Revised June 12, 1998

House Budget Contains Large Cuts in Low-Income
Mandatory Programs Not Included in the Senate Budget

by Robert Greenstein and Sam Elkin

The differences between the House and Senate budget resolutions in the discretionary spending area are well known — the Senate budget sticks with the discretionary levels of the balanced budget agreement, while the House cuts discretionary programs an additional $45 billion over the next five years. (See box below.) Less well known are the large differences between the two resolutions in the mandatory spending area. Those differences are the focus of this analysis.

The House resolution includes $41 billion in mandatory savings over five years not assumed in the Senate resolution.(1) About $7 billion of these savings would be one-time savings from asset sales, $4.5 billion would come from user fees that could be difficult to enact, and nearly $30 billion would come from program cuts.

Almost 85 percent, or $25 billion, of the nearly $30 billion in mandatory program cuts reflected in the House budget resolution but not the Senate budget resolution are assumed to come from programs for low-income families. (See table below.) Based on documents issued in mid-May by Rep. John Kasich, the chairman of the House Budget Committee, as well as the reconciliation instructions in the House budget, the House budget plan assumes the following mandatory program cuts not assumed in the Senate plan.

Below is an examination of the cuts in low-income mandatory programs assumed in the House budget. As the analysis indicates, the cuts have two prominent characteristics.

The Depth of the Discretionary Cuts in the House Budget

Under the House budget, expenditures (or outlays) for non-defense discretionary programs would fall 19 percent — nearly one-fifth — between fiscal year 1998 and fiscal year 2003, after adjusting for inflation.

  • A five-year freeze on overall appropriations for non-defense discretionary programs would itself cause a decline of 13 percent in the purchasing power of these programs by fiscal year 2003, using CBO's inflation projections. Last year's budget agreement places overall expenditure levels for non-defense discretionary programs over the next five years below this five-year freeze level.
  • The House budget would cut expenditures for non-defense discretionary programs an additional $45 billion over the next five years.
  • When added to the cuts required under the budget agreement, this would result in total reductions in non-defense discretionary programs of $61 billion below a freeze level over the next five years, and $179 billion below the fiscal year 1998 levels for these programs as adjusted for inflation. By fiscal year 2003, overall expenditures for non-defense discretionary programs would be 19 percent lower than in fiscal year 1998, after adjustment for inflation.
  • Some non-defense discretionary programs would not be cut significantly because Congress has already decided to increase them (e.g., highway spending), because the interest groups supporting them are too powerful, or because they cannot be cut deeply without jeopardizing basic operations of government. As a result, numerous other programs would have to be cut more than 19 percent for non-defense discretionary expenditures as a whole to decline by that amount.

The Congressional Budget Office has estimated that under last year's budget agreement, expenditures for non-defense discretionary programs would drop by fiscal year 2002 to three percent of the Gross Domestic Product, which is the basic measure of the size of the U.S. economy. That will be the lowest such level in more than 40 years. The budget plan the House has approved would drive this level still lower.

These savings would be used primarily to finance tax cuts for the top third of the population. The Senate tobacco bill already eliminates the marriage penalty for families with incomes below $50,000. Further marriage penalty relief thus would be limited to those with incomes above $50,000, roughly the top third of the population. Additional capital gains and estate tax cuts would primarily benefit the top two percent to five percent of the population.(3) The prospect is strong that if a conference agreement on the budget includes the reductions in low-income mandatory programs described here, one of its central features will be to make low- and moderate-income families and elderly and disabled people still poorer (and to raise taxes on some of them), while making the well-to-do more affluent.

 

The Mandatory Program Reductions in the House Budget

The House budget resolution reconciles $56 billion in mandatory savings over the next five years. Although the House Budget Committee report does not explicitly specify how these cuts are to be made, the reconciliation instructions the resolution contains assign specific savings amounts to various Congressional committees.

Furthermore, budget documents Rep. John Kasich distributed May 12 contained detailed assumptions concerning the mandatory program cuts. The reconciliation instructions included in the House budget resolution track the May 12 Kasich blueprint, except in two areas where changes were subsequently made — $10 billion in cuts were shifted from Medicare to income security programs under the jurisdiction of the Ways and Means Committee, and the Medicaid reductions were enlarged somewhat. With these two exceptions, the reconciliation instructions reflect the assumptions in the May 12 Kasich plan on how these cuts would be accomplished. (In addition, Rep. Kasich reiterated on the day his committee approved the budget resolution that the budget-cut proposals in the May 12 document represented the recommendations of the House Budget Committee majority.)

