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THE HOUSE REPUBLICAN STUDY COMMITTEE'S
PROPOSALS TO OFFSET THE COSTS OF HURRICANE RELIEF
CBPP
By James Horney and Robert Greenstein
October 5, 2005
On September 21, the Republican Study Committee of the House of
Representatives, a group of that chamber's most conservative Republican
members, released a large package of program cuts that it proposes be used to
offset the cost of relief and recovery from Hurricanes Katrina and Rita.[1]
The recognition that deficits are a problem is welcome, and some of the
cuts proposed by the RSC should be considered as part of any deficit reduction
plan. Yet the package as a whole is highly unbalanced. It calls for
deep cuts in basic programs for the poorest and most vulnerable Americans.
It also would hit the middle class substantially, raising the costs of
health care sharply for elderly Medicare beneficiaries with modest incomes and
increasing the costs of school lunches for middle-income families. Yet it
calls for virtually no sacrifice from the most well-off Americans, who have
benefited heavily and disproportionately from the tax cuts enacted over the
last four years. In fact, it leaves in place generous new tax cuts -
predominantly for millionaires - that are slated to start taking effect on
January 1, 2006, even as the package cuts deeply into programs for poor
families and for elderly people getting by on modest incomes.
- Nearly 40 percent of the cuts proposed in the package would come from
programs that provide basic assistance to people with low incomes. The
package includes $343 billion in cuts over ten years from programs that assist
low-income families and individuals in the United States, principally poor
families with children and poor people who are elderly or have serious
disabilities.
- These cuts include $246 billion in reductions in the Medicaid program,
which provides health care to low-income children, parents, seniors, and people
with disabilities, and an $85 billion cut in the Earned Income Tax Credit,
which helps working families trying to raise their children on income from
low-wage jobs.
- The package also proposes to cut $32 billion from programs aimed at helping
people in severely impoverished areas abroad survive the ravages of AIDS and
other scourges. These cuts include wholesale elimination of the
Millennium Challenge Fund.
- The package includes substantial cuts in programs upon which millions of
middle-class Americans rely. It proposes to delay implementation of the
Medicare prescription drug program for one year (a proposal immediately
disavowed by the Republican leadership in the House). It also would
substantially increase Medicare premiums and raise deductibles and co-payments
in Medicare. For most Medicare beneficiaries, these changes would raise
out-of-pocket costs by an average of about $1,700 per couple in 2006 and by
larger amounts in subsequent years. The package also would terminate
support for school lunches provided to middle-income families, requiring such
families to pay more for their children's school meals.
The package would even cut $6.8 billion over ten years in grants that help
local governments improve their "first responders' capabilities and be better
prepared in cases of emergency, and would cut $25 billion over ten years in
funding for the Centers for Disease Control and Prevention, which helps protect
the country from epidemics of infectious disease, biological and chemical
terrorism, and environmental hazards. Grants to help state and
local governments promote energy conservation and meet water quality standards
would be slashed as well.
- Funding for the Corporation for Public Broadcasting, the National Endowment
for the Arts, and the National Endowment for the Humanities would all be
eliminated.
The cuts proposed in Medicaid and other low-income programs would
significantly reduce aid to the most vulnerable Americans, while cuts in
programs such as Medicare and school lunches would reach into the pockets of
millions of Americans who are not affluent. For example, the increased
premiums and co-payment charges in Medicare would make life significantly
harsher for millions of elderly people struggling to get by on incomes modestly
above the poverty line, such as elderly couples living on average Social
Security retirement benefits of just over $17,000. The cuts in the
Centers for Disease Control and Prevention and funding for first responders
also could adversely affect millions of Americans. In addition, many of
the RSC proposals would reduce federal support for vital services provided by
state and local governments, leaving those levels of government with large
budget holes.
In contrast to these large cuts aimed at people at the bottom and middle of
the income spectrum, the RSC package proposes no scaling back of the large tax
cuts enacted since 2001 that have been of greatest benefit to the nation's
wealthiest individuals, and no action to close abusive tax shelters. The
Urban Institute-Brookings Institution Tax Policy Center has reported that the
tax cuts enacted in this decade are reducing the taxes of people who earn more
than $1 million a year (the top 0.2 percent of taxpayers) by an average of
$103,000 this year.
