May 19, 1998

The Impact of the Kasich Budget Plan
by Robert Greenstein and Sam Elkin

Table of Contents

The House Budget Committee plans to vote on a fiscal year 1999 budget resolution the week of May 18. During the week of May 11, a budget proposal was circulated that was prepared by the Committee's chairman, Rep. John Kasich, and calls for $100 billion in reductions in non-defense programs over the next five years.

Rep. Kasich appeared to backtrack from his proposal somewhat on May 14, when he indicated that the budget resolution he would place before the Budget Committee would include budget cut totals for mandatory and discretionary programs, but not detailed information on which specific programs would be reduced and by what amounts. Despite this announcement, however, the Kasich budget proposal distributed last week continues to be the basis for the budget resolution Rep. Kasich plans to submit.

The resolution Rep. Kasich will place before his committee will apparently include the same amount of budget cuts — $54 billion in mandatory program reductions and $46 billion in discretionary program reductions over five years — as the budget document circulated last week. Moreover, the budget resolution he will submit will have to divide its mandatory program cuts among the authorizing committees with jurisdiction over mandatory programs; the resolution will have to lower the spending allocations for these committees by the amount of the mandatory program reductions it contains. The division of these mandatory cuts among the authorizing committees is expected to reflect the mandatory cuts described in the Kasich budget document.

Details on which discretionary programs are to be cut are never included in budget resolutions. Although such details sometimes are included in the committee reports that accompany budget resolutions, often they are not. The important matter a budget resolution addresses regarding discretionary programs is the overall amount of funding the resolution makes available for those programs. As noted, the budget resolution that Chairman Kasich proposes this week is expected to include the same level of cuts in the discretionary spending as was contained in the budget document he issued last week. These cuts would cause expenditures for non-defense discretionary programs to be 17 percent to 21 percent lower in fiscal year 2003 than in fiscal year 1998, after adjusting for inflation.

The budget document Rep. Kasich circulated last week thus remains highly relevant. This analysis examines it. The analysis finds that the Kasich plan would result in large, disproportionate cuts in programs for low- and moderate-income families, particularly programs for low-income working families and those seeking to leave welfare for work.


Effects of the Plan on Low-Income Working Families

Among the most striking features of the Kasich budget plan are its disproportionate cuts in programs for low-income families and its focus on reducing support for low-income working families and individuals and those seeking to leave public assistance for work.

Numbers in Kasich Budget Documents Do Not Add Up

The Kasich budget document calls for $100 billion in budget reductions over five years. Some of its mandatory spending reductions, however, are included in the nearly completed conference agreement on the highway bill, where these savings are used to offset increased highway spending. As a result, these cuts would not be available to help pay for tax cuts as Rep. Kasich envisions. In addition, the Kasich plan assumes reductions in transportation spending to below a freeze level. That clearly will not happen.

Adding to these problems, the Kasich budget claims to include $54 billion in mandatory program reductions, but the specific proposals delineated in the plan added to $49 billion. Similarly, it claims to include $46 billion in discretionary program reductions relative to the discretionary caps set in last year's budget agreement, but its specific cuts add to $41 billion. The shortfall in mandatory savings may be related to a gaping white space that appears on page 5 of the Kasich document in its section on Medicare savings. It appears a Medicare savings item originally included in the document was excised at the last minute.

Impact on Working Families During Recessions

The Kasich plan would be hardest on working families during recessions. Its changes could make it much more difficult for working families whose breadwinners lose their jobs in recessions to receive health care and food assistance while unemployed.

Other Concerns

The budget plan's treatment of the food stamp program is of particular note. No major program has been cut as much in recent years as food stamps. Congressional Budget Office estimates of the budgetary effects of the welfare law, issued in August 1996, show the legislation reduced the food stamp program by more than $27 billion over six years, with food stamp reductions accounting for half of all savings in the welfare law. Last year's Balanced Budget Act added back $1.5 billion over the five years to the food stamp program, with the bulk of the restoration coming in the form of funding for workfare slots for individuals subject to the three-month food stamp cut-off for out-of-work individuals who are not raising minor children. The Kasich plan would both repeal the food stamp restorations in the Balanced Budget Act and make other, deeper food stamp reductions that would primarily affect families with children. It contains more than $4 billion over five years in food stamp cuts.

