Thursday, September 29, 2011
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Julie M. Whittaker
Specialist in Income Security
During some recessions, current taxes and reserve balances were insufficient to cover state expenditures for unemployment compensation (UC) benefits. UC benefits are an entitlement, and states are legally required to pay benefits even if the state account is insolvent. Some states may borrow funds from the Federal Unemployment Account (FUA) within the Unemployment Trust Fund (UTF) to meet UC benefit obligations. The 2009 stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 §2004) temporarily waives interest payments and the accrual of interest on these loans to states from the FUA.
This report summarizes how insolvent states may borrow funds from the federal account within the UTF to meet their UC benefit obligations. Outstanding loans listed by state may be found at the Department of Labor’s website: http://www.workforcesecurity.doleta.gov/unemploy/ budget.asp#tfloans.
In 2010, three states had a credit reduction: Michigan (0.6), Indiana (0.3), and South Carolina (0.3). As a result, the credit reduction was applied retroactively to tax year 2010 earnings, and the net FUTA tax during 2010 for Michigan employers is 1.4% on the first $7,000 of each employee’s earnings. In Indiana and South Carolina (with a credit reduction of 0.3) the net FUTA tax during 2010 for Indiana and South Carolina employers was 1.1% on the first $7,000 of each employee’s earnings. In all other states the net FUTA 2010 tax was 0.8%. Representative Peter Welch introduced H.R. 650 on February 10, 2011. The bill would extend the interest accrual on federal loans to states through 2012.
Date of Report: September 23, 2011
Number of Pages: 16
Order Number: RS22954
Price: $29.95
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Community Development Block Grant Funds in Disaster Relief and Recovery
Eugene Boyd
Analyst in Federalism and Economic Development Policy
In the aftermath of presidentially declared disasters, Congress has used a variety of programs to help states and local governments finance recovery efforts, among them the Community Development Block Grant (CDBG) program. Over the years, Congress has appropriated supplemental CDBG funds to assist states and communities recover from such natural disasters as hurricanes, earthquakes, and tornadoes. In addition, CDBG funds supported recovery efforts in New York City following the terrorist attacks of September 11, 2001; in Oklahoma City following the bombing of the Alfred Murrah Building in 1995; and in the city and county of Los Angeles following the riots of 1992. In response to those calamities, CDBG funds were made available for short-term relief efforts, mitigation actions, and long-term recovery, and to provide housing and business assistance, infrastructure reconstruction, and public services.
The Gulf Coast hurricanes of 2005 (Katrina, Rita, and Wilma) resulted in the largest appropriation of CDBG funds for disaster relief and recovery in the program’s history. Since December 2005, Congress has provided $19.85 billion in CDBG disaster-related assistance to the five states (Alabama, Florida, Louisiana, Mississippi, and Texas) affected by the Gulf Coast hurricanes of 2005. This included $11.5 billion in CDBG assistance appropriated in the Defense Appropriations Act for FY2006, P.L. 109-148; $5.2 billion in the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery Act of 2006, P.L. 109-234; and $3 billion (exclusively for Louisiana’s Road Home Program) appropriated in the Department of Defense Appropriations Act for FY2008, P.L. 110-116.
The 110th Congress appropriated $6.8 billion in CDBG funds to be used to respond to presidentially declared disasters occurring in 2008. This included $300 million appropriated under the Department of Defense Appropriations Act, P.L. 110-252, and $6.5 billion included in the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, P.L. 110-329.
In general, CDBG disaster relief acts passed since 2005 have included provisions that limit the amount a state could use for administrative expenses to 5%; allow a state to seek waivers of program requirements, except those related to fair housing, nondiscrimination, labor standards, and environmental review; prohibit the use of funds for activities that were reimbursable by or made available by the Federal Emergency Management Agency (FEMA) or the Army Corp of Engineers; and require each state to develop and HUD to approve state recovery plans
As a condition for the receipt of CDBG disaster recovery assistance, states are required to submit quarterly reports to the House and Senate Appropriations Committees on all awards and use of funds. The acts do not prescribe the form these quarterly reports are to take nor the content they are to include, except for identifying and rationalizing the use of sole source contracts.
