Revised June 12,
House Budget Contains Large Cuts in
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.
- $10 billion over five years in additional Medicaid cuts. Documents
circulated by Rep. Kasich on May 12 indicate Rep. Kasich assumes most of these
savings will be secured by converting Medicaid to a block grant.
- $10 billion over five years in unspecified cuts in income security
programs under the jurisdiction of the House Ways and Means Committee and the Senate
Finance Committee. House leaders initially described this as a $10 billion cut in the
Temporary Assistance for Needy Families Block Grant. When governors vociferously objected,
Speaker Gingrich sent them a letter saying the cut would not come from TANF. That
leaves as candidates for this cut: the Supplemental Security Income program for the aged
and disabled poor; the Earned Income Tax Credit for low-income working families with
children (an additional $2.7 billion in cuts would come from eliminating the EITC for poor
workers without children so any further EITC cuts would have to be extracted from families
with children); the foster care program; the child support enforcement program;
unemployment insurance; and deeper cuts in the Social Services Block Grant than those
already enacted in the transportation bill. With the exception of unemployment insurance,
these are all programs primarily or exclusively targeted on low-income families and
elderly and disabled people.
- Repealing the remaining half of the funds (about $750 million) in the
welfare-to-work block grant enacted as part of the Balanced Budget Act.
- $2 billion from repealing all of the food stamp provisions of the
Balanced Budget Act and also cutting food stamp benefits for many poor families with
children that pay more than half of their income for housing. The food stamp provisions of
the BBA funded workfare slots for jobless single individuals, a group that can receive
food stamps for only three months out of each three years except for months in which they
are in workfare. Eliminating the funding for workfare slots thus would cause the denial of
benefits to people who want to work but cannot find a job or a workfare slot. The food
stamp benefit cut aimed at poor families with high housing costs would resuscitate a cut
included in the House welfare bill that the Senate rejected repeatedly during welfare bill
deliberations in 1995 and 1996.
- $2.7 billion from eliminating the EITC for poor workers with incomes
below $10,000 who are not raising minor children. CBO data show these poor workers already
pay a higher percentage of their income in federal taxes that many middle-income families
do and are the single group in the population whose taxes have climbed most since 1980.
These individuals are in the income bracket that would be hit hardest by the cigarette tax
increases in the tobacco bill. Since the EITC for childless workers, which is very small,
simply offsets part or all of the employee share of the payroll tax these workers bear,
elimination of it clearly is a tax increase.
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
- They are heavily targeted on low-income families and individuals.
Programs targeted on low-income households make up less than one-quarter of all mandatory
program expenditures but would bear 84 percent of the new mandatory cuts other than asset
sales and user fees.(2)
- These reductions would come on top of the highly disproportionate
cuts the 104th Congress made in these programs; 93 percent of the mandatory
program reductions enacted under the 104th Congress were in programs for
low-income families and individuals.
- A large share of these cuts would primarily affect low-income workers
and their families, as well as those seeking to secure employment and move to
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.
- The budget would eliminate the funding for food stamp workfare slots
included in last year's budget agreement. The 1996 welfare law contained a severe
provision, co-authored by Rep. Kasich, that limits the provision of food stamps to jobless
individuals aged 18 to 50 not raising minor children to just three months out of every
three years, except for months in which these individuals are employed or perform
workfare. When offering this proposal in 1996, Rep. Kasich said on the House floor that it
merely required those who could not find jobs to do workfare. "If you cannot get a
job," he declared, "you go to a workfare program; 45 out of 50 states have a
workfare program." That statement was incorrect, however; very few states ran food
stamp workfare programs, and the Kasich proposal provided states no new funds to establish
such programs. To address this gap in this Kasich provision of the welfare law, last
year's budget agreement provided funds to states to create workfare slots for these
individuals. This year's Kasich budget would eliminate the funding for the workfare slots.
The House resolution also assumes repeal of a provision of the Balanced Budget Act that
allows states to grant a limited number of hardship exemptions from this three-month food
stamp cut-off requirement. Thus, under the Kasich budget, many destitute individuals who
could not find a job in three months due to very low skill levels would simply be thrown
off food stamps. They would be given no opportunity to perform workfare, and their state
would not be permitted to grant them a hardship exemption.
- The House budget also would reduce food stamp benefits for families
with children whose housing costs consume more than half of their income. These families'
benefits would be cut below the levels prescribed under the welfare law, with many of
these families ultimately losing $180 a year in food stamps. A substantial share of those
who would be affected are working poor families struggling to raise their families on low
wages and receiving neither cash assistance nor housing assistance.
The provision that the welfare law contains in this area represented a compromise between
the Senate and the House and is harsher than the provision relating to food stamp benefits
for these families that the Senate passed as part of its welfare bills in 1995 and 1996.
The new House budget would abrogate the welfare conference-agreement compromise in this
area; it would substitute the original, harsher House welfare bill provision on this
matter, a provision the Senate rejected in both 1995 and 1996.
- The House budget would raise taxes on some of the nation's poorest
workers. It assumes elimination of the Earned Income Tax Credit for workers with incomes
under $10,000 who are not raising minor children.
