Robert Greenstein is executive director of the Center on Budget and Policy Priorities . John Springer is a senior writer at the Center.
After Hurricane Katrina reminded Americans of the persistence of deep poverty in the United States, many observers said Congress was likely to change its earlier plans to cut $35 billion out of domestic programs (much of it from programs aimed at low-income people) and to enact $70 billion in new tax cuts (mostly for high-income people).
They were right. Last week, the House leadership said it didn’t want $35 billion in domestic program cuts. It wanted $50 billion. And it still wanted the new tax cuts.
The House leadership hasn’t officially said how the extra $15 billion in program cuts—which it says are needed to help pay the costs of relief and recovery after Katrina—should be achieved, but press reports suggest that the House Ways and Means Committee will be told to come up with about half of them. Social Security, the biggest program the committee oversees, can’t be cut as part of “reconciliation” (the fast-track legislative process that Congress is using to ease passage of the program cuts and tax cuts). And House leaders have been reluctant to make significant cuts in the committee’s second-biggest program, Medicare.
That mostly leaves programs that serve low-income families or low-income elderly or disabled people as targets of the coming Ways and Means Committee cuts. The committee oversees the Earned Income Tax Credit (a tax credit for low-income working families), Supplemental Security Income (which provides modest income assistance to low-income people who are elderly or blind or have disabilities), the welfare reform block grant, child care funding, and other child welfare services. Unless the committee turns to Medicare for a significant amount of savings, these low-income programs are likely to bear most of the burden of the extra cuts the committee is now being called on to make.
Another $1.5 billion of the extra $15 billion in cuts will reportedly be assigned to the House Agriculture Committee, which oversees the Food Stamp Program. The Senate Agriculture Committee voted last week to reject proposed cuts to food stamps, but House Agriculture Committee Chairman Bob Goodlatte has said all along that he intends to achieve a large share of his committee’s savings out of the program. He may start by adopting the Bush administration’s proposal to save $600 million by dumping an estimated 300,000 individuals, largely in working-poor families, off of food stamps—and then double, triple or even quadruple the size of that proposed cut.
While cutting low-income programs more deeply, the House plan doesn’t ask affluent Americans to sacrifice any part of the large tax cuts they have received since 2001. Those tax cuts, which give people with incomes over $1 million a year an average of $103,000 in annual tax-cut benefits, would remain in place. Also, the House still plans to go ahead with $70 billion in new tax cuts as part of reconciliation.
With new IRS data showing that income inequality—already at near-record levels—is worsening, it’s difficult to argue that cutting programs that aid the poor while protecting and even extending tax cuts for the wealthy is the appropriate set of national priorities. And it’s impossible to argue that the program cuts would help offset the cost of Katrina, since they wouldn’t even offset the cost of the planned new tax cuts.
Moreover, on a broader level, efforts to offset the costs of Katrina miss the essential point. The real threat to the nation’s fiscal and economic health doesn’t come from Katrina, whose costs are one-time events that will be incurred mostly in the next few years and thus will have only minimal long-term budgetary effects. Rather, the threat comes from policies that incur large costs on an ongoing basis. For example, the tax cuts enacted in 2001 and 2003 cost more each year than Katrina’s total likely cost.
If Congress truly wants to get serious about deficits, it ought to put all parts of the budget on the table, including revenues. For example, it can reinstate the “pay-as-you-go” rules of the 1990s, which required Congress to offset the cost of any tax cuts (including the extension of existing tax cuts) or expansions of entitlement programs so they do not increase the deficit. These rules played a key role in eliminating the large deficits we faced at the start of the 1990s.
Congress also can scrap its plan to use reconciliation, a process originally designed to help pass deficit-reducing legislation, to enact tax cuts that would increase the deficit. And it can shelve two previously enacted tax cuts that are aimed exclusively at high-income households and aren’t scheduled to take effect until Jan. 1, 2006. If these two tax cuts aren’t cancelled, they will increase the deficit by roughly $200 billion in the first decade they are fully in effect.
David Stockman, Ronald Reagan’s budget director, once stated that measures to enforce fiscal discipline should focus on “weak claims” rather than “weak clients.” In other words, policymakers should target areas of the budget where government resources are unwarranted, instead of targeting politically weak constituents such as the poor.
In today’s context, this could mean that instead of cutting health coverage for poor people enrolled in Medicaid, Congress could rein in the excessive payments that Medicare makes to managed care plans. The Medicare Payment Advisory Commission, the official, independent advisory body to Congress on Medicare payment policy, says such a move could save up to $30 billion over the next five years.
Similarly, instead of shrinking the Earned Income Tax Credit for working families in low-wage jobs, Congress could pare back the new tax breaks it gave oil and gas companies in the recently enacted energy bill.
Otherwise, low-income Americans—the people who generally suffered the most when Katrina struck—could also end up the biggest losers in the post-hurricane budget battle.
