, now an executive focused on housing issues at Chicanos por la Causa, a Phoenix nonprofit group, “but if we just move inventory to investors, then what are we doing?”

Executives at both Fannie and Freddie say they have an overriding obligation to limit losses, but that they are taking steps to sell more homes to families.

Fannie Mae last summer announced that it would give people seeking homes a “first look” by not accepting offers from investors in the first 15 days that a property is on the market. It also offers to help buyers with closing costs, and prohibits buyers from reselling properties at a profit for 90 days, to discourage speculation. Fannie Mae said that 68.4 percent of buyers this year had certified that they would use the house as a primary residence.

Freddie Mac has adopted fewer programs, but it said it had sold about the same share of foreclosures to owner-occupants.

The companies also have agreed to sell foreclosed homes to nonprofits using grants from the federal Neighborhood Stabilization Program. Chicanos por la Causa, which won $137 million under the program in partnership with nonprofits in eight other states, plans to buy more than 200 homes in Phoenix in the next two years. It plans to renovate them to sell to local families.

The scale of such efforts is small. The home ownership rate in Phoenix continues to fall as foreclosures pile up and renters replace owners.

But John R. Smith, chief of Housing Our Communities, another Phoenix-area group using federal money to buy foreclosures, says he tries to focus on salvaging one property at a time.

“I tell them, ‘O.K., you want to unload 10 houses to that guy, fine,’ ” he said. “ ‘Now give me this one. And this one. And one over here.’ ”
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Source: The New York Times

The Senate effectively rejected a slimmed-down package of jobless benefits and state aid late Thursday, rebuffing President Obama’s call for urgent action to bolster the economic recovery.

Sens. Ben Nelson (D-Neb.) and Joseph I. Lieberman (I-Conn.) voted with a united Republican caucus to block the approximately $120 billion package. The measure needed 60 votes to advance, but garnered only 56.

Democratic leaders, who had predicted victory less than 24 hours earlier, vowed not to give up on the measure, but acknowledged that they have no clear path to securing the one or two Republican votes needed to push it to final passage. Though the sprawling package contains a number of must-pass provisions, Republicans have been steadfast in their opposition, insisting that the full cost of the measure be covered by cutting existing government programs.

“Americans are frustrated with the amount of spending and borrowing around here,” Senate Minority Leader Mitch McConnell (R-Ky.) said after the vote. “Let’s not wave on through legislation that is going to worsen the deficit and dig an even deeper hole than we are in.”

With midterm elections looming this fall, conservative Democrats also had voiced opposition to the size of the package and its impact on deficits, already driven to record levels by government spending to combat the recession. But congressional leaders have struggled to pare the legislation back.

The measure would protect doctors from a steep cut in Medicare rates scheduled to take effect Friday and extend emergency unemployment benefits that support more than 5 million people. Without congressional action, an estimated 1.2 million people will stop receiving checks by the end of the month, according to independent estimates.

The package also would extend some expired tax breaks for businesses and individuals, including the hugely popular research and development tax credit. And it would raise taxes on oil companies, multinational corporations and investment partnerships.

During the past month, Democratic leaders have winnowed the overall price tag down from $200 billion and reduced its impact on the deficit by two-thirds. The House narrowly approved the package and sent it to the Senate, where Majority Leader Harry M. Reid (D-Nev.) has been trying to add $24 billion in aid to state governments, a top Obama priority designed to avert thousands of state layoffs and prevent the 9.7 percent unemployment rate from shooting even higher.

To squeeze in that extra cash, Reid has hacked away at other pieces of the package. The latest version would protect doctors from the Medicare pay cut for six months rather than the 19 months approved by the House, for example, and it would dock $25 from the checks of all 15 million people who receive unemployment benefits, repealing a boost approved in last year’s stimulus legislation.

The resulting measure, unveiled late Wednesday, would add $55 billion to deficits over the next 10 years, according to the Congressional Budget Office. And with that, Democrats believed they had secured the votes of at least two Republicans: Sens. Olympia J. Snowe (Maine) and Scott Brown (Mass.).

But any deal unraveled during a long day of talks Thursday, leaving Democrats frustrated and perplexed.

