Cheaper at Half the Price

According to the results of a joint NPR-Kaiser Family Foundation-Kennedy School of Government poll released last month -- and confirmed by almost every other poll on Americans' attitudes toward tax cuts - we are all in favor of tax breaks, until we understand what we have to give up in return.

This latest poll revealed that a whopping 80 percent of us would prefer to have our collective resources dedicated to such programs as health care, education and Social Security instead of seeing them spent on tax cuts. One great analogy of this tradeoff is presented by a public policy group in Canada that explains that if a person is asked if he'd like to pay less for a loaf of bread, he most certainly will respond with an enthusiastic yes; if, however, he is told this less costly loaf of bread may be smaller or less filling, he very likely will reconsider his support. Unfortunately, details on what type of loaf of bread we'll all be left with after the tax cuts are enacted have been in short supply.

Congress is still grappling with the size of the President's "Economic Growth Package," with the House and the most ardent Senate tax cutters pushing for $550 billion, and Senate moderates trying to limit it to $350 billion. Though there are also some in both chambers trying to lessen the damage of the final package by focusing on short-term economic stimulus or longer-term tax cuts that benefit lower- and middle-income tax payers, there is also a growing effort to manipulate the numbers to cram an over-sized and lop-sided tax cut into the limits set by the budget resolution. The tax cut, whether $550 billion or $350 billion, is destructive enough; but the latest gimmicks to conceal its true costs (including "sunsets," or expiration, of some of the most costly elements, and the omission of some of the most popular elements, such as marriage penalty relief, which will surely be passed later) may result in a tax cut that actually costs $1.0 trillion over the next 10 years (see this Center on Budget and Policy Priorities piece). If such gimmicks are used, the spending cuts necessary to pay for them will be even larger than those outlined in this article.

As noted in the last issue of The Watcher, the budget resolution that Congress passed last month uses cuts in discretionary spending to pay for its expensive tax cuts. To ensure that these cuts will be implemented, the budget resolution reinstated budget caps on the level of discretionary spending for 2003, 2004, and 2005. The caps, set unrealistically low for 2005, cannot be overridden without a 60-vote "supermajority" in the Senate. The effectiveness of the caps at shrinking domestic spending is further enhanced by the omission of a "firewall" between domestic and defense spending. Since defense spending is slated to increase by more than $200 billion over the next 10 years, a bare minimum of $168 billion must be pared away from domestic discretionary spending. Put another way, this means that almost everything except military spending, Social Security, Medicare, highway construction, and some assistance for veterans is fair game for these cuts. In the past, especially during the surpluses of the late 1990's, these caps were easily increased as needed, sidestepped by exempting additional spending as "emergency spending," or simply ignored (for more, see this General Accounting Office (GAO) report).

Given the country's ever-increasing deficits, the growing number of "deficit hawks" in both parties, and a greater focus on recently exposed needs such as emergency preparedness at the national and local levels, it seems less likely that the same flexible interpretation of spending caps will save the many programs supported with discretionary funding. What we will be forced to sacrifice instead is the chance to extend unemployment assistance to those who are now facing a 6% unemployment rate; the chance to provide a healthy dose of fiscal aid to states facing a $75 billion cumulative budget gap; the obligation to provide long-promised increases in federal funding for the educational needs of students with disabilities; the opportunity to fund increased oversight of worker safety, environmental protection, and healthy food and drugs; and many other important efforts to build a stronger, healthier country. Areas most certainly at risk include:


  • Aid to Financially-Strapped States: While states face their worst fiscal crisis in 50 years, the House has offered no assistance and Senate Finance Committee Chair Charles Grassley (R-IA) is currently arguing over how little state aid he can fit into the budget. According to a recent National Conference of State Legislators report, states have had to lay off employees, reduce benefits and eligibility and scale back services for recipients of Medicaid, the federal-state partnership that provides medical coverage for the poor and some elderly. In addition, some states have attempted to close their budget gaps by releasing non-violent offenders before their full sentences have been served. All of these cuts are a desperate effort to avoid raising taxes, which is anathema to the reelection hopes of nearly all governors and state legislatures. Nevertheless, many states have dramatically increased cigarette taxes, increased corporate surcharges, and 6 states are now currently considering increases in their personal income taxes.
  • Education: Governors and legislators of both parties, as well as most economists, have argued states need an immediate injection of $30 billion to stave off additional cuts that will wreak havoc on both state and national economies. In addition to the cuts noted above, states have also made across-the-board cuts in elementary and secondary education, laid off teachers, shortened the school week, and cut administrative staff. In 2001, given the hoopla over the passage and signing of the President's Leave No Child Behind Act, such cuts would have seemed impossible. The federal budget, however, actually underfunds the provisions of this Act, putting an even greater burden on states to find the money to meet its costly requirements. In a recent interview with National Journal reporter John Maggs, President Bush responded to a question about the current plight of the states saying, "Listen, I'm sorry that the states are in deficit, obviously … They are all meeting their deficits in different ways, but nevertheless, it is incumbent on the federal government to think in terms of how to enhance revenues." (As this OMB Watcher article explains, the President is likely referring to more federal tax cuts, and not about allocating the $30 billion in state fiscal aid.)
  • Child Care:A recent GAO study shows that in an effort to reduce costs in response to these huge budget deficits, states have been cutting the amount of financial assistance they provide to low-income families to help with the costs of child care. States have the flexibility to determine who among current welfare recipients, those who have just recently stopped receiving welfare assistance, and other low-income families are eligible to receive child care assistance. The study reports that 23 states have decreased the availability of this assistance since January 2001, and at least 22 states plan to maintain or cut funding for child care this year. As the Post article and the GAO study note, with more women being required to work to receive their welfare benefits, the need for safe and affordable child care has only increased over the last five years; yet federal funding for this vital assistance is in very short supply.
  • First Responders: In an effort to try to provide a minimal amount of funding to state efforts to meet increased homeland security needs, the FY 2004 budget pays for increases in funding for first responders by cutting funding for local law enforcement efforts including the community policing program (COPS) and the Local Law Enforcement Block Grant program, which provides funding for local government to hire and train additional law enforcement officers, enhance security around schools, and establish crime prevention programs that "involve cooperation between community residents and law enforcement personnel."
  • Low-income Assistance: The House-passed budget resolution provides some clues about other likely targets for cuts in discretionary spending. The Senate refused to support the House plans proposed cuts in discretionary spending for housing assistance, child care block grants, low-income heating and energy assistance, and other programs, and thus the final budget resolution was passed without these cuts. Nevertheless, with at least $168 billion in cuts provided for in the budget resolution over the next 10 years, this is not likely to be the last word on cuts to programs that serve the needs of low- and moderate-income families. Cuts are even more likely since the $168 billion cut refers only to the Congressional Budget Office's (CBO) baseline, which only takes into account inflation, but omits such other important funding elements as population increases and economically-driven increases in need.

There is little additional information about what specific programs will be cut over the next 3 years in an effort to stay within the newly imposed budget caps. In some ways, this forced ignorance seems even more egregious than the cuts themselves. It is precisely because there is so little mention of the cuts that loom just around the corner that working against them is so difficult. Abstract ideas like burgeoning deficits seem to resonate somewhat with the public, but nothing has the power to bring home the full meaning of these budget cuts as seeing that loaf of bread cut in half right before your eyes. Those opposing the tax cuts in Congress would better serve the interests of the country if they would speak about the impact on our collective needs with the same passion that fills their speeches about the growing deficit. No one wants a pint-sized, less-filling loaf of bread, no matter how cheap it is.

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