Weekly Review
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February 10,
2009
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Federal Stimulus
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Senate Changes "Make Recovery Package Less
Effective"
Today the Senate
passed its version of the federal stimulus bill.
The Senate version eliminated about $40 billion in
aid to state and local governments and for school
construction.
According to the Democratic
Strategist, "the original House-Senate "State Fiscal
Stabilization Fund" was set at $79 billion over two
years. After a small rakeoff for territories and
administration, it was divided roughly into $39
billion to the states (with a pass-through to school
districts for unused funds) to restore prior state
education cuts; a $15 billion "state incentives
grant" program keyed to progress towards state
education goals (presumably those set by No Child
Left Behind); and then a $25 billion fund that could
literally go to any state function, including
education.
The amendment killed the flexible fund entirely; cut
the "state incentive grant" fund in half (to $7.5
billion); and then left the remaining $31 billion in
the fund distributed to offset state education cuts.
So in the state fiscal stabilization section alone,
the $40 billion cut everybody's talking about
involves $25 billion in flexible money and $15
billion in education funding."
There are also separate cuts in education
construction spending which reduces the overall
stimulative effect of the bill. The Senate also cut
a House-passed $1 billion temporary increase in
appropriations for the Community Development Block
Grant, which is the most flexible money that would
have been available to local governments.
See a side by side analysis of the House/Senate
passed bills at (copy and paste to your web
browser):
http://www.ncsl.org/statefed/2009economicstimulus.htm
SENATE CHANGES MAKE RECOVERY LEGISLATION LESS
EFFECTIVE
According to the Center on Budget and Policy
Priorities (CBPP) the Senate passed version of the
American Recovery and Reinvestment Act makes a
number of changes in the House-passed bill that have
reduced the package's effectiveness as economic
stimulus. Though it costs modestly more than the
House bill - $838 billion, compared to the House
bill's $819 billion.
The Senate has reduced spending, a fair amount of
which was well-designed to stimulate the economy
such as funding for state fiscal relief and school
construction, and substituted new or expanded tax
cuts that are not targeted and are unlikely to
provide a substantial boost to the economy.
These changes fly in the face of the consensus of
mainstream economists about how best to provide the
boost in aggregate demand that is needed to help
stem the current economic downturn and speed a
recovery. Those economists conclude that:
- Well-designed spending
measures tend to be significantly more
effective than tax cuts in stimulating
aggregate demand because much of tax cuts
are saved rather than spent; and
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Tax cuts are most effective
as stimulus when they are targeted on low-
and moderate-income households that will
likely spend a high proportion of the
benefits rather than on high-income
taxpayers, who will likely save a large
proportion of the tax benefits, or to
businesses that are unlikely to spend the
tax to expand capacity or hire workers when
their sales are depressed.
The CBPP paper focuses on three tax
cuts added or expanded by the Senate - a greatly
expanded homebuyer credit, deductions related to new
car purchases, and relief from the Alternative
Minimum Tax - that would cost a total of about $116
billion over the next 11 years but do little to
boost the economy. None of these provisions would
provide more effective stimulus than most of the
spending provisions that were reduced or eliminated.
The paper also addresses a provision in the House
bill - the repeal of a significant provision enacted
in 2006 that would help put a dent in the more than
$300 billion a year "tax gap" - that would not
stimulate the economy and would permanently set back
efforts to collect more of the federal taxes that
are owed.
Read the entire report here:
http://www.cbpp.org/2-10-09tax.htm
Background
In January, President Obama proposed the
American Recovery and Reinvestment Bill of
2009.
The package contains tar  geted
efforts in:
- Clean, Efficient, American Energy
- Transforming our Economy with Science
and Technology
- Modernizing Roads, Bridges, Transit and
Waterways
- Education for the 21st Century
- Tax Cuts to Make Work Pay and Create
Jobs
- Lowering Healthcare Costs
- Helping Workers Hurt by the Economy
- Saving Public Sector Jobs and Protect
Vital Services
Specifically for state and local governments,
the President proposed providing federal dollars
for capital projects, education, school
construction, health care, transit, job
training, the Medicaid program and many other
programs. An analysis by the Center on Budget
and Policy Priorities found that of the total
program, Illinois' governments would get about
$7.5 billion from the House passed version, with
residents seeing another billion in tax credits,
including child tax credits, additional Social
Security income and additional money via food
stamps.
Those numbers have now been reduced in the
Senate passed version. The bill will change
again as the House and Senate agree on a final
bill.