The 111th Congress approved a supplemental appropriations act for 2010, H.R. 4899, which was signed by the President on July 29, 2010, as P.L. 111-212. The act provided an additional $100 million in CDBG funds to help states and communities undertake disaster recovery activities in presidentially declared disaster areas affected by severe storms and flooding during the period from March 2010 through May 2010. The 112th Congress is currently considering legislation (the Senate version of H.J.Res. 66) that would appropriate $100 million in supplemental CDBG disaster assistance for disasters occurring in 2011.
Date of Report: September 21, 2011
Number of Pages: 15
Order Number: RL33330
Price: $29.95
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The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions
Gene Falk
Specialist in Social Policy
The Temporary Assistance for Needy Families (TANF) block grant funds a wide range of benefits and services for low-income families with children. TANF was created in the 1996 welfare reform law (P.L. 104-193). This report responds to some frequently asked questions about TANF; it does not describe TANF rules (see, instead, CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements, by Gene Falk).
TANF Funding. TANF provides fixed funding to states, the bulk of which is provided in a $16.5 billion-per-year basic block grant. States are required in total to contribute, from their own funds, at least $10.4 billion under a maintenance-of-effort (MOE) requirement. The basic block grant is not adjusted for inflation or changes in the cash welfare caseload (see “The Caseload,” below). It has lost 26% of its value to inflation from FY1997 through FY2010. P.L. 111-291 funds TANF through the end of FY2011. President Obama’s FY2012 budget proposal would continue TANF funding, except contingency funds, at its FY2006 through FY2010 levels through FY2012.
State Spending. Though TANF is best known for funding cash welfare payments for needy families with children, the block grant and MOE funds are used for a wide variety of benefits and activities. In FY2009, expenditures on basic assistance (cash welfare) totaled $9.3 billion—28% of total federal TANF and MOE dollars. TANF also contributes funds for child care and services for children who have been, or are at risk of being, abused and neglected.
Cash Welfare Caseload. In December 2010, the number of families receiving TANF cash welfare was 1.9 million families, consisting of 4.7 million recipients, of which 3.5 million were children. The cash welfare caseload is very heterogeneous. The type of family historically thought of as the “typical” cash welfare family—one with an unemployed adult recipient—accounted for less than half of all families on the rolls in FY2008. Additionally, 15% of cash welfare families had an employed adult, while almost half of all families had no adult recipient. Child-only families include those with disabled adults receiving Supplemental Security Income (SSI), adults who are nonparents (e.g., grandparents, aunts, uncles) caring for children, and families consisting of citizen children and ineligible noncitizen parents.
Cash Welfare Benefits. TANF cash benefits are set by states. In July 2009, the maximum monthly benefit for a family of three ranged from $923 in Alaska to $170 in Mississippi. Benefits in all states represent a fraction of poverty-level income. In the median state (Kansas), the maximum monthly benefit of $429 for a family of three represents 28% of poverty-level income.
Cash Welfare Work Requirements. TANF requires states to engage 50% of all families and 90% of two-parent families in work activities. However, these standards are reduced by caseload reduction from FY2005. Further, states may get an extra credit against these standards by spending more than required under the TANF MOE. In FY2009, states achieved an all-family participation rate of 29.4% and a two-parent rate of 28.3%. That year, eight jurisdictions failed the all-family standard, and seven jurisdictions failed the two-parent standard. States that fail to meet work standards are at risk of being penalized by a reduction in their block grant.
Date of Report: September 21, 2011
Number of Pages: 35
Order Number: RL32760
Price: $29.95
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Specialist in Social Policy
The Temporary Assistance for Needy Families (TANF) block grant funds a wide range of benefits and services for low-income families with children. TANF was created in the 1996 welfare reform law (P.L. 104-193). This report responds to some frequently asked questions about TANF; it does not describe TANF rules (see, instead, CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements, by Gene Falk).
