The Bottom Line

January 7, 2015

The 114th Congress has barely even started and House Republicans are already proposing to explicitly ignore pay-as-you-go (PAYGO) rules that require deficit-increasing policies to be offset with other deficit reduction. The "Save American Workers Act of 2015" would change the definition of full-time work from 30 to 40 hours for purposes of enforcing the ACA’s employer mandate, which the Congressional Budget Office (CBO) projects will add $53 billion to the debt over the next ten years.

The bill attempts to reduce the incentive within the employer mandate to reduce part-time workers' hours below the current 30-hour threshold in order to avoid penalties. Additionally, the legislation could be seen as a way to minimize the impact of the employer mandate by applying it to less firms and workers.

The cost primarily stems from significantly fewer penalties ($55 billion over ten years) being collected from employers in violation of the mandate to provide their employees with health coverage. The new workweek definition would both reduce the number of full-time-equivalent employees (FTEs) a company is deemed to have in many cases – thus reducing the number of companies meeting the minimum 50 FTEs necessary to be subject to the mandate – and by exempting employers from any penalties for employees working between 30 and 40 hours per week.

CBO also expects this bill to reduce the amount of people receiving employer-based health coverage by roughly one million, with at least half and possibly all of them instead receiving coverage through an ACA exchange, Medicaid, or CHIP. As a result, this policy change would increase the number of uninsured by less than 500,000.

January 6, 2015

If tax reform is going to happen in the 114th Congress, Sen. Orrin Hatch (R-UT) will be a central figure as the incoming Chairman of the Finance Committee. In a National Review op-ed yesterday, he reiterated seven principles for tax reform that he first outlined in a report last month. Many of these principles are frequently discussed as important goals of tax reform, but lawmakers may disagree about the best course to achieve them.

Hatch first notes the serious need for reform:

Everyone agrees that the American tax system is broken and in need of reform. It stifles job creation, innovation, and competitiveness. It’s counterproductive, confusing, and a serious drag on the economy. Simply put: Tax reform is no longer an option but an obligation.

We certainly agree that after nearly 30 years without a major reform and the tax code getting more and more complex since then, the time is now for tax reform. Even setting aside fiscal concerns, it should be done to improve the code for taxpayers and the economy alike.

Hatch's seven principles involve promoting:

    1. Economic growth
    2. Fairness
    3. Simplicity
    4. Permanence
    5. Competitiveness
    6. Savings and investment
    7. Revenue-neutrality
December 30, 2014

This year was an eventful one for the federal budget. To explain the year's events, CRFB wrote 427 blogs, 17 papers, and created more than a hundred charts. Below are some of our favorite charts that represent the budget events of 2014.

1. Debt scheduled to reach record levels only seen around WWII within 25 years

Our long-term debt problem remains unsolved, despite some commentators' claims that the debt is not worth worrying about. For instance, economist Paul Krugman said not to worry because the debt in 25 years will only reach the levels we had in World War II. In Actually, Paul, the Debt is Still a Problem, we showed how returning to World War II levels of debt is actually quite alarming. Not only will debt levels be too high, but they are projected to keep rising upwards, without a sharp decline like the 1950s.

2. 2014 deficit decreased by 66%, but only after an 800% rise

September marked the end of the 2014 fiscal year, and saw year-end deficits fall to their lowest level since the Great Recession. Some claimed victory over the debt and urged moving onto other issues. In our report, Deficit Falls to $483 Billion, but Debt Continues to Rise, we showed that these low deficits are nothing to celebrate. In dollar terms, the deficit may have decreased by 66 percent, but that was after it had risen by almost 800 percent during the Great Recession. Moreover, debt remains at a post-WWII record high, and trillion-dollar deficits are likely to return within a decade. 

 

3. Debt is worse if Congress does not pay for changes

These debt projections assume that Congress will be fiscally responsible and pay for all new legislation. However, if they stick to the all-too-common practice of continuing various policies or enacting new ones without offsetting the cost, the debt situation could be almost 10 percent of GDP worse, as this animated chart from Everything You Need to Know About Budget Gimmicks shows. 

December 22, 2014

The end of the 113th Congress saw the retirement of two Senators who actively fought for controlling and limiting the U.S. federal debt. Senators Saxby Chambliss (R-GA) and Dr. Tom Coburn (R-OK) gave farewell speeches in the final days of the Congress that addressed the fiscal position of the U.S.

