Painful Low-Income Program Cuts, Costly High-Income Tax Cuts Characterize House Budget Plan

The budget plan the House Budget Committee passed on March 9 includes substantial reductions in basic assistance programs for low-income families, a new report from the Center on Budget and Policy Priorities finds.  The report includes estimates of the state-by-state effects of the proposed reductions in selected programs. 

“As a result of these program reductions, we’d likely see more low-income Americans with inadequate health coverage or none at all, more seniors and people with disabilities living in poverty, and more low-income working families failing to make ends meet,” said Sharon Parrott, director of welfare reform and income security at the Center and the report’s lead author.

“And while these program cuts are being presented as necessary sacrifices to reduce the deficit, the budget resolution also includes tax cuts that would increase the deficit,” she added.

Large New Tax Cuts Likely Tilted Toward Wealthy

The House budget resolution calls for an estimated $30 billion to $35 billion in cuts over the next five years from low-income “mandatory” (also known as “entitlement”) programs, including Medicaid, food stamps, and the EITC.  (This figure is compared to the 2005 level adjusted only for inflation.)  These cuts are much larger than those in the President’s budget.  Up to half of the cuts the budget proposes in mandatory programs would come out of low-income programs.

The budget resolution also calls for $106 billion in tax cuts over the next five years and puts $45 billion of these tax cuts on a legislative “fast track” to ease their enactment.  This fast track, known as “reconciliation,” protects legislation from a Senate filibuster, enabling it to pass the Senate with 51 votes instead of 60.

While the resolution cannot specify which tax cuts must be included, the Budget Committee made it clear that the plan assumes an extension of capital gains and dividend tax cuts enacted in 2003, which are slated to expire at the end of 2008.  These tax cuts, which would cost $23 billion through 2010, primarily benefit wealthy households.  Nearly half of their benefits would go to households with incomes above $1 million, according to the Urban Institute-Brookings Tax Policy Center; this group constitutes just 0.2 percent of U.S. households.

Comparing the Magnitude of the Program Cuts and Tax Cuts

The budget resolution would cut mandatory programs as a whole (not just low-income programs) by $69 billion between 2006 and 2010.  The Center’s report examines the possible effects of these cuts on several specific programs; it also compares the size of certain proposed cuts to tax cuts that are included or assumed in the resolution.

• Medicaid would be cut by at least $15 billion (and possibly by as much as $20 billion). This is roughly the cost of the capital gains and dividend tax cuts for households with incomes above $200,000 (i.e., the top three to four percent of households) in 2006-2010.

• Low-income programs overseen by the House Ways and Means Committee would be cut by about $15 billion.  (These programs include the EITC for low-income working families, the Supplemental Security Income program for poor seniors and people with disabilities, and TANF and child care funding for states.)  This $15 billion is roughly the amount that households with incomes above $1 million will receive in 2006-2010 from two tax cuts that were enacted in 2001 but will not start phasing in until next year.  These tax cuts (known as “Pease” and “PEP”), which relate to the personal exemption and itemized deductions, benefit only high-income households.

• Farm and nutrition programs under the House Agriculture Committee would be cut by $5.3 billion.  Some, and possibly all, of this cut would come from the Food Stamp Program.  The President’s budget called for $600 million in food stamp reductions, but some Committee members say they want to make much deeper food stamp cuts to enable them to scale back the President’s proposed cuts in farm price supports.  This $5.3 billion is half the amount that households with incomes above $1 million would receive in 2006-2010 from the capital gains and dividend tax cuts.

Shared Sacrifice Missing from Budget Resolution

The budget resolution also calls for $216 billion in cuts to domestic “discretionary” programs — programs funded by annual appropriations — between 2006 and 2010.  (The Center’s paper does not address discretionary programs.)  Roughly $43 billion of this $216 billion cut would come from low-income discretionary programs if they were cut by the same percentage as domestic discretionary programs as a whole.

Because the reductions in mandatory and discretionary programs are not accompanied by any restraint on tax cuts, the Center’s report concludes, they are not part of a shared-sacrifice budget that reins in the deficit and restores fiscal discipline.  In fact, the combined deficit over the next five years would be $127 billion higher under the policies in the budget resolution than if current policies were continued.

Click here for appendix and state data.