TANF Funding. TANF provides fixed funding to states, the bulk of which is provided in a $16.5 billion-per-year basic block grant. States are required in total to contribute, from their own funds, at least $10.4 billion under a maintenance-of-effort (MOE) requirement. The basic block grant is not adjusted for inflation or changes in the cash welfare caseload (see “The Caseload,” below). It has lost 26% of its value to inflation from FY1997 through FY2010. P.L. 111-291 funds TANF through the end of FY2011. President Obama’s FY2012 budget proposal would continue TANF funding, except contingency funds, at its FY2006 through FY2010 levels through FY2012.
State Spending. Though TANF is best known for funding cash welfare payments for needy families with children, the block grant and MOE funds are used for a wide variety of benefits and activities. In FY2009, expenditures on basic assistance (cash welfare) totaled $9.3 billion—28% of total federal TANF and MOE dollars. TANF also contributes funds for child care and services for children who have been, or are at risk of being, abused and neglected.
Cash Welfare Caseload. In December 2010, the number of families receiving TANF cash welfare was 1.9 million families, consisting of 4.7 million recipients, of which 3.5 million were children. The cash welfare caseload is very heterogeneous. The type of family historically thought of as the “typical” cash welfare family—one with an unemployed adult recipient—accounted for less than half of all families on the rolls in FY2008. Additionally, 15% of cash welfare families had an employed adult, while almost half of all families had no adult recipient. Child-only families include those with disabled adults receiving Supplemental Security Income (SSI), adults who are nonparents (e.g., grandparents, aunts, uncles) caring for children, and families consisting of citizen children and ineligible noncitizen parents.
Cash Welfare Benefits. TANF cash benefits are set by states. In July 2009, the maximum monthly benefit for a family of three ranged from $923 in Alaska to $170 in Mississippi. Benefits in all states represent a fraction of poverty-level income. In the median state (Kansas), the maximum monthly benefit of $429 for a family of three represents 28% of poverty-level income.
Cash Welfare Work Requirements. TANF requires states to engage 50% of all families and 90% of two-parent families in work activities. However, these standards are reduced by caseload reduction from FY2005. Further, states may get an extra credit against these standards by spending more than required under the TANF MOE. In FY2009, states achieved an all-family participation rate of 29.4% and a two-parent rate of 28.3%. That year, eight jurisdictions failed the all-family standard, and seven jurisdictions failed the two-parent standard. States that fail to meet work standards are at risk of being penalized by a reduction in their block grant.
Date of Report: September 21, 2011
Number of Pages: 35
Order Number: RL32760
Price: $29.95
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Wednesday, September 28, 2011
The 2001 and 2003 Bush Tax Cuts and Deficit Reduction
Thomas L. Hungerford
Specialist in Public Finance
A series of tax cuts were enacted early in the George W. Bush Administration by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). These tax cuts, which are collectively known as the Bush tax cuts, were originally scheduled to expire at the end of 2010. These tax provisions were extended until the end of 2012 at an estimated cost of $408 billion. Beginning in 2013, many of the individual income tax parameters (such as tax rates) will revert back to 2000 levels. This report examines the Bush tax cuts within the context of the current and long-term economic and budgetary environment.
The 2010 debate over the fate of the Bush tax cuts took place when the economy was underperforming, the unemployment rate was high, and the federal deficit was large. The U.S. economy was in a severe recession from December 2007 to June 2009. The unemployment rate reached a high of 10.2% in October 2009, and it is currently still over 9%. As a result of reduced economic activity and government efforts to stimulate the economy, the federal budget deficit increased from 1.2% of GDP in FY2007 to 9.9% of GDP in FY2009. Most economic forecasts suggest the economic and budget outlook will likely be characterized by high unemployment, sluggish economic growth, and relatively large budget deficits. Consequently, the 2012 debate over the fate of the Bush tax cuts is also likely to take place in a bleak economic and fiscal environment.