Senator Saxby Chambliss has been a strong voice for the need for bipartisan action to address the debt. Along with Senator Mark Warner (D-VA), he was one of the cofounders of the bipartisan "Gang of Six", who attempted to assemble a bipartisan agreement on the deficit and debt in 2011. In his final speech on the U.S. Senate floor, he spoke briefly on the debt problem facing the country.

Second, it is imperative that the issue of the debt of this country be addressed. Just last week, our total debt surpassed $18 trillion. We cannot leave the astronomical debt our polices have generated up to our children and grandchildren to fix. It is not rocket science as to what must be done. Cutting spending alone, i.e. sequestration, is not the solution. Raising taxes is not the solution.

His farewell speech also covered the need for future budget agreements to bridge the gap between the two parties.

As Simpson-Bowles, Domenici-Rivlin, and Gang of Six agreed, it will take a combination of spending reduction, entitlement reform, and tax reform to stimulate more revenue. Hard and tough votes will have to be taken but that is why we get elected to the United States Senate. The world is waiting for America to lead on this issue and if we do, the U.S. economy will respond in a very robust way. The Gang of Six laid the foundation for this problem to be solved, and it is my hope we do not leave the solution for the next generation.

December 19, 2014

It is clear that Social Security faces financial challenges. This year, its own Trustees estimated the combined trust funds would run out of reserves in 2033 while CBO estimated a 2030 exhaustion date. But yesterday, CBO released a more detailed set of numbers, which show their projections of year-by-year revenue and spending, along with a range of other possible outcomes. The results aren’t pretty.

CBO estimates that the Disability Insurance trust fund will run out during FY 2017 and the Old Age and Survivors' Insurance trust fund would run out in 2032. If lawmakers patched up SSDI by reallocating revenue from OASI, the combined trust fund will run out in 2030, at which point benefits would be cut by 26 percent.

The exhaustion of the trust fund is caused by a large run-up in spending over the next few decades while revenue rises only slightly. As a percent of payroll, outlays have already risen significantly from 10.4 percent in 2000 to 13.8 percent in 2014, both a factor of higher spending and relatively slow payroll growth. Going forward, outlays will continue to rise, exceeding 18 percent in 20 years and 20 percent in 75 years, almost twice as much as was spent in 2000. Meanwhile, revenue will creep up only slightly from 12.8 percent of payroll in 2014 to 13.6 percent in 75 years.

As a percent of GDP, outlays would rise from 4.9 percent in 2014 to 5.7 percent in 2024 and 6.4 percent by the mid-2030s. After dipping slightly, spending would rise again, reaching an all-time high of 6.9 percent 75 years from now. Revenue would stay fairly flat at 4.6 percent.

December 19, 2014

Senator Ben Cardin (D-MD) introduced the Progressive Consumption Tax Act last week that would reform the tax code and change the way that tax revenue is collected, introducing a nationwide consumption tax. The additional revenue generated would be used to cut the corporate rate in half and eliminate the income tax for three-quarters of households.

Cardin describes his the bill as a "comprehensive, progressive, pro-growth" proposal. As he explains:

Credible tax reform is critical to America’s economic competitiveness. Every other developed country in the world, including all other Organisation for Economic Cooperation and Development (OECD) countries, have a consumption tax. The Progressive Consumption Tax Act puts this country on a level playing field with other nations by providing for a broad-based progressive consumption tax, or PCT, at a rate of 10 percent.  The PCT would generate revenue by taxing goods and services, rather than income.

Cardin's plan would adopt a 10 percent tax on most goods and services. However, both businesses and individuals would pay far less in income taxes, and most individuals would not owe any income tax. 

For the individual income tax, a single person earning less than $50,000 or a couple earning less than $100,000 would not owe any taxes. According to the Tax Policy Center, approximately 75 percent of taxpayers had cash income below this threshold in 2013. Above that level, there would be three brackets – 15, 25, and 28 percent – instead of the current seven brackets that max out at 39.6 percent. Taxpayers in the top bracket would see only a small reduction in taxes on income they spend, since the new income tax rate would be 28 percent plus 10 percent on consumption spending. However, any income that goes into savings and investment would not be subject to this additional 10 percent tax.

