Original source: Coalition on Human Needs

The FY 2012 Budget: House Republicans Take Steps To Drown Government in a Bathtub; The President has Other Priorities

Anti-tax activist Grover Norquist famously observed a decade ago that he didn’t want to abolish government, but just to “reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”  The Budget Resolution adopted by the House of Representatives on April 15 would drag the federal government pretty far across the tiles.  It would over 10 years cut spending by $4.3 trillion, two-thirds of which would come from unprecedented cuts in low-income programs such as Medicaid and SNAP/food stamps.  But despite ample rhetoric about deficit reduction, the plan would only shrink the deficit by $160 billion over ten years.  Why so little despite massive service cuts?  The budget uses almost all of the savings to cut taxes by $4.2 trillion over the decade.   In contrast, several proposals released by the President and House Democrats produce more deficit reduction and, while not providing complete protection to low-income people, at least do not attack them.

There is little subtlety in the House Budget Resolution’s (H Con Res 34) choice of winners and losers.  The budget makes permanent the Bush-era tax cuts, providing millionaires with an annual tax break averaging $125,000.  The budget also assumes the estate tax will continue at the reduced levels agreed to in the tax cut deal enacted by Congress last December.  About $800 billion in revenue increases in the new health care law would be eliminated, as the budget calls for repealing the law.  In addition, the budget would slash the top income tax rates for individuals and corporations from the current 35 percent to 25 percent.  The cost of this major reduction would be offset by unspecified cuts in tax expenditures – the tax credits or deductions now adding up to $1 trillion a year.  While many tax expenditures are of disproportionate benefit to the wealthy, the large income tax rate reductions are exclusively for the rich, with extra benefits to the super rich.

If the rich are clear winners in this budget, low- and moderate-income people just as clearly take huge losses.  Medicaid alone would be cut by $1.4 trillion over ten years.  Major structural changes would be made to Medicaid and SNAP to restrict federal spending in these programs.  Instead of open-ended funding to respond to changes in need, both Medicaid and SNAP would be changed to block grants.  Medicaid would be cut 20 percent and states would receive a share of low-income medical costs that would shrink more and more over time.  The expansions in Medicaid provided in the new health care law would be repealed.  Protections that currently prevent states from reducing certain core benefits or reducing eligibility would be eliminated, allowing states to manage the loss of federal funds by serving fewer low-income people and/or serving them less well.  Further reductions in payments to health care providers would also be likely.  Changing SNAP to a block grant would prevent it from responding to the increased need that occurs during recessions.  SNAP was successful in assisting millions of people driven to food insecurity because of the Great Recession; the billions of dollars pumped into the economy through SNAP was seen by economists as doing more to spur the economy and prevent job loss than almost any other action taken.

In addition, the Budget Resolution as passed by the House would cut housing assistance and make low-income renters pay more.  It would cut education by $17.7 billion in FY 2012, and by $250 billion over ten years.  Annual appropriations for Pell Grants would be cut by 60 percent; the mandatory funding (provided by law and not subject to annual appropriations) would be eliminated.

In all, the budget projects a $1.6 trillion cut in annual appropriations for programs other than defense, homeland security, and veterans over the next decade.  But to see the true vision of this budget, one should follow projections through 2050, as estimated by the Congressional Budget Office.  At that time, federal spending would shrink to less than 15 percent of the Gross Domestic Product (GDP) – the lowest level since 1951, when Medicare, Medicaid, and food stamps did not exist.  By 2050, all programs besides Medicare, Medicaid, Social Security and interest on the debt would shrink to only 3.5 percent of GDP.  Since defense is assumed to continue at close to its current level of 3 percent of GDP, the House budget would essentially do away with most other programs.  This decimation of services would take place because of a cap on all spending, starting with a cap on annual appropriations (aka discretionary spending) in FY 2012, with a binding cap on all spending as a percentage of GDP envisioned for future years.  If spending exceeded the cap, there would be across-the-board cuts (these automatic cuts are called “sequestration”).

Medicare would also be cut substantially, although most of the cost-cutting would not show up until 2022 and beyond.  Growth in Medicare would be limited to increases in inflation, even though health care costs routinely grow 2 percentage points beyond regular inflation.  Instead of paying the costs of the Medicare benefits package (less the patient’s current share), Medicare would pay towards health insurance policies for retirees.  The budget does not call for initiatives that would actually reduce the cost of health care, and by repealing the health care law in fact does away with such policies.  Instead, the plan simply limits federal payments, shifting the burden to Medicare beneficiaries.  According to the CBO, in 2022, a typical 65-year-old would see his/her payments for medical care more than double, to $12,500, with the federal government paying $8,000 of the cost, for a total expenditure of $20,500.  If Medicare continued under its current policies, the total cost would be only $14,750 in 2022, with the federal government paying $8,600 and the Medicare beneficiary paying $6,150.  The large increase in total cost would occur because the budget replaces the current cost-effective Medicare direct payments with the more expensive use of private health insurance.

