Washington, DC 20002
Iris J. Lav
Board of Directors
David de Ferranti, Chair
John R. Kramer, Vice Chair
Henry J. Aaron
Barbara B. Blum
Marian Wright Edelman
James O. Gibson
Beatrix Hamburg, M.D.
Richard P. Nathan
Robert D. Reischauer
Juan Sepulveda, Jr.
William Julius Wilson
POSSIBLE CUTS IN KEY LOW-INCOME PROGRAMS
With House and Senate negotiators about to begin work on a compromise FY 2006 budget resolution, a new Center report shows how the reductions that the House budget would likely produce in a range of low-income “mandatory” (or “entitlement”) programs could affect individual programs and specific states if they are enacted.
The House budget could result in an estimated $30 billion to $35 billion in cuts over the next five years to such programs as Medicaid, food stamps, the Earned Income Tax Credit, Supplemental Security Income, Temporary Assistance for Needy Families, and child care. These cuts are at least ten times larger than the Senate budget’s cuts to these programs, which would affect only food stamps.
The House and Senate budgets are much closer in other areas. They both contain more than $100 billion in tax cuts (which apparently would go mostly to high-income households), as well as more than $200 billion in reductions in domestic non-entitlement programs and significant increases in defense spending.
“If the House has its way on the issue of cuts to mandatory programs, Congress will likely end up with a budget that cuts health care, nutrition assistance, and other help for vulnerable families at the same time it confers large tax breaks on upper-income households,” said Sharon Parrott, the Center’s director of welfare reform and income support and the report’s lead author.
House Cuts Could Harm
The cuts in the House budget would come from Medicaid, food stamps, and a set of programs overseen by the Ways and Means Committee, such as the EITC and Supplemental Security Income (SSI) for the elderly and disabled poor:
If the entire $18.7 billion in cuts came from the EITC, the credit would have to be cut by $3.9 billion (11 percent) in 2006. To achieve reductions of this magnitude, 2 million families could be cut from the program or the average EITC for the 21 million low-income working households that receive the credit could be cut by about $190 annually.
If the Committee met its target by cutting all low-income programs under its jurisdiction by the same percentage, SSI would be cut by $4.8 billion over five years and by $1.2 billion in 2006 alone. If that cut in 2006 were achieved by reducing the number of people who receive SSI benefits, 222,000 seniors and individuals with disabilities would have to be terminated from the program.
If the Committee cut all of its low-income programs by the same percentage, this set of programs would be cut by $4.1 billion over five years and by $1.1 billion in 2006 alone.
House Agriculture Committee leaders say they plan to make much deeper cuts in food stamps than the Administration has proposed. According to the Agriculture Department, the Administration’s proposed $600 million in food stamp cuts would cause 300,000 people to lose food stamps by 2007.
Yet Deficit Would Grow
Under Both Plans
The Center’s report also shows that both the House and Senate budgets would cause deficits over the next five years to be more than $100 billion larger than they would be if no policy changes were made. This is because both plans contain large tax cuts and sizeable defense increases. As a result, the House budget’s cuts in low-income mandatory programs would not be used to reduce the deficit; instead, they would help “pay for” some of the tax cuts in the budget.
Moreover, the tax cuts in the House and Senate budgets would mostly help high-income families. For example, nearly half of the benefits of extending existing capital gains and dividend taxes for two more years would go to households with annual incomes of more than $1 million. (The cost of these tax-cut extensions, $23 billion, is about two-thirds the size of the House’s cuts in low-income mandatory programs, so the House could have eliminated two-thirds of these program cuts with no effect on the deficit simply by choosing not to extend the capital gains and dividend tax cuts. Alternatively, the House could have extended those tax cuts but covered the costs of doing so by curbing tax shelters and other unproductive tax breaks.)
“Basically, the House approach is to help pay for tax cuts tilted toward high-income households by cutting many forms of basic assistance to low-income households,” Parrott noted. “The big question now is whether the Senate — which itself has approved a budget that features substantial reductions in domestic discretionary programs and tax cuts tilted toward high-income households — will go along with the even harsher House approach.”
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The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.