Many of the deductions and credits currently available to individual taxpayers would be repealed, including the lower rate on capital gains and the alternative minimum tax. Those that the plan would keep – the state & local tax deduction, the mortgage interest deduction, the charitable deduction, and health & retirement benefits – would only be relevant to taxpayers with high enough income to owe tax. The refundable credits, like the Earned Income Tax Credit and Child Tax Credit, would be replaced by larger rebates based on income and family size, which would "practically eliminate the consumption tax burden for lower- and moderate-income families," according to Cardin's office.

December 18, 2014

The Congressional Research Service's Jane Gravelle recently put out a paper on plans to address long-term deficits and debt. The piece both goes through the many problems with the current budget outlook and different plans that have tried to address it.

Gravelle notes that debt will rise significantly over the next quarter-century to exceed the size of the economy, despite the fact that non-health and non-Social Security spending will decline as a share of GDP.

Although the debt held by the public is projected to be relatively stable over the next decade, the Congressional Budget Office (CBO) projects it will rise to 106% of GDP by 2039. This increase in debt is mainly due to growth in federal spending on health care programs and Social Security, as well as increasing interest payments that typically accompany rising budget deficits. Although spending on these programs is rising, other types of federal spending have remained constant or declined. These trajectories are projected to continue under current policy.

The following table shows how certain areas of the budget are expected to grow or contract as a percent of the economy between 2013 or 2024.

December 18, 2014
How Much the Growing Debt Costs U.S. Households

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

 

December 18, 2014

An old saying goes, "Nothing is certain but death and taxes." But in budget projections, neither of those things -- mortality rates nor revenue levels -- nor a host of other economic and technical variables can be predicted with perfect precision. This simple fact has led many commentators to question the usefulness of long-term forecasts that go out as far as 75 years, but also prompted suggestions about how to reduce uncertainty or at least tailor policies to account for it. On Monday, the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy released three working papers and held an event shedding light on both of these questions.

The first paper "The Economics and Politics of Long-Term Budget Projections" by Brookings Senior Fellow Henry Aaron discussed the usefulness of various long-term projections. He argued that 75-year projections for the overall budget -- performed by CBO -- and for Medicare -- performed by their Trustees -- are not all that helpful and should be limited to 25 years. He argued that requiring 75-year numbers forces forecasters to make unrealistic assumptions or otherwise make arbitrary determinations about very uncertain variables like health care cost growth. He did see a use in 75-year projections for Social Security because of lawmakers' tendency to make very gradual benefit cuts, so that lengthy projection period is necessary to fully measure the financial impact of legislation and see how much of a shortfall they have to close.

While Aaron suggested that long-term projections other than Social Security are not useful, University of California, Berkeley's Alan Auerbach takes the opposite conclusion: the uncertainty makes it all the more important to reduce deficits since things could be worse.

His paper entitled "Fiscal Uncertainty and How to Deal With It" started by acknowledging the many different changes in economic variables that can affect the budget. Of course, the uncertainty also compounds the longer projections go for, as more variables factor in and the chance of error increases. But he did not see this as a reason to disregard the projections all together.


Source: Brookings Institution

December 17, 2014

In his final week on Capitol Hill, retiring Senator Tom Coburn (R-OK) introduced a bill with a wide-ranging set of measures to, in his words, protect and strengthen the Social Security Disability Insurance (SSDI) program. Coburn put on the table concrete reform proposals for consideration in the next Congress, advocating for reforms beyond simply restoring solvency to the dwindling DI trust fund:

When the trust fund is exhausted in 2016, many Members of Congress will say we just need to move funds from the Social Security retirement program. Let me be clear: this is not a solution; it is a Band-Aid, a temporary fix that takes money away from seniors and will eventually hurt taxpayers when both funds go broke in 2033.

Coburn proposed a broad mix of proposals, from long-discussed ideas to reform the disability determination process and upgrade SSA’s data sharing and processing systems, to new demonstration projects that help potential beneficiaries remain attached or return to the workforce. This effort is in line with attempts by other policymakers to elevate SSDI to the top of the agenda, notably the SSDI Solutions Initiative, recently launched by former Congressmen Jim McCrery and Earl Pomeroy with support from CRFB, to identify reforms to make the program work better for beneficiaries and those contributing to the system.

Some of the most important reforms proposed in the bill include:

December 15, 2014

Tax reform has been an increasingly common way to pay for infrastructure spending in recent years. Both President Obama and outgoing House Ways and Means Chairman Dave Camp (R-MI) proposed using revenue from business tax reform to fund the Highway Trust Fund (HTF) for a number of years.

