May 21, 1998

Effects of the Kasich Budget Plan
by Robert Greenstein and Sam Elkin

This analysis of the budget resolution the House Budget Committee approved May 20 updates an earlier Center analysis of a more-detailed Kasich budget plan released May 12. The budget plan Rep. Kasich released May 20, which his committee passed the same day, contains the same level of reductions in mandatory and discretionary programs as Rep. Kasich's May 12 proposal. As a result, this piece is similar to the earlier Center analysis.

The Kasich budget plan approved May 20 by the House Budget Committee includes $100 billion in budget reductions over the next five years. It would result in large reductions in non-defense discretionary programs and disproportionate cuts in basic benefit programs for poor and moderate-income families, particularly low-income working families and those seeking to leave public assistance for work.


Reductions in Non-defense Discretionary Programs

Expenditures for non-defense discretionary programs would fall by about one-fifth between fiscal year 1998 and fiscal year 2003, after adjusting for inflation. Proponents of the Kasich plan speak of it as cutting the federal budget one percent, but expenditures for non-defense discretionary programs would decline much more than that.

The new reductions in non-defense discretionary programs would be in addition to those already required as a result of last year's budget agreement. The Congressional Budget Office estimates that under the budget agreement, expenditures for non-defense discretionary programs would drop by 2002 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 budget plan would drive this level lower.


Reductions in Programs for Low- and Moderate-income Working Families

The documents that Rep. Kasich released May 20 describing his plan do not provide any information about how its $55 billion in reductions in mandatory programs would be achieved. This is unusual. Virtually every previous budget resolution that has included "reconciliation instructions" requiring specific Congressional committees to cut mandatory programs by specified amounts has explained its assumptions about which mandatory programs would be reduced.

Nevertheless, the assumptions underlying the mandatory program reductions in the Kasich budget plan can be identified. This can be done by examining the more detailed budget document that Rep. Kasich released May 12. That document specified which mandatory programs would be cut, in what amounts, and in what manner. Although the descriptions of specific mandatory program reductions in the earlier budget document were dropped from the budget documents that Rep. Kasich unveiled May 20, the committee-by-committee reconciliation instructions in his May 20 budget plan appear to match the specific mandatory cuts in the earlier document. Furthermore, Rep. Kasich stated on May 20 that the budget cuts detailed in the May 12 document still represent the recommendations of the Republican members of the House Budget Committee.(2)

Among the most striking features of the mandatory program cuts in the Kasich budget, as reflected in the description of these reductions in the May 12 Kasich budget document, are the disproportionate reductions that would be made in programs for low-income families and the cuts in support for low-income working families and those seeking to leave public assistance for employment.

The reductions in mandatory programs outlined in the Kasich budget document released last week also have another distinguishing characteristic — they could hit working families particularly hard during recessions.


Marriage-penalty Tax Relief

The principal purpose of these budget reductions will be to finance marriage-penalty tax relief. If marriage-penalty tax relief is deemed desirable, however, 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, but 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 does not appear to contain savings in this area, despite Rep. Kasich's past criticisms of corporate welfare and CBO findings that more than two-thirds of the corporate subsidies the federal government provides are delivered through the tax code.(7)

It should 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 that receive a marriage bonus exceeds the total amount of tax increases those subject to a marriage penalty face.(8)

CBO's analysis of issues related to the marriage penalty also explains that the current income tax code seeks to balance three important principles that can conflict with one another: 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 study explains that seeking to eliminate or reduce marriage penalties generally increases problems in at least one of these other two areas.

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.

Furthermore, it is unclear to what extent the funds secured by the $100 billion in domestic program reductions the Kasich plan contains would be used for marriage-penalty tax relief. Some 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. The exact percentage decline in FY 2003 cannot be determined at this time because the Kasich budget documents do not provide year-by-year figures on the amounts by which non-defense discretionary programs would be reduced in each of the next five years. They provide figures only on the amounts by which 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 the plan calls for in the last 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). This method is virtually certain to underestimate the size of the cut in 2003. Alternatively, if there is a constant rate of growth in the size of these reductions each year between fiscal year 1999 and fiscal year 2003, the reduction would reach 21 percent in fiscal year 2003. That figure is likely to overstate the size of the cut in 2003.

2. Congress Daily, May 20, 1998.

3. 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.

4. 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.

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

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

7. The May 12 Kasich budget document included $6 billion in savings from narrowing tax breaks, a little less than one-quarter the amount the Administration has proposed to save in this area. It appears from the revenue totals in the May 20 Kasich budget document that this $6 billion in savings is no longer assumed, although that cannot be determined for certain from the skeletal May 20 document.

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

Related analysis:

Additional budget reports