In addition, the RSC does not suggest deferring or shelving two tax-cut
measures enacted in 2001 that are not yet in effect, will start taking effect
on January 1, 2006, and will benefit only people at high income levels. (See
this box.) The Tax Policy Center reports that 97 percent of the tax-cut
benefits from these two new tax cuts will go to people with incomes that exceed
$200,000 a year, and that a majority of these tax cuts will go to people who
make over $1 million a year. For people making over $1 million, the two
new tax cuts will cut taxes an additional $19,000 a year, on average, when
fully phased in. This will be on top of the $103,000 in average annual
tax cuts these individuals are already receiving.[2]
In other words, under the RSC package, lower- and middle-income Americans
would face substantial reductions in basic services and large increases in
out-of-pocket costs, even as the already-hefty tax cuts for the wealthiest
Americans were allowed to grow still more generous.
House Leaders Focus on Cutting Programs for the Poor to Finance
Hurricane Relief
When the Republican Study Committee issued its recommendations on September 21,
both the House Leadership and the White House quickly made clear their
disagreement with aspects of the RSC package, such as the proposed delay of one
year in implementing the new prescription drug benefit. House Republican
Leaders and RSC leaders then met on September 27.
Both Roll Call and Congress Daily have reported that at this meeting, the
list of RSC budget cuts was narrowed down, and a focus was placed on pursuing
cuts in Medicaid, food stamps, welfare reform programs and domestic
discretionary programs outside homeland security.a This suggests that
proposals to cut major benefit programs affecting the middle class - such as
the RSC proposals to raise Medicare premiums and co-payments - are likely to be
shelved. It also suggests that the bulk of the cuts the House pursues in
entitlement programs are likely to be cuts in basic programs for low-income
families and individuals.
Thus, four weeks after the plight of impoverished New Orleans residents
med to elevate concerns about Americans who are living in poverty, and
five weeks after the government reported that poverty rose again in 2004,
political leaders in Washington apparently are discussing plans to make poor
people bear the largest load in paying for the hurricane-related costs.
a Ben Pershing, "GOP Still Seeking Spending Cuts,'
Roll Call, September 28, 2005; and John Stanton, "Frist, GOP Leaders Move
to Regain Footing in Debate Over Katrina Relief Spending,' CongressDailyAM,
September 28, 2005.
Consider, for example, the effects of the RSC's Medicare proposals on a
70-year old couple living on Social Security benefits of $17,250 in 2005, the
average benefit level for a retired worker and spouse. In addition to
waiting a year to begin receiving the new Medicare prescription drug benefit,
the couple's Medicare Part B premium costs would be raised from $2,124 in 2006
to $2,549 a year, an increase of $425. And if the couple were among the
79 percent of Medicare beneficiaries that the Congressional Budget Office
estimates would face higher deductibles and co-payment charges under the RSC
proposal, the couple would pay an additional $1,300 in co-payments in 2006, as
well.[3] The RSC Medicare proposals thus would cost such a couple $1,725
in 2006, or nearly 10 percent of its modest income. Over five years, this
couple would have to pay about $10,000 more out of its own pocket for these
health care services. (Because Medicare costs are growing faster than
inflation, the additional costs imposed by the RSC proposal would, on average,
grow faster than the couple's Social Security benefits and this would eat up a
larger share of the couple's income with each passing year.)
Two New Tax Cuts Are Slated to Start Taking Effect on January
1
Under the 2001 tax-cut law, two tax provisions originally enacted as part of
the bipartisan 1990 deficit-reduction package developed by then-President
George H.W. Bush and Congressional leaders of both parties would be phased out
starting in 2006, and be repealed entirely in 2010. The tax-cut
benefits from repealing these two provisions would go entirely to taxpayers
with high incomes.
One of the two provisions that are slated to be repealed phases out the
personal exemption for people at high income levels. The other provision
being repealed limits the value of itemized deductions for taxpayers with high
incomes.