Last week, Representative John Delaney (D-MD) proposed a version of this idea as well, but with a twist: he would also set up a deadline for tax reform and a backstop in case it wasn't passed.

Like Chairman Camp's proposal, Delaney's bill would use an 8.75 percent deemed repatriation tax to fund the Highway Trust Fund, in this case for six years. The tax would apply to the approximately $2 trillion of foreign earnings by U.S. companies held outside the country. He would also use the revenue to fund a $50 billion infrastructure bank. Camp's proposal raised $170 billion, $127 billion of which was dedicated to the HTF. It appears that Delaney would dedicate the same amount to infrastructure and use the remainder for the $50 billion bank.

December 11, 2014

The Committee for a Responsible Federal Budget hosted a policy discussion this past Tuesday on dynamic scoring. CRFB President Maya MacGuineas opened the event by noting that dynamic scoring is an issue that will receive considerable attention over the coming months and could have an impact on fiscal policy decisions. Speakers offered their perspectives on the merits and challenges of using dynamic estimates in the legislative and budget process. Senator Rob Portman (R-OH) and Representative Chris Van Hollen (D-MD) offered remarks on their opinions and perspectives on dynamic scoring. A panel of dynamic scoring experts followed, moderated by CRFB President Maya MacGuineas. See CRFB's paper on dynamic scoring for a detailed discussion or our updated 2-page summary.

Sen. Portman spoke in favor of CBO and JCT providing dynamic estimates of bills. He argued that, at the very least, estimates should be done to inform staff and lawmakers how bills will affect the economy. He spoke about the bipartisan support for his bill, which passed by a vote of 51-48 with six Democrats voting in favor of it, when he offered it as an amendment during consideration of the FY 2014 Senate budget resolution. Portman acknowledged that there is a legitimate debate over which models and assumptions should be used, but he encouraged detractors to support presenting dynamic estimates as supplemental information, as his amendment would, not for official purposes. It would be apparent if dynamic estimates are significantly different than current methods, and policymakers would be able to look back to see which estimates were more accurate.

Congressman Van Hollen gave the opposing viewpoint. Van Hollen argued that dynamic scoring inherently demands that CBO or JCT adopt a specific ideology when estimating a bill. He mentioned estimates from the Heritage Foundation predicting revenue increases from the 2001/2003 tax cuts and claims that the 1993 tax increases would harm the economy. He also said that many models for dynamic analysis make assumptions about future actions to offset the cost of tax cuts, effectively giving legislation credit for policies not in the bill. He drew a distinction between the CBO estimate of immigration reform legislation, which took into account the direct impact of additional workers in the labor force, and dynamic estimates which incorporate the estimated indirect economic effects of legislation. Van Hollen reminded audience members that CBO and JCT already use microdynamic analysis in scoring bills—they weigh behavioral responses from individuals and businesses and the factors of supply and demand. He also acknowledged that dynamic analysis is useful as supplemental information, as long as policymakers understand the underlying assumptions.

December 10, 2014

Lawmakers have tried several times to revive tax provisions that expired last year and extend them permanently, at a substantial cost to the national debt. They're trying again.

After an incredibly expensive $440 billion deal to extend the tax extenders fell apart after an appropriate veto threat from the White House and concerns about the enormous cost, Congress appears to be reviving piecemeal elements of this deal by taking up some of the same permanent provisions in the last week of the lame-duck Congress.

The legislation being put forward would revive three of the tax extenders dealing with charitable contributions and continue them permanently, while adding $11 billion to the deficit. Although the cost is relatively small, this is just a piecemeal approach of the same type of policies that failed earlier. In a separate bill, Congress appears ready to extend the rest of the 50 or so tax extenders for just one year, also without offsets, which would cost about $42 billion. (The charitable provisions are about $650 million, less than 2 percent of the bill's $42 billion cost.)

December 10, 2014
How to Improve the Tax Extenders Bill? Start by Paying for It.

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

December 10, 2014

The eagerly awaited $1.1 trillion "CRomnibus" bill was released yesterday, and given its far-reaching nature, many aspects are being scrutinized. From a spending and debt standpoint, the bill wasn't expected to make many waves since discretionary spending levels were already set by the Murray-Ryan agreement last year. On a positive note, the bill includes 11 of 12 full-year appropriations bills which avoid a government shutdown and make real decisions about how the government allocates its resources. Unfortunately, it also includes a number of gimmicks that violate the spirit of budget enforcement. So far, we've found about $30 billion of transgressions.