Targeting Low-income Working Families

Many of the cuts would primarily or exclusively affect low-income workers or those seeking to work. For example, all remaining funds in the welfare-to-work block grant enacted as part of last year's budget agreement would be eliminated. This block grant provides funds to states and cities to help move the hardest-to-employ welfare recipients into employment. Thirty-five states have submitted applications for these welfare-to-work funds so far, accompanied by commitments of state and/or local matching funds as required by law. A number of other states are preparing to submit applications.

Weakening Health Care Coverage for Low-income Families


Mandatory Cuts Assumed in the House Budget but not the Senate Budget*
5-year outlay savings
(billions of dollars)
Low-Income Program Reductions
Welfare-to-Work Block Grant Reduction -0.7
Medicaid Savings** -10.1
Repeal of Food Stamp Hardship Exemptions and Workfare Slots and Benefit Cut -2.0
Elimination of EITC for Childless Workers (outlays)** -2.1
Income security savings under House Ways and Means and Senate Finance Committee (could include SSI, EITC, foster care, child support enforcement, Social Services Block Grant, the TANF block grant, and/or unemployment insurance) -10.1
Asset Sales
Sale of Power Marketing Administration Assets -6.6
User Fees
Increase Inland Waterway User Fees -2.0
Create Airport Slot User Fees -2.5
Other Program Reductions and Mandatory Savings
FHA Reform (cuts in excess of those in Senate budget)*** -0.9
Flood Insurance Subsidy Cut -1.7
Establishment of Fixed Dollar Government Contribution of FEHB Premiums (mandatory portion) -1.5
Extension of CSRS/FERS Employee Contribution Increase -0.2
Repeal of Right of First Refusal of Surplus Federal Property under McKinney Homeless Assistance Act -0.1
Extension of Balanced Budget Act Veterans Provisions -0.4
Total -$40.9
* While the Senate budget reconciles no mandatory cuts, the Senate committee report identifies potential savings for use as offsets to the transportation bill.
** Medicaid savings in excess of those in Senate Committee report. The Senate report identifies $1.9 billion in Medicaid administrative cost savings as a possible offset to the transportation bill.
*** Outlays only. The House May 12 document specified a $2.7 billion overall EITC cut, including $600 million in revenue increases.
**** The Senate Committee Report identifies $1.3 billion of FHA savings. The House May 12 document specified $2.2 billion in FHA savings.

Addendum:
Cuts Proposed in House and/or Senate Budget Plans
Already (or about to be) Enacted

Highway Bill
Social Services Block Grant Cut -2.4
Elimination of Veterans' Disability Compensation for Certain Smoking-Related Disabilities -10.0
Agricultural Research Bill
Food Stamp Administrative Costs -1.8
Note: Numbers may not add due to rounding.
Sources: House Budget Committee's "Budget Resolution Proposals", May 12, 1998; H. Con. Res. 284; and Senate Report 105-170 (Committee Report accompanying S. Con. Res 86).

End Notes

1. The Senate resolution assumed a few small mandatory savings items not included in the House budget resolution, but they would save a total of less than $1 billion over five years. These are items the Senate resolution identified as possible offsets for the highway bill but that were not included in that legislation.

2. This figure assumes that the $10 billion in unspecified cuts under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee would come from low-income programs, an assumption consistent with statements by House leaders. If only half of these cuts were to come from low-income programs, a very unrealistic assumption that would require substantial cuts in unemployment insurance for workers who have lost their jobs, 67 percent of the mandatory program reductions other than asset sales and user fees would come from low-income programs.

An earlier Center analysis indicated that a somewhat smaller (although still very large) share of the mandatory program reductions in the House budget would come from low-income programs. The earlier analysis was prepared before enactment of the highway bill and final Congressional approval of the agricultural research bill (which is expected to be signed into law any day). Some of the mandatory program reductions originally assumed in the House budget resolution have been used as financing mechanisms in those pieces of legislation. As a result, they are not at issue in the House-Senate conference on the budget and are no longer available to pay for tax cuts. Accordingly, they are excluded from this analysis.

3. The estate tax — and thus, any cuts in the estate tax — affect only the top two percent of estates; all smaller estates already are exempt from this tax. With regard to capital gains, CBO analyses indicate that the five percent of individuals with the highest incomes receives 70 percent of all capital gains income; these individuals would receive the lion's share of the benefit from proposed cuts in capital gains tax rates.

4. See Robert Greenstein, "The Consequences of Eliminating the EITC for Childless Workers," Center on Budget and Policy Priorities, April 1997.


Related reports:

Additional budget reports