There are several options that Congress may consider regarding the Bush tax cuts, and each of the options strikes a different balance between fostering economic growth and restoring fiscal sustainability. Allowing the Bush tax cuts to expire as scheduled will somewhat improve the fiscal condition by increasing tax revenue, but could retard the economic recovery. At the other extreme, permanently extending all of the Bush tax cuts would not undercut the economic recovery, but would somewhat worsen the longer-term fiscal outlook and possibly signal a lack of progress in dealing with the long-term fiscal situation. Permanently extending the Bush tax cuts could increase federal debt by almost $3 trillion over the next 10 years.
The Obama Administration has proposed allowing the Bush tax cuts to expire for high-income taxpayers and permanently extending the tax cuts for middle-class taxpayers. Compared with permanently extending all of the Bush tax cuts, this proposal is estimated to increase tax revenues and reduce debt service payments by $333 billion over five years and by $931 billion over 10 years, but still leaves federal debt on an unsustainable path—this policy could increase federal debt by $2 trillion over the next 10 years.
It is often argued that increasing tax rates will reduce consumer spending in the short-term, and work effort, saving and investment—all key components of economic growth—in the long-term. In an underemployed economy, short-term spending increases and tax cuts are expected to facilitate job creation, reduce unemployment, and increase output. The main argument against allowing the Bush tax cuts to expire at the end of 2010 was the weak recovery and the fear of pushing the economy back into recession, an argument likely to be made in 2012. Once the economy has recovered from the recession, however, long-term economic growth will be facilitated by increasing work effort, saving, and investment. It is often argued that increasing tax rates will reduce these long-term economic growth components. Economic research, however, suggests that modest tax rate increases would have little negative impact on long-term economic growth and job creation.
Date of Report: September 23, 2011
Number of Pages: 21
Order Number: R42020
Price: $29.95
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Specialist in Public Finance
A series of tax cuts were enacted early in the George W. Bush Administration by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). These tax cuts, which are collectively known as the Bush tax cuts, were originally scheduled to expire at the end of 2010. These tax provisions were extended until the end of 2012 at an estimated cost of $408 billion. Beginning in 2013, many of the individual income tax parameters (such as tax rates) will revert back to 2000 levels. This report examines the Bush tax cuts within the context of the current and long-term economic and budgetary environment.
The 2010 debate over the fate of the Bush tax cuts took place when the economy was underperforming, the unemployment rate was high, and the federal deficit was large. The U.S. economy was in a severe recession from December 2007 to June 2009. The unemployment rate reached a high of 10.2% in October 2009, and it is currently still over 9%. As a result of reduced economic activity and government efforts to stimulate the economy, the federal budget deficit increased from 1.2% of GDP in FY2007 to 9.9% of GDP in FY2009. Most economic forecasts suggest the economic and budget outlook will likely be characterized by high unemployment, sluggish economic growth, and relatively large budget deficits. Consequently, the 2012 debate over the fate of the Bush tax cuts is also likely to take place in a bleak economic and fiscal environment.
There are several options that Congress may consider regarding the Bush tax cuts, and each of the options strikes a different balance between fostering economic growth and restoring fiscal sustainability. Allowing the Bush tax cuts to expire as scheduled will somewhat improve the fiscal condition by increasing tax revenue, but could retard the economic recovery. At the other extreme, permanently extending all of the Bush tax cuts would not undercut the economic recovery, but would somewhat worsen the longer-term fiscal outlook and possibly signal a lack of progress in dealing with the long-term fiscal situation. Permanently extending the Bush tax cuts could increase federal debt by almost $3 trillion over the next 10 years.