Hidden Revenue Losses and Spending Increases

The bill violates pay-as-you-go (PAYGO) principles by increasing spending and reducing revenue by what looks like roughly $3.5 billion. The largest provision, $1.4 billion, comes from a fix to exempt expatriates from the requirement to buy health insurance. A bill which allows financially-troubled defined-benefit pension plans to reduce benefits to stay solvent costs $1.1 billion – that reduces Pension Benefit Guaranty Corporation spending upfront, which goes back into extending its solvency, but reduces federal revenue from lost taxation of pension benefits. The final $1 billion comes from various other mandatory spending increases included in the bill. The CRomnibus explicitly exempts the revenue reductions from PAYGO rules which would otherwise require these reductions to be offset.

December 10, 2014

Senator Coburn's office yesterday published the "Tax Decoder", a 300+ page guide describing more than 165 tax expenditures. The report highlights inefficiencies in many of the current tax breaks, drawing attention to areas where these breaks have been abused or provide an over-sized benefit to one specific industry, "allow[ing] Uncle Sam to put a thumb on the scale, placing politicians instead of markets at the center of capital allocation." See the full document here.

The report covers nearly every tax break. It describes attention-grabbing breaks like a tax break for a tuna company, breaks for NASCAR tracks, tax-free financing of stadiums built for private sports teams, and private foundations used by celebrities. It also tackles the largest tax expenditures, providing a serious treatment of large provisions like accelerated depreciation, the child tax credit, and the mortgage interest deduction. As the report says:

This report is meant to help decode the tax code for the public and policymakers alike, exposing special giveaways and surprising tax preferences unknown to many Americans who cannot afford tax lawyers or accountants.

The report "is designed to provide the building blocks of comprehensive tax reform for lawmakers wishing to enact a meaningful overhaul of the tax code in the coming years." It gives plain language summaries of many of the breaks that will come under discussion in tax reform. Many members, including outgoing Ways & Means Chairman Dave Camp (R-MI) and former Senate Finance Chairman Max Baucus (D-MT), started the work of reforming the tax code over the last several years. Hopefully, this report will inform the public and the lawmakers who will continue those discussions in the next Congress.

December 9, 2014

Earlier today, CRFB Senior Policy Director Marc Goldwein testified before the House Energy and Commerce Health Subcommittee. The hearing, entitled "Setting Fiscal Priorities," discussed policy options to reduce health care spending. Also testifying were Executive Director of the Medicare Payment Advisory Commission Mark Miller, the American Action Forum's Director of Health Care Policy Chris Holt, and Georgetown Professor of Public Policy Judy Feder. The witnesses represented different perspectives and focused on different parts of the health care system.

Miller's appearance made up the first panel, and naturally, his testimony focused on Medicare. He gave some background on Medicare but focused on the types of savings policies that MedPAC has recommended in its reports. These policies include simple recommendations on annual payment updates (increases or decreases) or more far-reaching recommendations like site-neutral payments and bundled payments (two policies that were part of our PREP Plan). Questions for Miller spanned a far range of topics, including the Affordable Care Act's payment reductions.

The second panel had the other three witnesses. Goldwein's testimony focused on both the need to rein in health spending to control debt and the options available to do so. He noted the large run-up in debt that is projected to have in the coming decades and the central role health care plays in that.

For solutions, he focused on two different types of policies: "Benders" which have the potential to bend the health care cost curve and "Savers" which are not as transformative but lead to a better allocation of health care spending. In his oral testimony, he focused on the policies in the PREP Plan, which involve reforming Medicare's cost-sharing structure and provider payments to encourage more efficient care. His written testimony included many other options with the potential for bipartisan support.

December 8, 2014

With Congress set to retroactively revive the tax extenders for the past year at a cost of $42 billion, our president, Maya MacGuineas, published a commentary online in the Wall Street Journal criticizing them for adding the costs to the deficit.

J.D. Foster, deputy chief economist at the U.S. Chamber of Commerce, however, published a blog on the U.S. Chamber's site calling our reasoning "a tad skewed" and arguing that letting these myriad tax breaks remain expired should be considered a "tax hike" because many people now consider them to be permanent provisions of the tax code. His implied conclusion is that restoration of these extensions does not need to be paid for.