Analysis by CBO has shown that between 1980 and 1993, the percentage of income these
workers paid in federal taxes rose faster than the percentage of income any other group of
Americans paid. The CBO data show that the percentage of income the poorest fifth of
non-elderly households without children pay in federal taxes rose 38 percent
during this period. The CBO data also show that by 1993, the percentage of income this
group was paying in federal taxes was several times larger than the percentage of income
other low-income households pay.(4) To help address these
sharp tax increases, which resulted primarily from increases in regressive payroll and
excise taxes, Congress established a small Earned Income Tax Credit for these workers in
The EITC these individuals can receive simply offsets a portion of the payroll taxes they
pay. It never exceeds their payroll taxes. By eliminating the EITC for these workers, the
Budget Committee would remove this partial offset for payroll tax burdens, causing the
overall tax burdens of these low-income workers to rise. This tax increase would come at
the same time that this group could face substantial increases in average tax burdens as a
result of pending tobacco legislation.
Weakening Health Care Coverage for
- The budget would convert the Medicaid program to a block grant
(except for the long-term care component of the program). This is another proposal that
would adversely affect low-income working families. Many states are accompanying welfare
reform initiatives with measures to cover more low-income working parents and children
under Medicaid, as part of broader efforts to emphasize work over welfare. Under a
Medicaid block grant, states would no longer be assured of receiving federal Medicaid
matching funds for the cost of covering more low-income working parents and children. That
would tend to discourage such initiatives on states' part.
In addition, a block grant would erode the longstanding commitment of the federal
government to share with states in the cost of providing coverage for health care services
to low-income families and elderly and disabled people. Under the block grant, states
would bear 100 percent of the cost of unanticipated increases in Medicaid acute care
expenditures that were caused by factors beyond states' control such as increases in
unemployment, outbreaks of a disease (such as a flu epidemic), the emergence of a new
disease such as AIDS, population growth, an increase in the proportion of a state's
population that is elderly (and consequently has higher-than-average health care costs),
and the development of new medical treatments that can cure diseases or slow their spread
but are costly.
The level of savings assumed to be generated by the Medicaid block grant is not as large
as the amounts earlier block grant proposals would have produced, but the proposal would
establish a ready mechanism for Congress to secure additional reductions in federal
Medicaid expenditures in future years to finance tax cuts, transportation projects, or
other politically appealing items. Once a block grant is in place, Congress could generate
additional federal savings in the future simply by ratcheting down the rate at which the
size of the block grant is allowed to increase over time. (This is demonstrated by
Chairman Kasich's readiness to cut funding for the TANF and welfare-to-work block grants,
as well as by reductions in the Social Services Block Grant enacted in the welfare law,
the fiscal year 1998 appropriations legislation, and this year's highway bill; the SSBG
funding level has been reduced three times in the past two years.)
Under such a block grant, Congress would reduce federal Medicaid spending, and states
would generally decide whether to use state funds to fill in for the loss of federal
dollars, cut back on Medicaid eligibility levels, or reduce the scope or quality of the
health care coverage provided to beneficiaries. In general, the easiest way for states to
respond to the loss of federal funds would be to scale back eligibility by lowering
Medicaid income limits. The families closest to the Medicaid income limits are
overwhelmingly working families. The principal effect of lowering the Medicaid income
limits consequently would be to make groups of low-income working families ineligible for
Medicaid. That would reverse some of the progress being made as a result of enactment last
year of the child health insurance block grant, which is enabling states to extend
coverage to more uninsured children in low- and moderate-income working families.
- The House budget resolution also assumes conversion to a block grant
of the federal matching funds used to reimburse states for half of the administrative
costs they incur in operating Medicaid. Under current law, federal funding for these costs
rises automatically when the cost of operating these programs increases due to caseload
growth caused by a recession, growth in a state's population, or state efforts to reach
more of the uninsured. That would no longer be the case under the House budget. This would
make it more difficult for states to meet the additional needs that arise when working
parents lose their jobs in large numbers during recessions or for states to reach more
uninsured low-income children.
- An additional $10 billion would be achieved by reductions in programs
under the jurisdiction of the Senate Finance Committee and the House Ways and Means
Committee. As noted, most of the programs that would be the potential targets for these
cuts are programs primarily or extensively focused on low- or low- and moderate-income
families. Many of these programs primarily assist the elderly and disabled, hard-pressed
working families with children, or families seeking to move from welfare to work.
Cuts Assumed in the House Budget but not the Senate Budget*
(billions of dollars)
|Low-Income Program Reductions
||Welfare-to-Work Block Grant Reduction
||Repeal of Food Stamp Hardship Exemptions and
Workfare Slots and Benefit Cut
||Elimination of EITC for Childless Workers
||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
||Sale of Power Marketing Administration Assets
||Increase Inland Waterway User Fees
||Create Airport Slot User Fees
|Other Program Reductions and
||FHA Reform (cuts in excess of those in Senate
||Flood Insurance Subsidy Cut
||Establishment of Fixed Dollar Government
Contribution of FEHB Premiums (mandatory portion)
||Extension of CSRS/FERS Employee Contribution
||Repeal of Right of First Refusal of Surplus
Federal Property under McKinney Homeless Assistance Act
||Extension of Balanced Budget Act Veterans
|* 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.
Cuts Proposed in House and/or Senate Budget Plans
Already (or about to be) Enacted
||Social Services Block Grant Cut
||Elimination of Veterans' Disability
Compensation for Certain Smoking-Related Disabilities
|Agricultural Research Bill
||Food Stamp Administrative Costs
|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).
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
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.