The Economic Policy Institute released two important studies this week that offer insight into how federal fiscal policies can and do impact people.

The first study, a book titled “Exceptional Returns: Economic, Fiscal, and Social Benefits of Investment in Early Childhood Development,” argues that increased investment in Early Childhood Development programs (ECD’s) will have financial payoffs for society in the future. If the government increases spending now to provide quality education and development programs for low-income children in the early stages of life, society will end up paying significantly less in the long run in terms of costs for remedial and special education, criminal justice, and welfare benefits.

The study highlights the fact that a publicly financed, comprehensive ECD program for all children from low-income families would cost billions of dollars annually, but would create much larger budget savings over time. Policies that will serve to generate billions of dollars in budget benefits should not be ignored. This month the Congressional Budget Office reported that the final deficit for FY 2004 was $413 billion; as this study proves, however, by investing now on current programs, society will end up saving a lot of money in the future. Click here for more information on the deficit.

EPI’s second report, released today, is called “Less Cash in Their Pockets: Trends in Incomes, Wages, Taxes, and Health Spending of Middle-Income Families, 2000-2003.” The report examines certain income trends and highlights the fact that the economic well being of middle-income families has changed significantly over the last few years; and that specifically, many middle-income families lost ground between 2000 and 2003 and now have less income available to meet their needs.

Both of these important reports can be found the Institute’s web site, www.epinet.org. Their findings call into question some of the economic policy decisions that have either been made, or overlooked, by the executive and legislative branches of this country. As we face the highest deficit we’ve ever seen, it is important to keep in mind both how tax cuts really affect the middle class, and what kinds of investments the government can make now to help our economy in the future.

To learn more about how recent tax cut legislation will affect the middle-class families, read this report from the Center on Budget and Policy Priorities.

Last month the Congressional Budget Office (CBO) projected a $422 billion deficit for fiscal year 2004, and a $348 billion dollar deficit for FY2005. To see an OMB Watch analysis of this baseline projection read "Beyond the Baseline: 10 Year Deficits Likely to Reach $5.5 Trillion." As it turns out, the preliminary estimate released today is approximately $7 billion less than the CBO stated last month, according to their most recent Monthly Budget Review. Now they are reporting that the federal government incurred a deficit of $415 billion in FY2004.

This preliminary deficit figure is about $41 billion more than the FY2003 deficit, and 3.6 percent of the national Gross Domestic Product (GDP). Although it was reported that annual receipts rose by approximately 5.5 percent, they remain about 7 percent below their peak level in FY2000. And, according to the monthly review, individual income tax receipts remain approximately 25 percent below their peak in 2000. The drop in those receipts can be attributed to the recession, the decline in the stock market, and the Bush administration's tax cuts, the most recent of which were passed last week in a $146 billion package.

Interestingly, over half of the increase in receipts for FY2004 came from corporate income taxes, which ended up totalling approximately $57 billion more than they did in 2003. Federal income taxes paid by corporations can effectively serve to offset government outlays, and can bring down the budget deficit. Despite this fact, a study released in late September by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ) found that between the years of 2001 - 2003, 275 of the nation's largest companies did not pay their fair share of income taxes; in addition many received excessive tax rebate checks.

A copy of the ITEP/CTJ report can be found here. Perhaps if corporations paid their fair share of taxes, and if federal legislation stopped handing out so many corporate tax breaks, we would see a decline in the deficit, which has been rising consistently since 2000.

Note: The figure $415 billion is the preliminary estimate for the national deficit; the Department of the Treasury will release the actual figure later this month.