New federal government shutdown threat raises question: what kind of nation do we want?

New federal government shutdown threat raises question: what kind of nation do we want?

One of the wealthiest nations in the history of humanity can afford to ensure that the most vulnerable in society have what they need

New federal government shutdown threat raises question: what kind of nation do we want?

Once again, the possibility of a federal government shutdown is upon us. This renewed threat ultimately arises out of competing visions of the role of government and the kind of nation we want to have, our guest on this episode explains. Sharon Parrott is President of the Center on Budget and Policy Priorities. Sharon discusses those competing visions, as well as the prospects for enacting legislation that can improve the lives of people throughout our country.

 

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Transcript

We make this transcript available for your convenience and to increase the accessibility of our content. The transcript was generated by software and was slightly edited for clarity. If you are able to, we encourage you to listen to the recording.

If the news coming out of Congress feels like deja vu, it’s because we’ve been here before. And not that long ago either.

In mid-November of last year, Congress barely avoided a federal government shutdown by passing a bill temporarily keeping funding for government services at current levels. But part of that temporary funding measure expires later this month on January 19 and the rest of it in early February. As of this recording, Congress has yet to pass a spending bill for 2024. According to news reports, Senate and House leaders have reached an overarching agreement on government funding for 2024, but it’s not clear that they can seal the deal and pass it into law in time to avoid a government shutdown in less than two weeks.

The repeated threats of a government shutdown ultimately reflect competing visions of the role of government and of the kind of nation we want to have, according to today’s guest. Sharon Parrott is president of the Center on Budget and Policy Priorities, a nonpartisan research and policy institute that advocates federal and state policies to help build a nation where everyone has the resources they need to thrive and share in the nation’s prosperity. Sharon has nearly three decades of experience working at the Center on Budget and in government.

My colleague, Alejandro Queral, Executive Director of the Oregon Center for Public Policy, spoke with Sharon Parrott. They discussed the competing visions that lie at the core of the debates on budget and tax policy, as well as the prospects for enacting legislation that can improve the lives of people throughout our nation. Here is their conversation.

Alejandro Queral: Hello, Sharon. Welcome to Policy for the People. I want to start our conversation today by touching on the latest threat of a federal government shutdown. Back in November, Congress passed a short term extension of government funding to avoid a shutdown, but that extension is coming to an end later this month. What can you tell us about where negotiations stand in terms of avoiding a federal shutdown?

Sharon Parrott: Well, first, thanks for having me. It’s lovely to be here with you today. I will say I wish that my crystal ball was a little clearer. Temporary government funding ends for a set of agencies on January 19th and for the rest of the federal agencies on February 2nd. And so the clock is certainly ticking for Congress to make some decisions about fiscal year 2024 for funding levels, for a broad swath of public services and investments, things from mass transit to Head Start, medical research and education funding.

It’s important to remember that the fiscal year actually started October 1st of 2023, so we are a number of months into the fiscal year and the government has been running on these temporary or stopgap funding models. It’s clear that leaders in the House and Senate of both parties are negotiating. They are trying to reach an agreement on the big picture top line funding levels. If they reach an agreement on those top line funding levels, they still have to decide how much funding to give to each individual programmatic area. So there is a lot of work to do and they are quite far behind. The signs in the last day or so are somewhat more hopeful that they will reach an agreement, but it is still a pretty unclear path between here and January 19th.

Alejandro: I want to talk a little bit about something you wrote a few months back when we were also facing a federal shutdown. You talked about how what is ultimately at stake in the debate about funding the federal government is one of competing visions for the country, about the kind of nation we want to have. Can you describe those competing visions?

Sharon: If we step back more broadly and ask the question, what do the two parties really think that our fiscal policy should look like? And one way to think about that is, what has the president put forward in his budget proposals? And what have the House Republicans, most recently in 2023, put forward in terms of their big picture budget proposals, not just the funding levels for individual discretionary programs, but bigger picture budget and tax, and what should happen with programs like SNAP and Medicaid, the entire federal budget?

And what you see is really a vast difference in basic perspective. The president’s budget is laying out a vision that says if we are willing to ask high-income, wealthy people, and profitable corporations to pay a fair amount of taxes, we can make a set of investments that matter for people and communities that broaden opportunity and support that economy that can work for everyone.

And so the president’s budget lays out a path that raises revenue by asking high-income and high-wealth people to pay more, by asking profitable corporations that saw enormous tax cuts in their 2017 tax, the Trump tax cuts, to pay more. And it uses that for a series of investments in things like child care and things like the Child Tax Credit that reduces child poverty.