Foster argues that "many of these provisions have been in the law for decades." A few have been around that long – the research & experimentation tax credit was enacted in 1981 – but most are more recent. In 2000, there were only a quarter as many provisions that expired within one or two years.

Furthermore, many of these provisions only passed in the first place because they weren't permanent, lowering their budgetary cost. For instance, Congress enacted the sales tax deduction temporarily because it only offset the cost of the deduction for two years, requiring lawmakers to come back to the table if they wanted to make it permanent. The provision was scored with a total ten-year cost of $5 billion when it was enacted, but it has been repeatedly extended at an annual cost of about $3 billion, bringing the real ten-year cost of the provision closer to $30 billion.

Other tax breaks in the extenders package were explicitly intended to be temporary stimulus in response to the recent recession, including the most costly provision, bonus depreciation – which would add almost $250 billion to the debt over the next ten years if made permanent. The expiration of temporary infusions of money into the economy should not be considered tax hikes or spending cuts. When Congress sends rebate checks to every taxpayer, as they did in 2001 and 2008, is it a tax hike or spending cut if they do not continue the checks the next year?

Allowing lawmakers to extend these provisions for free would incentivize them to disguise more tax cuts as temporary provisions. Lawmakers would avoid paying the full cost when creating the tax break and would later add to the debt when extending it without offsets. If lawmakers, however, really want temporary tax breaks to be included in the baseline so extensions do not need to be offset, they should change scoring rules so that permanent costs are scored when the provision is originally created. Individual spending provisions, such as Unemployment Insurance or the Sustainable Growth Rate (SGR) patches, follow the same rules: they are required to be offset.

December 5, 2014

Before debating a potential "CRomnibus" bill to fund the government, lawmakers are ready to check one item off their lame-duck to-do list: a defense authorization for FY 2015. The House and Senate Armed Services Committees agreed to a bill that addresses a number of issues involving military operations overseas and military compensation, among other items.

On the first issue, the authorization sets war spending -- mostly intended for combat related activities in Iraq and Afghanistan -- at $63.7 billion, the level requested by the Administration. It encouragingly scales back a $4 billion Counterterrorism Partnership Fund, which is only tangentially related to combat spending, to $1.3 billion. However, it also shifts $350 million of funding previously designated for Iron Dome, an Israeli missile defense system that is clearly not directly related to Afghanistan and Iraq war spending, to the war category. Note that since this is just an authorization, these funding decisions are not final and will be made in the Defense appropriations bill. The soundness of the decisions they made is mixed: encouraging on the funding levels but less so on the gimmickry with Iron Dome. It would be better if the authorization had gone further and outlined criteria for what could qualify for the war designation.

In terms of military compensation, we highlighted last month two decisions that lawmakers were considering on TRICARE drug co-pays and the Basic Allowance for Housing (BAH). In both cases, the authorization does make changes but only partway to what the Defense Department suggested. The bill raises co-pays by $3 for generic and brand-name retail drugs and for brand-name and non-formulary mail-order drugs. Generally, these increases are much lower than the ones the Pentagon included, saving $2.4 billion over ten years. The only area where lawmakers exceeded requests is in generic retail drugs -- the Pentagon had a $1 per year increase over the next nine years starting in 2016. Regarding housing changes, the authorization would reduce the BAH by 1 percent of housing costs (to 99 percent); that is, one-fifth the size of the 5 percent decrease the Pentagon suggested.

December 4, 2014

The House passed the ABLE Act yesterday, a bill that helps those who have been disabled since youth accumulate savings. The bill, with an estimated cost of $2 billion over the next 10 years, would create tax-free savings accounts that do not count against the account holder for means-tested programs. The bill is an encouraging example of fiscal responsibility, since it is fully paid for with savings in other parts of the budget.

Currently, low-income individuals cannot accumulate more than a certain amount in their savings accounts without losing SSI and Medicaid payments. For instance, individuals with more than $2,000 or couples with more than $3,000 in savings and assets are ineligible to receive SSI payments. Many have pointed out that these limits prevent people with disabilities save for medical bills, education, or equipment they may need to stay in the workforce

To remedy this, the bill would allow any child or person who became disabled before the age of 26 to establish an ABLE account and contribute up to $14,000 annually (subject to other state caps). The balance of the account would not count against the asset limits for low-income programs. Contributions into the account are made with after-tax dollars but there is no tax on the account's accrued interest or dividends.

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