To read CBPP's analysis of the Medicaid
assistance for the states click
here
To read the total analysis of the stimulus bill
click
here
Additionally, the Center for Tax Justice
released the report:
New State Fact Sheets from Citizens for Tax
Justice Show that Families with Children in Most
States Would Gain Around $900 to $1,000 in Tax
Cuts from the Stimulus Bills
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January Revenues
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January Revenues
Down $565 Million
The Illinois Commission on Government Forecasting
and Accountability (COGFA) reported January 2009
revenues were $565 million less than the month of
January 2008. Almost all revenue categories
contributed to the fall.
Revenue Declines
- Gross personal income tax dropped $195
million net of refunds. The large net falloff is
attributed to passage of P.A. 95-707 in January
2008, which resulted in six and a half months of
refund percentage adjustments that caused net
income tax receipts to jump.
- Sales tax receipts fell $51 million
- Public utility tax receipts were down $37
million
- Insurance taxes and fees were off $34
million
- Corporate income taxes fell $30 million net
of refunds
- The Cook County IGT dropped $13 million
- Interest income fell $12 million
- Liquor taxes and other sources each dipped
$2 million
- Vehicle use tax dropped $1 million
- Lottery transfers fell a disappointing $19
million
- Other transfers dipped $8 million
- Federal sources fell $176 million
Revenue Gain
- The inheritance tax provided a monthly gain
of $2 million
- Riverboat transfers gained $12 million but
COGFA finds that is due to timing as some of
December's transfers fell into this month.
Year to Date
Through the first seven months of the fiscal year,
overall base revenues are down $1.042 billion from
fiscal year 2008. COGFA reports the declines are
attributed to much lower transfers-down $272
million, lower federal sources--off $200 million,
and weakened economic sources such as income and
sales tax.
Sales tax revenues are down $132 million for the
year and interest income down $98 million. Gross
personal income tax is down $53 million, or down
$165 million net of refunds. Inheritance tax is down
$53 million. Gross corporate income tax is off $48
million, or down $57 million net of refunds. The
Cook County IGT is down $34 million. Other sources
are off by $15 million. Corporate franchise is
behind by $10 million and the vehicle use tax has
dipped $4 million. As mentioned, only public utility
taxes have earned a year to date increase, and only
by $8 million.
Other transfers are off $131 million, gaming
transfers are down by $108 million, and lottery
transfers fell by $33 million. Federal
reimbursements, after surging in December due to the
short-term borrowing, faltered again and are lagging
last year's pace by $200 million.
A $5.7 Billion
Budget Shortfall
COGFA estimates that the state currently has a
fiscal year 209 budget shortfall of $5.7 billion.
This figure includes the difference between fiscal
year 2009 revenues and fiscal year 2009 budgeted
appropriations and $1.5 billion Medicaid bills
carried over from fiscal year 2008.
The state also must pay back $1.4 billion from the
December short term borrowing by June 30th. That
means the current fiscal year deficit could be as
large as $7.1 billion.
Read the entire COGFA January Monthly Revenue Reporthere
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CTBA Fiscal Symposium
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New Date
Due to scheduling issues,
CTBA's 8th Annual Fiscal
Symposium
has been rescheduled for Monday,
March 30, 2009
A panel discussion on how the
current economic downturn
is affecting Illinois' ability
to provide crucial public
services.
Monday, March 30, 2009
Registration: 8:15 am
Continental Breakfast: 8:30 am
Program: 9:00 am to 12:30 pm
Union League Club of Chicago
69 West Jackson Blvd.
Main Lounge, 2nd Floor
Chicago, Illinois
Please mark your calendars!
Details and
registration form will be
forthcoming
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Calendar
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WHAT: Dupage Federation on Human Services
Reform, Making the Connection: Accessing Public
Benefits for Low Income Persons
WHEN: October
1, 8, 15, 22, 29
February
18, 25
March 4,
11, 18
June 3,
10, 17, 24
July 1
WHERE: All trainings held at NIU Naperville,
1120 Diehl Road, Naperville, IL
INFO: Making the Connection training sessions
contain information in an easy-to-understand format
regarding many programs available to assist low
income persons.
Individuals who register for a Making the Connection
training session now receive membership access to
the Federation's newly developed Making the
Connection Illinois website, www.mtcil.org.
To register and for more information please visit
www.dupagefederation.org.
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Do you have something to add to the Weekly
Review?
email Chrissy Mancini @
cmancini@ctbaonline.org
___________________________________________________________________________
Center for
Tax and Budget Accountability
70 East Lake Street, Suite 1700
Chicago, IL 60601
312-332-1041
www.ctbaonline.org
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