Many other deficit reduction plans, including the one outlined by Erskine Bowles and Alan Simpson for the President’s National Commission on Fiscal Responsibility and Reform, assume significant cuts in military spending (Bowles-Simpson envisioned cuts of $100 billion a year).  In contrast, the House Budget Resolution increases military spending by $215 billion over ten years.

The Budget Resolution was approved in the House along party lines, 235-193.  No Democrat voted for it; 4 Republicans opposed it (Rehberg-MT, Jones-NC, McKinley-WV, and Paul-TX).  Several alternative budget proposals were considered, including an even more draconian version put forth by the Republican Study Committee.  It failed 119-136, with 172 members voting “present.” The vote illustrated divisions among Republicans, with 119 voting for this proposal and 120 opposing it.  Democrats made up the 172 “present” vote, hoping that the most right-wing members would overturn Republican party leadership to adopt a plan even more out of the mainstream.  The alternative put out by Ranking Budget Committee Member Chris Van Hollen (D-MD) was defeated 166-259, with no Republicans in favor and 23 Democrats opposing.  The Congressional Black Caucus and Congressional Progressive Caucus each put out alternative budgets as well, which failed 103-303 and 77-347 respectively.  The Democratic alternatives actually produced more deficit reduction than the version that passed the House, without massive restrictions in domestic programs, because they included revenue increases.

What’s Next

The House-passed Budget Resolution will not be agreed to by the Senate.  It is worth taking a step back to recall what a Budget Resolution is – and isn’t.  It is not a law that requires a presidential signature.  It is an outline that spells out assumptions about how much will be collected in revenues and the sources of those funds and how much will be spent, with broad policy suggestions that may or may not be adopted by the committees with jurisdiction over various programs.  It can put more teeth into recommendations if Congress chooses to require committees to produce specific cuts, for example, although it cannot tell them exactly how to achieve those cuts.  It also contains a specific funding level for annual appropriations that is provided to the Appropriations Committees for dividing up among their subcommittees.  If the House and Senate agree on a joint Budget Resolution, the level set for appropriations is binding.  But if they never come to agreement (very likely this year), Congress has other ways of setting appropriations levels.  And the broad changes proposed, such as block grants and spending caps, will either be ignored or worked on through other vehicles.

But the elements of the House Budget Resolution must be taken seriously, as Congress and the Administration grapple with deficit reduction.  In particular, the proposal to cap all spending has adherents in the Senate as well as the House.  A spending cap proposed by Senators Corker (R-TN) and McCaskill (D-MO) would lead to much the same result as the House Budget Resolution.  Their proposal assumes all deficit reduction will be accomplished through spending cuts, not a combination of spending reductions and revenue increases.  In order to achieve the drastically lower spending required by their cap (20.6 percent of GDP), the Center on Budget and Policy Priorities estimates that Congress would have little alternative but to restrict Medicaid through a block grant and to make major federal cuts in Medicare and Social Security as well.  (See Proposed Cap on Federal Spending Would Force Deep Cuts in Medicare, Medicaid and Social Security.)  Some members of Congress have indicated they will hold the nation hostage over the need to increase the debt ceiling by withholding their approval unless such caps or other ways of shrinking federal spending are attached.

The President’s Plan

Two days before the House budget vote, President Obama released a plan to reduce the deficit by $4 trillion over 12 years.  Approximately $2 trillion would come from spending cuts, including $770 billion by 2023 in discretionary spending other than defense, homeland security, and veterans services; $400 billion in defense/homeland security; $480 billion in health care savings beyond the amount projected through the health care law; and $360 billion in cuts to other mandatory programs (such as agricultural subsidies and pension reforms).  Another $1 trillion would come from reductions in interest payments as deficit spending declined.  Finally, $1 trillion would be raised in new revenues (over and above the savings from allowing the Bush-era tax cuts for the wealthiest taxpayers to expire).  The President explicitly rejected the restrictions to Medicaid and Medicare in the House budget, as well as opposing the cuts in SNAP and many other programs serving the poor.  However, low- and moderate-income people would not be immune to harm in the President’s plan.  His cap on annual appropriations, while not as onerous as the House proposal, would force cuts in services needed by low-income people, as his FY 2012 budget released in February illustrated.  That plan included severe cuts in community-based services and the Low Income Home Energy Assistance Program (LIHEAP), for example.

The President’s deficit reduction plan includes a “failsafe debt trigger” that would impose across-the-board cuts if debt does not fall sufficiently by 2014.  The auto-cuts, in a notable departure from the House budget, would cover spending programs and tax expenditures, and would exclude low-income programs.

The President also called for negotiations to start in May with Congressional leaders to hammer out such a plan.  Advocates have expressed concerns that, although the President’s outline is far more protective of low-income people and is less likely to push the economy back into recession, that negotiations will end up with far less in revenue increases and far more in harmfully restrictive caps, especially since the President’s proposal seems more like a description of what the end product of a negotiation should be, rather than an opening position.

Since poll after poll shows that the public is receptive to budget-cutting when dollar cuts are described, but opposed when the impact on specific services is spelled out, advocates will have to ramp up efforts to translate concepts such as caps and block grants into the expected outcomes for people.