Repealing these measures, a step that President Bush did not request in
2001, will benefit only high-income households. The Urban
Institute-Brookings Institution Tax Policy Center reports that when these two
tax cuts are fully in effect (i.e., when the two measures enacted in 1990 are
repealed), 54 percent of the tax-cut benefits will go to households making over
$1 million a year, with these households receiving an average annual tax cut of
$19,234 from the two measures. Some 97 percent of these tax cuts will go
to households with incomes exceeding $200,000. The remaining three
percent of the tax cuts will go almost entirely to households between $100,000
and $200,000, but households in this income range will receive average tax cuts
of just $25.
The cost of these two new tax cuts will be $146 billion over the first ten
years they are in full effect (2010 through 2019). Including the added
interest payments that will result, the total cost of the two tax cuts will be
nearly $200 billion over that ten-year period. In other words, by 2020,
the costs of these two tax cuts (assuming they are extended beyond 2010) will
equal or exceed the costs of hurricane relief and reconstruction - and over the
longer term, the cost of these new tax cuts will vastly exceed the costs
stemming from the hurricanes.
Proposed Cuts in Domestic Low-Income Programs
The cuts proposed in programs serving low-income Americans account for $343
billion, or 36 percent, of the $946 billion in program reductions over ten
years that the RSC is proposing. These cuts would hit health care
programs serving poor families and individuals particularly hard.
Medicaid
The RSC package includes cuts in Medicaid that would reduce federal funding
by a total of $246 billion over ten years, relative to what Medicaid funding
levels would be under current law.
Medicaid provides more than 50 million economically vulnerable children,
senior citizens, people with disabilities, and other adults with access to
life-saving and life-preserving health care. When the economy weakened
and employer-sponsored health insurance eroded in recent years, Medicaid played
a particularly important role in enabling many of those with low incomes who
lost private coverage to maintain health insurance. Without Medicaid, the
number of uninsured Americans would be substantially higher than the
record-high 45.8 million level identified by the most recent Census data.
The RSC package includes a battery of proposals to cut Medicaid. The
most far-reaching is a proposal to eliminate the current Medicaid entitlement
for acute care for eligible low-income children, parents, and elderly and
disabled people and simply provide block grants to states instead. (This
proposal would not affect Medicaid long-term care services such as nursing
homes.) The shift from an entitlement to a block grant would radically
change the nature of the federal commitment to provide adequate health care for
low-income people in this country. Furthermore, this proposal would
reduce federal contributions to state Medicaid programs by an estimated $225
billion over ten years.
Proponents of the block grant proposal argue that under this proposal,
federal Medicaid funding for acute care services would grow with overall U.S.
population growth and inflation, as measured by annual increases in a "health
care input index.' They suggest this would provide adequate resources to
continue funding current Medicaid commitments.
But such claims do not withstand scrutiny. The health care inflation
index that the RSC proposes to use would provide for annual increases in
federal Medicaid funding well below the actual increases in the cost of health
care in the United States. (See the box below.) In addition, the
adjustment that the RSC proposes for population growth fails to take into
account that the U.S. population is aging and a larger proportion of Medicaid
beneficiaries will be elderly in coming years. This is a crucial point,
because the average health care costs of elderly are much higher that those of
younger people. The proposed block grant makes no allowance for that.
Nor does the block-grant proposal take into account that the continued
erosion of employer-sponsored health care coverage is pushing more low-income
workers and their families on to Medicaid. The proposal also fails to
include any mechanism to provide additional funding to cover the significant
increases in Medicaid costs that will occur if a major flu epidemic hits the
United States, or if another recession occurs and more Americans lose their
jobs and fall into poverty. The current Medicaid entitlement, by
contrast, takes all of these factors into account and ensures that benefits and
eligibility are not limited by arbitrary funding limits that fail to respond to
changes in health care costs and needs.