One other aspect of the Kasich plan's proposed reductions in mandatory programs bears noting. The plan contains two measures to reduce Medicare expenditures below the baseline by $4.8 billion over five years. Earlier this year, when the Administration proposed a measure to enable individuals aged 62 to 64 to "buy in" to Medicare, Congressional leaders rejected it, stating such a proposal should be considered by the new bipartisan Medicare Commission scheduled to report in 1999 and should not be taken up by Congress this year. Under the Kasich budget, several proposals to reduce Medicare payments would be considered this year — these reductions evidently would be exempt from the principle that Medicare changes should be deferred until the Commission reports.


Effects on Non-defense Discretionary Programs

The Kasich budget document portrays Rep. Kasich's proposal as making only modest adjustments in discretionary programs. The document states that the plan would reduce discretionary programs just 3.5 percent below the levels that would be provided for these programs under current law.

This presentation glosses over the fact that significant reductions in discretionary programs already are needed to fit within the caps on discretionary spending that last year's budget agreement set. The cuts proposed in the Kasich budget would be on top of the cuts the budget agreement necessitates.

Discretionary reductions of this size would be substantial, painful, and difficult for Congress to achieve. Even if increases in defense spending did not drive non-defense discretionary spending lower, overall expenditures for the non-defense discretionary programs would be 17 percent to 21 percent lower in fiscal year 2003 than in fiscal year 1998 under the Kasich budget.(5) (The exact percentage decline cannot be determined at this time because the discretionary spending limits the Kasich plan would set for each fiscal year after fiscal 1999 have not yet been made public. Only the amount of the reduction in fiscal year 1999 and the five-year total reduction have been disclosed.) Since some discretionary programs clearly would not be cut as much as 17 percent to 21 percent, others would have to be cut more deeply than that.

Under the budget agreement, expenditures for non-defense discretionary programs already are slated by 2002 to drop to three percent of the Gross Domestic Product, the basic measure of the size of the U.S. economy. That will be the lowest such level in more than 40 years. The Kasich plan would drive this level still lower.

Among the specific reductions the Kasich plan would make in discretionary programs are substantial cuts in a number of discretionary programs targeted on low-income families and individuals. These include: termination of the legal services program; substantial reductions in funding for job training programs; elimination of a program providing investment in impoverished areas (the Community Development Financial Institutions program); and substantial reductions in funding for rural housing programs.

The levels the Kasich budget proposes for non-defense discretionary programs also could lead to deep cuts in housing vouchers for low- and moderate-income families. The Kasich plan assumes that funding for individual non-defense discretionary programs will, at best, be frozen for the next five years (except for a very small number of programs the plan singles out for an increase). Because an unusual number of multi-year contracts for housing vouchers come up for renewal in the next several years, budget authority totaling about $30 billion above the freeze level is needed over the course of the next five years simply to maintain the current number of vouchers. (This does not result in a corresponding increase in outlays above a freeze level, as the number of housing vouchers in use would not rise.)

CBO analyses show that a freeze in budget authority for these housing vouchers would cause a reduction of one million in the number of low-income families provided such vouchers. Last year's budget agreement recognized this problem and explicitly called for the existing vouchers to be renewed.

The reductions in low-income housing assistance the Kasich plan could trigger would come at a time when the shortage of affordable housing for low-income families is at a record high. HUD recently reported that 5.3 million families either paid more than half of their income for rent or resided in severely substandard housing in 1995, the latest year for which these data are available.