And we know that that in turn improves outcomes and lifelong opportunities for kids. Investments in health, investments in housing. Those are things that we can invest in, if we’re willing to raise revenues and make those sort of values decisions.

House Republicans last year put together an overarching budget plan that was very consistent with budget plans that had been put forward by the Trump administration and, prior to that, by congressional Republicans. It calls for more tax cuts and very steep cuts in a range of programs that mitigate hardship and poverty and that also provide and afford opportunity for people. So there are very deep cuts in things like basic food assistance through the SNAP program, very deep cuts in health care through the Medicaid program, and very deep cuts in core public service funding that funds everything from Headstart to education to medical research to public transit.

And so, are we going to continue to push for ever lower taxes for high income people and corporations and as a result, have ever lower investments in people and communities? Or are we going to go down a different path that says: we can ask people that have gained so much from the country and the economy to pay some more and finance a set of investments that can broaden our shared prosperity?

And that basic debate, Alejandro, is played out in Washington and in state capitals around the country. Right. Are we going to sort of worship at the altar of ever lower taxes and continue to under-invest, or are we going to plot a different course?

Alejandro You know, it is interesting that during the COVID pandemic, Congress responded in a very robust way. It felt like something shifted in how we think about what is doable, what is possible. And I think it showed how much the United States has the means to significantly improve the economic well-being of people. What is your take on this and what do you think are the key lessons that we can take away from what Congress did during the COVID emergency?

Sharon: So I think of the lessons learned in a few categories. First, as you said, we just did a lot to mitigate hardship during what was really an unprecedented crisis. But I think it’s important to remember that we had to do a lot because our underlying economic and health security policies have so many gaps. And this is something that’s often missed when we think about what happened in the United States versus other countries.

Some other countries had to do less to shore up economic security for people or to make sure people had health coverage during a pandemic because their underlying policies were just stronger. And so during normal times and during normal recessions, you know, there are many countries that have stronger unemployment insurance systems, that have universal health coverage all of the time.

And so they had to do somewhat less because their underlying policies were stronger. One of the reasons we had to do so much to protect people from real hardship during the crisis is because during normal economic times, when people fall on difficult circumstances, we often do very little to help them. So it’s both important to remember that we did a lot: we mitigated an enormous amount of hardship, we drove down poverty, we expanded health coverage, we reduced evictions, we reduced homelessness. We did a lot. But in some ways, we had to do so much because of the weakness of our underlying policies. So that’s sort of one lesson I take.

Another lesson we learned is that when you respond in a robust way to a crisis, that has enormous economic ramifications. This was a crisis that was sending our economy spiraling downward in the early days, that when you do a lot, you can both protect people from hardship, but you can also set yourself up for a much quicker, more robust economic recovery. And that recovery, having jobs come back more quickly and less demand destruction, prevents a lot of hardship because our emergency relief measures are likely to only last so long. And so the faster the economy recovers, the less need we have to fill in.

Alejandro: One crucial way that Congress used to lessen the damage from the pandemic and even strengthen economic security was by making several improvements to the Child Tax Credit. How would you describe the impact that the enhanced Child Tax Credit had on families?

Sharon: You know, the rescue plan just had a game changing expansion of the Child Tax Credit. It made three important changes. First, it said low income children are going to be eligible for the full credit regardless of their family’s earnings. And so it became a true income floor beneath children. And that was a critical piece to reducing poverty, making the full credit available to the lowest income children.

The second thing it did was increase the amount of the credit. Now, I want to be really clear. If we increase the amount of the credit, that only helps low income kids if we make the whole credit available to them. So we made the credit available to low income kids.

We increased the amount of the credit and then we delivered the credit on a monthly basis. And that meant that particularly at a time of great distress, families were getting the credit each month. But as a general matter, right, people pay their bills each month. They budget for their families each month, and receiving the credit on a monthly basis can really help with those monthly expenses, rent and food and school clothes and those things.

We know a lot about what families spend the money on because we asked them. Right. And so there’s lots of data and polling about how families used the money. And when we look at how low income families used the child expanded Child Tax Credit, we see that they spent the money on exactly what we would all expect. They bought food and they made a whole series of investments in their kids. Sometimes it was about child care, sometimes it was about after school activities. So those were the ways that the Child Tax Credit was really transformational for many families in terms of really improving their financial circumstances and in a way that gave them enormous autonomy. We gave them cash that they could use and make the best decisions for their own families.