It is for these reasons that the proposed block grant for Medicaid acute
care services would provide $225 billion less in federal funding to state
Medicaid programs over the next ten years than the Congressional Budget Office
estimates will be needed to fund health care services for the low-income people
who will be eligible for Medicaid under current policies. Based on
analyses of CBO cost estimates, if the funding reduction this proposal would
require were achieved by reducing Medicaid eligibility for children, between 14
million and 15 million low-income children who would otherwise have Medicaid
coverage would be taken off the rolls. Most of these children likely
would become uninsured. (Children are used here as the example because
they are the only group of Medicaid beneficiaries for whom the eligibility
limit generally is set at or above the poverty line. For parents, the
Medicaid income limit already is set at only about 70 percent of the poverty
line in the median state. And adults without minor children who are not
elderly or seriously disabled already are ineligible for Medicaid.)
The RSC package also includes a proposal that would allow increases in the
co-payments that could be charged to poor Medicaid beneficiaries, despite an
extensive body of evidence demonstrating that significant increases in
co-payments lead many low-income beneficiaries to cut back on essential health
care and medications and often result in a worsening of their health
status.
Adjustment of Medicaid Block Grant for Heath Care Inflation Is
Inadequate
The Medicaid block grant proposed by the Republican Study
Committee includes an annual adjustment in the amount of the block grant to
reflect population growth and inflation, as measured by the increase in a
"health care input index.' Proponents of the block grant imply that this
inflation adjustment, based on this "health care input index,' would fully
account for the increased cost of providing Medicaid services in the
future.
This claim is off the mark. The proposed health care
inflation index is inadequate for many reasons. It would measure
inflation in certain labor and related costs for a current market basket of
health care services. But it would leave out the fast-rising cost of
prescription drugs. More importantly, the index fails to adjust for
changes in the utilization of health care services, which are occurring as a
result of the development of new medical technologies and other advances in
medical practice. As medicine develops or discovers new procedures and
treatments that are effective, the use of health care procedures and treatments
necessarily increases. This rise in health care utilization is one of the
key forces driving the increase in per-person health care costs throughout the
U.S. health care system, including the private sector every bit as much as
Medicaid and other government health care programs. In fact,
per-beneficiary costs in Medicaid has risen more slowly in recent years than
per-beneficiary costs in private health insurance.a
____________________
a.See Center on Budget and Policy
Priorities, "Future Medicaid Growth is Not Due to Flaws in the Program's
Design, But to Demographic Trends and General Increases in Health Care Costs,'
February 4, 2005.
State Children's Health Insurance Program
SCHIP, which was established in 1998, supplements Medicaid by providing
funding to states to provide health care to more than five million children
with family incomes modestly above the Medicaid income limits (generally, the
family incomes are between 100 percent and 200 percent of the poverty line).
The Centers for Disease Control and Prevention has found that the
percentage of low-income children who are uninsured has fallen by more than
one-third since 1997 despite the decline in private health coverage for these
children during that period. This improvement in coverage is due entirely
to higher enrollment in Medicaid and SCHIP.
The RSC package would cut SCHIP by $1.8 billion over ten years. The
proposal would achieve these savings primarily by barring SCHIP funds not used
by one state from being reallocated to other states that need the funds.
It is impossible for the federal government to design a state allocation
formula that precisely matches every state's SCHIP allocation with that state's
particular needs and health care costs, child enrollment patterns, changes in
the state economy, and other factors. As a result, a basic part of the
SCHIP funding mechanism has always been to reallocate unused funds to states
that need them. By removing this $1.8 billion in funding from the SCHIP
program, this proposal would cause as many as 100,000 low-income children to
lose their health care coverage and join the ranks of the uninsured.
Community Health Centers
The federal government provides grants to Community Health Centers that
provide care for medically underserved populations. These centers provide
health services to more than 15 million patients in 50 states, the District of
Columbia, and the territories and commonwealths. In 2003, some 90 percent
of these patients had incomes below 200 percent of the poverty line.[4]
The White House has recognized the importance of Community Health Centers in
fighting HIV/AIDS, among the many other functions these centers perform.
