September 16, 2005
SHARED SACRIFICE, STRONGER LEADERSHIP NEEDED
IN AFTERMATH OF KATRINA
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The President’s speech from New Orleans on
September 15 contained inspiring language and some promising proposals. Missing,
however, was a statement of the need for shared sacrifice to cope with the
fiscal implications of Hurricane Katrina, which could add as much as $200
billion in costs (plus billions more in added interest payments on the debt),
even as the nation faces severe long-term budget problems.
Two tax cuts aimed exclusively at high-income
households are scheduled to begin taking effect on January 1. Families that
earn at least $1 million a year — a group that already receives an average of
more than $100,000 per year in tax benefits from other tax cuts enacted
since 2001, according to the Urban-Brookings Tax Policy Center — would
ultimately receive an additional $20,000 per year from these two tax
cuts, on average. These two tax cuts would cost roughly $20 billion a year once
fully in effect (when interest costs are included). Given the added costs of
Katrina and the daunting deficits the nation already faces, can we afford to
layer these tax cuts on top of the ones we already have? Can we at least
discuss this issue? The matter remains off the table.
The President could have offered at least to
defer these two tax cuts in return for some spending reductions, such as reduced
earmarks in the appropriations bills that Congress will vote on in coming
weeks. He could have called for a reassessment of priorities and some mutual
sacrifice on a bipartisan basis. He did not.
And today, he ruled out consideration of any
change in tax-cut policies, even those that are providing lavish tax cuts to the
most affluent Americans while other members of society are suffering. Instead
he called for any fiscal discipline to come entirely from cutting “spending,”
i.e., the programs and services that government provides. With the bulk of the
Administration’s tax cuts benefiting those at the top of the income spectrum,
and with government programs and services being of considerable importance to
large number of Americans of more modest means, this has the potential to be a
prescription for policy changes that deepen poverty over time (despite the
President’s statement last night). It almost surely is a prescription for
further enlarging the widening gaps between the most well-off and other
By contrast, President Clinton, a wealthy
individual himself, noted this morning that in the face of the hurricane and the
nation’s budget deficits, people like himself should not continue to receive the
large array of tax cuts that have been conferred on them in the past few years.
In 1990 and 1993, federal policymakers proved
that it was possible to enact balanced, effective deficit-reduction legislation
that included shared sacrifice and addressed both taxes and spending. But for
history to repeat itself now, the President must show leadership on this issue.
Other omissions in the President’s New Orleans
speech relate to serious problems that are emerging in the immediate relief
efforts to assist Katrina victims:
- Health care. The nation’s governors
have called, on a bipartisan basis, for the federal government to provide
temporary Medicaid coverage to poor victims of Katrina regardless of whether
they fit into one of the program’s regular coverage categories.
Currently, an individual must be elderly,
seriously disabled, a child, or a parent of a minor child to qualify for
Medicaid. Katrina victims who do not fit into those categories are ineligible
for regular Medicaid coverage, even if they have serious health conditions.
They can try to seek care through an emergency room, free health clinic, or
some other form of uncompensated care, but the existing infrastructure to
provide uncompensated care is inadequate to deal with the large number of
Katrina victims who are not Medicaid-eligible.
This is why the
governors have called for dropping Medicaid’s “categorical restrictions” on a
temporary, emergency basis for hurricane victims. And Senate leaders —
including Majority Leader Frist and Minority Leader Reid — have agreed on a
bipartisan basis to provide temporary Medicaid coverage to poor Katrina
victims regardless of whether they fit into a regular Medicaid category. The
Administration, however, has resisted this idea, preferring instead to deal
with states one at a time, in closed-door negotiations over possible waivers
of federal Medicaid rules. This is likely to lead to a substantial variation
among states in the health care coverage provided to evacuees and to leave
many destitute hurricane victims uninsured.
- Cash assistance. Large numbers of poor
children and parents are among Katrina’s victims. Yet Texas, the state that
has accepted the largest number of refugees, has now decided not to provide
these families cash assistance through the Temporary Assistance to Needy
Families (TANF) program, after originally providing one-time TANF assistance
to some 185 families. This decision appears to stem in part from the absence
of a clear signal from the Administration that states would be reimbursed for
the cost of providing evacuees with TANF assistance.
Other states have chosen to provide TANF assistance to Katrina victims,
however, and Texas has provided roughly 100,000 Katrina victims with food
stamp assistance. The Administration should provide clear guidance and
leadership to ensure that the help evacuees receive does not depend on the
state to which they have been evacuated.
- Unemployment insurance. Large numbers
of workers made jobless by the hurricane are receiving unemployment insurance
(UI) benefits. However, Alabama, Louisiana, and Mississippi have the three
lowest UI benefits in the nation, on average. In all three states, average UI
benefits bring a family of four only to about half of the poverty
line. Thus, these UI benefits will be inadequate to enable many families to
meet basic needs, especially for families that have lost most or all of their
personal belongings because of the hurricane and families that have been
evacuated to states where the cost of living is significantly higher than in
their home state.
Another problem is that the state trust funds that are used to pay UI benefits
are at risk, since the states are paying benefits to more workers but are
receiving less in unemployment insurance taxes from employers. Proposals have
been made for the federal government to fully fund the cost of providing UI
benefits to workers made jobless by Katrina. The Administration has been
silent on such proposals.
- Housing. There is growing concern
across the political spectrum that FEMA is relying excessively on the use of
trailers to house homeless evacuees. In some areas, evacuees could be
provided with emergency “Section 8” vouchers to rent available apartments, as
was done successfully after the Northridge, California earthquake in the
1990s. Not only would this approach be more efficient, but existing rental
units would provide a more stable and secure environment for families and
Some local public housing agencies are moving on their own to help evacuees
obtain housing by putting them at the top of local waiting lists for voucher
assistance or public housing units. But only the federal government can make
more vouchers available. The Administration has shown no interest thus far in
using vouchers to help house Katrina victims.
Additional leadership from the Administration in
these areas would significantly ease the suffering of the thousands of Katrina
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