And it drove down poverty rates quite substantially. And then it expired. So in between 2021 and 2022, the number of kids in poverty increased by about 5 million kids with the end of both the Child Tax Credit and other relief measures. If we had kept the expanded Child Tax Credit, 3 million fewer kids would have been poor in 2022 than was actually the case.

I want to step back and just talk for a minute about what it means to have a Child Tax Credit that gives the least help to the children who need it the most, because that’s what we’re back to. We’re back to a Child Tax Credit that isn’t fully available to all low income children. And many low income children receive either no credit or only a partial credit because their families incomes are too low. We’re talking, Alejandro, about 19 million children nationwide who do not get the full benefit of the Child Tax Credit because their families incomes are too low. In Oregon, that is 186,000 children who do not fully benefit from the federal Child Tax Credit.

Alejandro: The clear success of the enhanced Child Tax Credit and the fact that it went away, leaving the lowest income families in a more vulnerable situation, was a big driver in getting the 2023 Oregon legislature to establish the Oregon Kids Credit, which is a refundable Child Tax Credit. But the Oregon Kids Credit is smaller than the federal one, as we know. And of course, Congress has a lot more resources at its disposal than Oregon. So my question is, where are we in terms of the negotiations in Congress about reinstating the enhanced federal Child Tax Credit?

Sharon: So I do want to congratulate the state of Oregon, like a number of other states really have stepped up, recognized the success of the Child Tax Credit and brought that into their own state policies in ways that are really exciting and an important step forward. And so the situation is in Congress that there is a push to try to reach an agreement on a tax package potentially this month.

There are a series of business tax provisions that the corporate community is pushing hard for, even though the 2017 tax law sharply cuts corporate and business related taxes. Putting aside the wisdom of those additional business tax provisions, Democrats have made clear that there is no tax deal to be had unless there is a meaningful expansion in the Child Tax Credit.

Now, that expansion is very unlikely to be anything as robust as what we did in the American Rescue plan. But even short of what we did in the American Rescue Plan, there are ways to expand the Child Tax Credit in more modest ways that can still target significantly more help on the lowest income children. Again, the children who get the least help who need it the most.

And so time will tell. You know, I think there is a real effort to reach an agreement on a tax package. Probably in January, if it’s going to move forward. But it’s not clear whether it will happen. And so it is one more thing on a list of things that Congress may get done and may be unable to reach an agreement on.

Alejandro: Sharon, let me switch gears here and talk about another important safety net program that is at risk, the Supplemental Nutrition Program for Women, infants and Children, also known as WIC. Can you explain to listeners what’s at stake in the funding for this program and what is the status of negotiations?

Sharon: Sure. So WIC, as it’s commonly known, provides food assistance at very important moments in people’s lives. It provides additional food assistance for people who are pregnant. For people who are postpartum and breastfeeding, as well as very young children, infants as well as children, toddlers and preschoolers.

So WIC funding is set every year in the annual appropriations process. And so that’s different than entitlement programs. We don’t set funding and benefit levels in the Medicaid program every year. It is part of permanent law and it operates as an entitlement. With WIC, the funding is set every year in the appropriations process, which means that it is wrapped up in these larger budget negotiations that we talked about earlier, and this whole question of whether the government will shut down. So WIC funding has been in this kind of temporary stopgap funding situation since October.

But the problem is that WIC needs significantly more resources in 2024 than it needed in 2023 for two reasons. One is that participation in WIC has increased, which is actually wonderful news. The program has unfortunately served a relatively modest share of people eligible for the program in recent years. There’s been a lot of work done to increase participation among people who are eligible, and that has started to really pay off.

And so we see increased participation, which increases costs in the program. And then some costs are up, because we had that period of high inflation. And so food costs are up. And as a result, WIC needs substantially more money in order to serve all eligible families that apply. So while the program is not technically an entitlement, for 25 years, Congress and presidents of both parties have maintained a commitment to provide enough funding for WIC every year so that it can fully serve all eligible families that apply for assistance, and that 25 year commitment is now at risk.

Congress will have to come up with significantly more resources for WIC than it provided WIC last year, or else states will have no choice but to start turning away pregnant women, postpartum women, young children from the program. So we estimate that if funding remains flat at the 2023 level, that states will have to cut off more and more people each month or turn them away when they apply, so that by September, 2 million people that should be participating in WIC will have been turned away, put on wait lists. In Oregon, there are about 77,000 people that participate in WIC and we could see 23,000 people turned away by September.