The Administration has noted that it has supported increases in funding
for "programs helping Americans afflicted with HIV/AIDS: …Community
Health Centers, which in low-income or rural areas, may provide the only source
of treatment and support to HIV-infected individuals.'[5]
The RSC proposes to freeze funding for Community Health Centers at current
dollar levels, without any adjustment for increases in the cost of providing
health care. By 2005, this would reduce funding by 17 percent (compared
to the 2005 funding level, adjusted for general inflation). The RSC
estimates this would save $1.4 billion over ten years. This reduction in
funding would be in addition to reductions in payments to Community Health
Centers for health care services provided to Medicaid patients, which almost
certainly would occur as a consequence of the proposed $225 billion in cuts in
federal funding for acute-care services under Medicaid. Reimbursements
from Medicaid represent the single largest source of funding for Community
Health Centers.
The combined effect of these Medicaid cuts and the freeze in appropriated
funds for Community Health Centers likely would prove devastating for many of
these centers.
Earned Income Tax Credit
The RSC package includes a proposal to cut $85 billion over 10 years from
the Earned Income Tax Credit. The EITC was established in 1975 and has
enjoyed substantial bipartisan support, with President's Reagan, George H.W.
Bush, and Bill Clinton all praising it and proposing expansions in it. It
has been found to produce substantial increases in employment and reductions in
welfare receipt among single parents, as well as large decreases in poverty.
Research indicates that families use the EITC to pay for necessities,
repair homes and vehicles that are needed to commute to work, and in some
cases, to help boost their employability and earning power by obtaining
additional education or training.[6]
The RSC claims that the proposed $85 billion reduction over 10 years in EITC
payments could be achieved by an improved process for verifying the eligibility
of EITC recipients and that the Government Accountability Office has called for
such a change. Both of these statements are incorrect.
The IRS is currently pilot-testing a method of requiring more intensive
verification from EITC filers for whom the IRS is not otherwise able to
verify that a child being claimed for EITC purposes is a "qualifying child.'
The GAO has issued several reports that detail potential problems with
the method being tested and raise concerns that these methods could lead
significant numbers of eligible filers to be deterred from participating (or to
be incorrectly denied the credit by the IRS). Indeed, the IRS is testing
these procedures in part to determine both their efficacy in reducing
participation by ineligible filers and whether they do cause a decline in
participation by eligible filers.
The results available to date from the pilot testing suggest that use of
these procedures results in about a 10 percent drop in EITC claims among the
group of EITC filers asked to provide this verification. No data are
available yet on the extent to which this 10 percent decline consists of
ineligible families and the extent to which it consists of eligible families.
The IRS clearly believes that many unanswered questions remain regarding
these procedures (which also result in increases in IRS administrative costs)
and that the procedures are not ready to be applied on anything beyond a pilot
test basis.
Furthermore, fewer than one-fifth of EITC filers fall into the category that
would be subject to these procedures if the procedures were applied nationally.
A 10 percent reduction in participation among those filers would yield
savings of well under $1 billion per year, a far cry from the exaggerated $85
billion figure that the RSC claims. In addition, these would be gross
savings; the IRS would require a large infusion of additional funding to
administer these verification requirements, and that would reduce the net
savings. If no additional funding were provided to the IRS to cover these
costs, the agency would have to cut back on other enforcement activities, such
as efforts to curb abusive tax shelters and to audit high-income taxpayers and
corporations that have made questionable tax claims. Since the dollar
amounts involved in tax issues involving those taxpayers tend to be much larger
than the amounts involved when low-income EITC tax filers are involved, such a
diversion of IRS resources might even end up losing money for the Treasury.
If the RSC is intent on securing $85 billion in savings over ten years from
the EITC, there would be only one way to do so - to cut millions of eligible
low-income working families off the EITC (even though they are fully complying
with the rules) or to cut the EITC tax-credit amounts that eligible low-income
working families receive. Either of these approaches would amount to one
of the largest tax increases (if not the largest) imposed on low-income working
families in decades.
Legal Services
The Legal Services Corporation was chartered by Congress in 1974 to provide
poor people with access to the civil justice system. The Corporation
distributes competitive grants to local non-profit entities to provide free
civil (as distinguished from criminal) legal assistance to low-income families
and individuals, helping them to resolve cases that deal with issues such as
domestic violence, access to health care, child custody and unemployment and
disability claims.