The Obama Administration has proposed allowing the Bush tax cuts to expire for high-income taxpayers and permanently extending the tax cuts for middle-class taxpayers. Compared with permanently extending all of the Bush tax cuts, this proposal is estimated to increase tax revenues and reduce debt service payments by $333 billion over five years and by $931 billion over 10 years, but still leaves federal debt on an unsustainable path—this policy could increase federal debt by $2 trillion over the next 10 years.
It is often argued that increasing tax rates will reduce consumer spending in the short-term, and work effort, saving and investment—all key components of economic growth—in the long-term. In an underemployed economy, short-term spending increases and tax cuts are expected to facilitate job creation, reduce unemployment, and increase output. The main argument against allowing the Bush tax cuts to expire at the end of 2010 was the weak recovery and the fear of pushing the economy back into recession, an argument likely to be made in 2012. Once the economy has recovered from the recession, however, long-term economic growth will be facilitated by increasing work effort, saving, and investment. It is often argued that increasing tax rates will reduce these long-term economic growth components. Economic research, however, suggests that modest tax rate increases would have little negative impact on long-term economic growth and job creation.
Date of Report: September 23, 2011
Number of Pages: 21
Order Number: R42020
Price: $29.95
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International Monetary Fund: Background and Issues for Congress
Martin A. Weiss
Specialist in International Trade and Finance
The International Monetary Fund (IMF), conceived at the Bretton Woods conference in July 1944, is the multilateral organization focused on the international monetary system. Created in 1946 with 46 members, it has grown to include 187 countries. The IMF has six purposes that are outlined in Article I of the IMF Articles of Agreement: promoting international monetary cooperation; expanding the balanced growth of international trade; facilitating exchange rate stability; eliminating restrictions on the international flow of capital; ensuring confidence by making the general resources of the Fund temporarily available to members; and adjusting balance-of-payments imbalances in an orderly manner.
Congressional interest in IMF activities has increased since the onset of the financial crisis in 2008. IMF lending has surged in recent years, particularly in light of large recent loans to Greece, Ireland, and Portugal. In 2009, major economies agreed to substantially increase the IMF’s resources and to move forward on several major reforms at the institution. These include increasing the voting share of emerging economies; revamping the IMF's lending toolkit to introduce greater flexibility and create new facilities for low-income countries, and creating a road map for resolving the fast-growing economic imbalances in the global economy between surplus and deficit countries. In late 2010, IMF members agreed to a doubling of IMF quotas, which would require congressional authorization and appropriations.
The United States was instrumental in creating the IMF and is its largest financial contributor, providing 17.72% of total IMF resources. Since voting shares are based on financial contributions, the large U.S. voting share provides the United States veto power over major decisions at the IMF. Both the IMF and its sister organization, the World Bank, are headquartered in Washington, DC.
At the Bretton Woods conference, the IMF was tasked with coordinating the system of fixed exchange rates to help the international economy recover from two world wars and the instability in the interwar period caused by competitive devaluations and protectionist trade policies. From 1946 until 1973, the IMF managed the “par value adjustable peg” system. The U.S. dollar was fixed to gold at $35 per ounce, and all other member countries' currencies were fixed to the dollar at different rates. This system of fixed rates ended in 1973 when the United States removed itself from the gold standard.
The IMF has evolved significantly as an institution since it was created. Floating exchange rates and more open capital markets in the 1990s created a new role for the IMF—the resolution of frequent and volatile international financial crises. The Asian financial crisis of 1997-1998 and subsequent crises in Russia and Latin America revealed many weaknesses of the world monetary system, which have only become more apparent in the wake of the 2008-2009 global financial crisis and the more recent sovereign debt crises in Europe.
This report evaluates the purpose, membership, financing, and focus of the IMF’s activities. It also discusses the role of Congress in shaping U.S. policy at the IMF and concludes by addressing key issues, both legislative and oversight-related, that Congress may wish to consider, including:
- the role of the IMF as a lender of last resort;
- the adequacy of IMF resources; and
- the effectiveness of IMF surveillance.
Date of Report: September 19, 2011
Number of Pages: 29
Order Number: R42019
Price: $29.95
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