Marriage-penalty Tax Relief

According to the Kasich plan, the principal purpose of these budget cuts is to fund marriage-penalty tax relief. But if marriage-penalty tax relief is deemed desirable, it need not cost anywhere near as much as the Kasich plan contemplates. The marriage-penalty proposals that carry costs as high as the Kasich plan envisions generally are proposals such as H.R. 2456, a bill with 236 co-sponsors, under which more than 80 percent of the tax cuts would go to the top third of households. That is the same group that received the lion's share of the tax cuts enacted last year. Other marriage-penalty proposals, such as proposals to make the standard deduction for married couples twice that of single filers, would provide about the same amount of tax relief to married families with incomes under $50,000 as the more expensive proposals, at a fraction of the cost.(6)

Furthermore, if it is determined that providing marriage-penalty tax relief is a priority this year, much of the cost could be financed by closing inefficient or unproductive tax breaks. The Administration's budget proposes $26 billion in such revenue-raising measures, according to CBO estimates. The Kasich budget document includes only $6 billion in savings in this area, less than a quarter of the Administration amount, despite Rep. Kasich's past criticisms of corporate welfare and findings by CBO that more than two-thirds of the corporate subsidies the federal government provides are delivered through the tax code. Moreover, it is not clear that even this $6 billion in savings still will be in the budget Rep. Kasich presents to his committee this week.

It also may be noted that CBO has found that the number of families that receive a marriage bonus under the current income tax structure — that is, the number of families whose income tax bills go down when they marry — exceeds the number of families subject to a marriage penalty. CBO also has found that the total amount provided in tax reductions to married families receiving marriage bonuses exceeds the total amount of tax increases to which families facing a marriage penalty are subject.(7)

Moreover, CBO's analysis of issues related to the marriage penalty explains that the current income tax code seeks to balance three principles that can conflict with each other: married couples with equal incomes should pay the same amount of income tax regardless of how earnings are divided between the spouses; taxes should not be affected by marriage; and households with higher incomes should pay a larger percentage of their incomes in taxes than households with lower incomes. The CBO report explains that seeking to eliminate or reduce marriage penalties generally increases problems in at least one of these other two areas. Thus, most current proposals to reduce marriage penalties would cause many married families with the same level of income to owe substantially different amounts of federal income tax. A number of the current proposals also would increase marriage bonuses for many of those already receiving such bonuses, which is one reason many of these proposals are very expensive.

Finally, it is unclear to what extent the funds secured by making these various cuts in domestic programs would actually be used for marriage-penalty tax relief. A significant share of these funds could be used for other tax cuts. Rep. Bill Archer, Chairman of the House Ways and Means Committee, has called for deeper capital gains tax cuts and larger reductions in the estate tax. Such tax cuts would primarily benefit the wealthiest families. If these measures were enacted, some of the most affluent families would be further enriched, and the cost of enlarging their after-tax incomes would be financed in part through budget reductions that make working poor and recently unemployed families and individuals poorer.

End Notes

1. This calculation does not include mandatory savings from asset sales, as those are one-time rather than ongoing savings and do not represent reductions in programs. If savings from asset sales are included in the calculations, cuts in low-income programs account for 37 percent of the mandatory spending reductions.

2. The Administration's budget contains the same reduction in the Social Services Block Grant, but the Administration would use these savings to help pay for a much larger increase in funding for other child care programs. The net effect in the Administration's budget is a substantial increase in child care funding.

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

4. Although the budget agreement includes separate caps on defense and non-defense discretionary programs only through fiscal year 1999, it sets forth assumed levels of expenditure for defense and non-defense discretionary programs for each year covered by the agreement.

5. The Kasich budget documents released last week do not provide year-by-year figures on the amounts by which discretionary programs would be cut in each of the next five years. They provide figures only on the amounts that non-defense discretionary programs would be reduced in fiscal year 1999 and over the five years as a whole. If one-fourth of the total cuts to be made in the final four years of the five-year period are made each year and there is no growth in the size of the cut from year to year, expenditures for non-defense discretionary programs in fiscal year 2003 would be 17 percent lower than in fiscal year 1998, after adjusting for inflation (using the CBO projections of inflation in discretionary programs). If there is a constant rate of growth in the size of these reductions between fiscal year 2000 and fiscal year 2003, the reduction would reach 21 percent in fiscal year 2003.

6. See House Budget Committee, Minority staff, The "Marriage Penalty" and Related Proposals, April 23, 1998.

7. Congressional Budget Office, For Better or Worse: Marriage and the Federal Income Tax, June 1997.