“We thought we had enough votes to pass this,” Reid told reporters, adding that Lieberman had been prepared to come on board. He and Senate Finance Committee Chairman Max Baucus (D-Mont.) said they would regroup Friday. But aides said the path forward would not become clear until next week at the earliest.

“The vast majority of Americans want us to create jobs, to help pull us out of this recession,” Baucus said. “The bottom line is we’re going to keep trying, because that’s what the American people want us to do.”

White House spokeswoman Amy Brundage blamed Republican obstructionism for the bill’s failure. “These measures are vital to our nation’s families and our economic recovery, and the President urges those opposing these measures to end this obstruction and stand on the side of the American people,” Brundage said.
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Source: The Washington Post

Edward Glaeser’s post from last week has been getting a fair amount of attention. But I think there is some potential for misunderstanding what Mr. Glaeser was actually saying about the stimulus program.

Mr. Glaeser wrote about his analysis of the effect of “per capita Federal Recovery Act funds received in each state.” Depending how one looks at these data, either they show that states receiving more stimulus money had larger increases in unemployment than states that received less money, or they show that there was no relationship. In both cases, the data give reason to wonder if the stimulus program helped the economy.

“I’m not suggesting that spending did or didn’t reduce unemployment,” Mr. Glaeser was careful to note. “I am asserting that we can’t tell anything with any degree of certainty.”

Here’s where the misunderstanding comes in: The term “per capita Federal Recovery Act funds” does not refer to the entire stimulus program. It refers to a relatively small portion of it — the money spent by the federal government on highway projects, other infrastructure programs and the like. As of early June, the government had spent about $61 billion of this money. Another $400 billion of other stimulus money — aid to states, jobless benefits, health-insurance subsidies, tax credits — has also been spent. Mr. Glaeser did not analyze this spending, for some good technical reasons; it would be harder to do so.

Given that, I don’t think his analysis does suggest that the stimulus program may not have worked. It suggests that one part of the stimulus program did not have a noticeable effect on the economy, given how slowly this money has been spent and given everything else going on — the financial crisis, the recession and the hundreds of billions of other stimulus.

When you look at the program as a whole, the picture is not nearly as uncertain. Home buying jumped during the very period when a tax credit for home buying was in effect. The same happened with corporate investment. State spending stabilized in the middle of last year — just as states were hearing about their stimulus awards — even though state revenues were continuing to fall at the time. Consumer spending has risen faster than income growth would suggest, but about as fast as you’d expect given the combination of income growth and stimulus tax cuts.

More broadly, job cuts began shrinking just as the stimulus was going into effect last year, and the stock market began rising shortly after it passed. The stimulus was by no means the only reason, but it appears to have been a significant one.

Based on its economic models, the Congressional Budget Office recently estimated that between 1.4 million and 3.4 million workers who have now jobs would be unemployed if the stimulus hadn’t been enacted. Three of the best-known private economic research firms — IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com — have come up with similar estimates. The average estimated effect on employment is about 2.5 million jobs.

Nariman Behravesh, IHS Global Insight’s chief economist, has a nice way of summarizing what the bill did (and, to some extent, didn’t) do: “It prevented things from getting much worse than they otherwise would have been. I think everyone would have to acknowledge that’s a good thing.”

Note: I’ve changed my description of Mr. Glaeser’s findings in this earlier post. Yes, I had oversimplified those findings.
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Source: The New York Times

In a scramble for votes Thursday, Democratic leaders scaled back what was to be a nearly $200 billion package of economic incentives by trimming jobless benefits and payments to doctors who see Medicare patients — but leaving intact perks for the oil, cotton and coal industries, and subsidies for NASCAR racing and Puerto Rican rum.

The fate of the “American Jobs and Closing Tax Loopholes Act of 2010″ remains uncertain as moderate House Democrats increasingly question the wisdom of adding $84 billion to the deficit to pay for scores of narrow provisions that represent the tax code’s version of earmarks.

The package’s overall price tag is $143 billion, but only about $60 billion of the cost is offset by tax increases and other new revenue, according to the Congressional Budget Office.

