THE HOUSE BUDGET COMMITTEE'S
NEW BUDGET PLAN:
A Brief Analysis
Richard Kogan, Katharine Richards, and
The Republican Study Committee, a group of very
conservative members of the House of Representatives, issued a budget plan on
March 8, 2006. That plan may be offered as an amendment later this week to
the congressional budget resolution reported by the House Budget Committee.
The RSC plan includes the following features (also see the table below):
- Tax cuts: the RSC plan calls for $630
billion in tax cuts over the next five years, which is hundreds of billions more
than the amounts called for by the President, the Senate, and the House Budget
Committee. (The HBC plan has $228 billion in tax cuts over five years.)
This is more than would be needed to make all the 2001 and 2003 tax cuts
permanent, continue all tax “extenders,” and provide permanent relief from the
Alternative Minimum Tax.
- Defense: The plan increases defense
spending by $140 billion over five years, largely to continue funding the wars
in Iraq and Afghanistan through 2007.
- Non-defense discretionary programs:
The plan cuts expenditures for non-defense discretionary programs, which
constitute only about one-sixth of the budget, by $478 billion over five years.
These cuts are nearly five times as large as the comparable cuts in the House
Budget Committee plan. The RSC’s cuts in non-defense discretionary
programs would reach $164 billion in 2011 alone. That would shrink these
programs by an average of one-third by that year (relative to what the
programs would cost if their funding remained unchanged, except for an
adjustment for inflation).
- Highways and infrastructure: One
fifth of the cuts in expenditures for non-defense discretionary programs — $103
billion in cuts over five years — would come in highways, roads, bridges, mass
transit, and other infrastructure development and repair. After accounting
for inflation, these activities would be cut more than 60 percent by
- Education and other domestic programs:
Some $82 billion in five-year cuts would from the part of the budget that funds
education and job training. By 2011, this part of the budget would
be cut about one-third, relative to the 2006 levels adjusted only for inflation.
Housing and medical research also would bear deep cuts.
- Entitlement cuts: The RSC budget
plan includes $359 billion of cuts in entitlement programs over five years.
This is nine times as much as the controversial budget reconciliation bill
enacted in February.
- Medicare: The RSC plan includes Medicare
cuts of $218 billion over five years, which the RSC says could be achieved
through a combination of such options as doubling the Medicare Part B
premium (now $88.50 per month), raising Medicare deductibles and co-payments,
and setting payments to hospitals, home health agencies, and skilled nursing
facilities at levels that fall further behind health care inflation with each
passing year. There is a risk that if reimbursements to providers are
reduced well below private-sector reimbursement rates, providers will stop
accepting Medicare patients.
- Medicaid: The RSC budget also would
replace Medicaid with a block grant that does not keep pace with health
care costs and that would lower projected federal Medicaid payments to states by
$92 billion over five years. As with Medicare, if reimbursements to
providers are reduced too far below private-sector reimbursement rates, many
providers will stop accepting Medicaid patients. To keep providers in the
program, states either would have to make up for the large federal cuts by
providing more of their own resources, which would likely be difficult for many
states to do, or deny eligibility (or coverage for various health care services)
to millions of low-income children, parents, and people who are elderly or have
- Other entitlement
Some of the other entitlement reduction proposals in the RSC budget would
eliminate student loans for graduate students, eliminate the trade adjustment
assistance programs, and cut farm programs substantially.
- Very little deficit
These very deep cuts in domestic programs would do little more than fund the
rather massive tax cuts that the RSC plan calls for. Even with its deep
cuts in health care, education, and other domestic areas, the plan would reduce
the deficit by an average of less than $15 billion a year between now and 2011,
relative to the projections issued by the Congressional Budget Office of the
deficits that will occur if no changes in current law are made.
- Entitlement cap:
The RSC plan announced in March also calls for an “entitlement cap” that
requires increasingly deep entitlement cuts every year. This proposed
entitlement cap would establish a formula in law that would limit the total size
of all entitlement programs taken together, other than Social Security.
The limit would be far below the projected costs of entitlement programs under
current law, and so would require the enactment of deep cuts. If Congress
did not voluntarily make the required entitlement cuts (and Congress could
choose which entitlements to cut and by how much), the President would be
required to implement automatic cuts by formula to specified entitlements.
The table above shows how much would have to be cut from each entitlement
program other than Social Security over the next ten years to meet the proposed
entitlement cap, assuming that Congress distributed the required cuts
proportionately. Even if the painful and highly controversial
entitlement-cut proposals mentioned in the paragraphs above all were
enacted, thereby reducing projected entitlement costs by $359 billion over five
years, the proposed entitlement cap still would require an additional $50
billion of entitlement cuts over the next five years.