Alejandro: I’m curious if the opposition to funding WIC at the levels required are based on claims that the U.S. does not have enough revenue to pay for it? Or is it something more ideological? I’m thinking, for example, of the conversations that have occurred in the context of funding food stamps or SNAP, which have been tied to requiring folks to meet certain work requirements. In other words, what’s the main driver of the opposition to funding WIC at the proper level?

Sharon: Yeah. So the good news here is that WIC has long had bipartisan support and we don’t see the kind of attacks on the basic idea of providing food assistance to these populations that we sometimes see, as you said, in the SNAP program. We don’t have people saying, you know, pregnant women should only get food assistance if they are working a certain number of hours per week for example.

And so really what’s happening is that the WIC funding issue is completely intertwined with this much bigger conversation about the overall level of funding for domestic programs that we are going to allocate to those non-entitlement programs this year. And so there isn’t the kind of vitriolic or ideological opposition to WIC, but there is this insistence on the part of some to say we have to squeeze down funding at the top line level, and that could result in inadequate funding.

I will say it is — “silly”doesn’t quite capture. There is an absurdity to the notion that the United States, one of the wealthiest countries in the history of the world, somehow doesn’t have enough money to ensure that a pregnant mom or a young preschooler have the food that they need. We certainly can. This is all a question of political will.

Alejandro: So we’ve been speaking about high priority items that Congress needs to resolve soon, such as preventing a federal government shutdown. But let’s talk about something else that is looming on the horizon in 2025. Many of the provisions of the 2017 Tax Cuts and Jobs Act, the massive tax cuts enacted during the Trump administration, many of those provisions will expire. Can you talk about the kinds of tax cuts that this law created and what’s at stake in the discussions of whether to extend them in 2025?

Sharon: Yeah. So in 2017, we have a very expensive, very large tax bill. It included two sets of tax cuts. There were a set of tax cuts on the corporate side that cut the corporate tax rate by a very large amount and provided enormous new tax benefits to profitable corporations. Those tax cuts were the top priority of Republicans that pushed through the legislation, and those tax cuts were actually done on a permanent basis.

Then the second set of tax cuts were tax cuts that were done that affect individuals and households. And we cut tax rates and we did a variety of things that provided very large tax cuts. They were skewed. So they are quite large for higher income people, but they did provide tax cuts across the income distribution. And they also were costly.

But they were made temporary, and they were made temporary because they needed to do that as a budget gimmick to make it look like they weren’t increasing deficits over the long term. And of course, they were made temporary under the promise and the expectation that they would, in fact, never expire, that we would come back and make them permanent.

So in 2025, those tax cuts, primarily the ones for individuals and households, will expire. And so Congress will have to ask themselves what kind of tax code do they want? Ultimately, we need a tax system that raises revenues and is much fairer in terms of who pays what. And so let me break that down for a moment.

We are now into two decades of large tax cuts. So we did tax cuts in the early 2000s, President Bush’s tax cuts. And then we did large tax cuts in 2017, President Trump’s tax cuts. And as a result the revenues we collect are much lower than the nation needs to support the kinds of investments that would make the economy in the country stronger for everyone.

We need to make smart investments that build our economy and broaden opportunity so that more people can share in the prosperity of the country. And so 2025 is one moment in time to have that debate and try to move our tax policy and our tax system towards a system that raises more revenues and does it more fairly.

But it’s not going to be the last conversation about federal taxes. We are not going to get where we need to go in one step, in one bill. We didn’t degrade our revenue system in one step and in one bill. And so this is really, I think of this more as a generational debate to start to turn around, again, this kind of worship at the altar of ever lower taxes at the expense of the smart investments that would move the country forward.

Alejandro: Yes. Thank you for that long term perspective and reality check, because I think it’s really important for all of us to keep in mind that in many ways it’s also a reminder that we have to have changes not only in policy but in hearts and minds, as it were, to recognize the need to come together and invest in communities and in people. Is there any final thought you would like to share with us?

Sharon: I will just say that 2025 also affords us an opportunity to think about how the tax code can do better to provide opportunity to people that have faced real challenges making ends meet. It is an opportunity to ask the question of what kind of Child Tax Credit we should have to take that next step forward in expanding the credit in ways that get the credit to all low income children, increase the credit and have it be a much more powerful poverty fighting policy.

It is also an opportunity to expand the Earned Income Tax Credit. Particularly for workers who don’t have children who, right now, even if they have very low earnings, get very little help from the EITC. So there are opportunities in 2025 to move us in the direction of raising revenues, and raising revenues in the right way, and investing some of those revenues in those investments that can really matter for people and communities.

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Written by staff at the Oregon Center for Public Policy.

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