The House could vote as soon as late Thursday, followed by Senate action this week or after the Memorial Day recess. House Speaker Nancy Pelosi (D-Calif.) said, however, that action could be delayed until Friday.

One new funding source would come from an increase in the Oil Spill Liability Trust Fund tax, a levy paid by oil companies and worth nearly $12 billion in new federal funding over the next 10 years, according to Congress’s Joint Committee on Taxation.

But factions of the oil industry would benefit from other provisions, including the extension of a long-standing tax break for “marginal” wells. President Obama has proposed eliminating tax incentives for these low-producing sites, but the pending bill provides a break worth $103 million over two years.

One champion of the provision is Sen. James M. Inhofe (Okla.), who — like most of his fellow Republicans — is expected to oppose the legislation.

The bill contains funding for a variety of popular programs, including more than $32 billion in expiring tax credits and deductions for businesses and individuals, and $24 billion to help cash-strapped state governments. State officials, labor unions and some economists warned that failure to approve the package could lead to further public-sector layoffs and undermine the still-tenuous recovery.

Rep. Chris Van Hollen (Md.), a member of House Democratic leadership, said lawmakers debated dropping some of the tax breaks and other business-related incentives but decided not to risk the potential harm to businesses still recovering from the recession. The bill includes funding for a study to review the numerous so-called “temporary” tax provisions in the legislation, including many that have been repeatedly renewed over the years.

“You’re going to see a broader review of that next time around,” Van Hollen said. “This time around, when business is still hurting, we thought taking away existing tax credits would be like kicking a business when it’s down.”

But deficit hawks warn that the overstuffed bill suggests that Congress is not prepared to make the hard choices needed for serious deficit reduction. This week, when Democratic leaders were forced to cut the original $190 billion package to win votes, they targeted a handful of big-ticket items. Under that agreement, unemployment benefits would be extended through the end of November, instead of through the end of the year, and a pay cut to doctors who treat Medicare patients would be put off only until 2012 instead of 2014.

Meanwhile, congressional leaders are struggling to find votes for $23 billion in emergency funding to prevent widespread teacher layoffs.

And yet the pending bill still includes a $38 million extension of a depreciation break for “certain motorsport entertainment complexes,” otherwise known as the NASCAR break. And television and film producers would reap an expensing provision worth $46 million over 10 years.

Puerto Rican and Virgin Island rum manufacturers would receive excise tax breaks worth $131 million over 10 years; a second Puerto Rican manufacturing break is worth $185 million. American Samoa would receive a payment worth $18 million “in lieu of (an) economic development credit,” according to the bill. The bill also extends trade protections for the domestic cotton industry.

The watchdog group Taxpayers for Common Sense singled out $96 million in alternative energy incentives that would help the fledgling liquid coal industry. “Subsidies for a risky coal-to-liquids technology that will have no short-term impact on job and could cost billions in taxpayer dollars should not be included in any jobs or tax package,” the group wrote to congressional leaders. “As the total cost of this bill inches up, lawmakers must trim the fat on costly provisions that do little to stimulate the economy.”

Deficit hawks on both sides of the ideological divide also are protesting the bill, starting with its convoluted title.

“It isn’t just the fingernails-on-the-blackboard grammar that drives me crazy,” wrote Howard Gleckman, senior research associate at the non-partisan Urban Institute and editor of the blog TaxVox. “It’s the idea that a bill that would do so little to create jobs or close loopholes — and would in reality continue so many special interest tax breaks — would be so hideously mislabeled. The bill would extend, count ‘em, 70 expiring subsidies at a cost of $28.5 billion over the next two years. There is little or no evidence that any of these goodies have ever created jobs, and thus it is unreasonable to believe they will produce any in the future.”

After whipping their members during a series of late morning votes Thursday, House leaders huddled in the speaker’s ceremonial office, just outside the House chamber. When they emerged, Ways and Means chairman Sandy Levin (D-Mich.) said they had made progress and would continue to try to build support for the slimmed-down $143 billion package.

But Pelosi acknowledged that the vote could be delayed until Friday.

“I don’t know about that,” she said when asked if the vote would proceed on schedule. “It depends how long [the] defense [bill] takes.”
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Source: The Washington Post