The RSC proposal would eliminate funding for the Legal Services Corporation.
This would cut an estimated $4.6 billion over ten years. It would
leave millions of poor Americans without access to basic legal services.
Proposed Cuts in Programs for Impoverished People Around the
World
In addition to the $343 billion in cuts proposed in programs serving
low-income Americans, the RSC proposes cuts totaling $32 billion over ten years
in foreign aid programs that provide assistance in poverty-stricken areas of
the world. These cuts are proposed even though the level of U.S.
development aid (including humanitarian aid) is the second lowest, relative to
the size of the American economy, of the 22 major industrialized countries.
Total Proposed Cuts in
Low-Income Programs
(Fiscal years 2006-2015) |
Domestic Low-Income Programs |
$343 billion |
Foreign Aid Aimed at Poverty Stricken Areas of the World |
$32 billion |
Total Proposed Cuts |
$375 billion |
Millennium Challenge Account
Established in 2004, the Millennium Challenge Account is one of the two pillars
of President Bush's pledge that the United States will increase development
assistance to poor nations in coming years. It is designed to fight
global poverty by giving aid to developing countries that implement sound
economic and political reforms. MCA funds can be used for a variety of
purposes such as education, health care, and programs to help businesses and
farms. Congress provided nearly $1 billion in initial funding for 2004
and $1.5 billion for 2005. The President has requested $3 billion for fiscal
year 2006 and pledged to increase annual funding for the MCA to $5 billion in
the future.
The RSC proposes to eliminate Millennium Challenge Account funding, reducing
spending by an estimated $24 billion over ten years. By eliminating
substantial amounts of promised aid to needy but reasonably well-governed
nations, this proposal would undermine the pledge the President has made to the
world to boost U.S. foreign aid to such countries.
Global HIV/AIDS Initiative
This initiative supports U.S. HIV/AIDS programs in more than 75 countries,
providing treatment to infected individuals, funds for prevention, and care for
more than one million children orphaned by the disease. In his 2003 State
of the Union address, President Bush announced a $15 billion, five-year program
to focus on the international HIV/AIDS problem. This is the second pillar
of the President's commitment to boost U.S. foreign aid. According to the
Congressional Research Service, $2.3 billion was appropriated in 2004 and $2.9
billion was appropriated in 2005. The President's budget has requested a
little less than $3.2 billion in funding for 2006. The Administration
anticipates funding the remaining $6.6 billion commitment in the following two
years.
The RSC proposes to freeze funding for the largest single account receiving
global HIV/AIDS funding - the State Department Global HIV/AIDS Initiative
account - at the 2005 dollar level. (That account received $1.4 billion of the
total $2.9 billion appropriated for global HIV/AIDS activities for 2005; the
remaining $1.5 billion was distributed among 15 other programs dealing with
global HIV/AIDS). The RSC estimates this would reduce spending by an
estimated $7.6 billion over 10 years. In addition to significantly
slowing global efforts to close the gap between the number of people with
HIV/AIDS and the number who are receiving treatment, this cutback in the
promised amount of U.S. funding would almost certainly undermine our standing
in the world.
Proposed Cuts in Programs Assisting Middle-Income
Americans
The RSC package includes substantial cuts in programs that provide
assistance and services to a wide array of individuals, families, and
communities, including services and benefits on which millions of middle-income
Americans rely. Among the programs proposed for cuts are the
following.
Medicare
The RSC proposes substantial cuts in Medicare, the federal program that
provides health care services for more than 40 million Americans who are
elderly or seriously disabled. Total Medicare cuts under the RSC package
would exceed $200 billion over ten years.[7]
The package includes a proposal to delay implementation of the Medicare
prescription drug program for one year. That program is scheduled to go
into effect on January 1, 2006. This proposal would reduce expenditures
by an estimated $30.8 billion in 2006. It would do nothing, however, to
constrain the longer-term cost of the prescription drug plan and thus would
have virtually no effect on long-term deficits. It would not curb the
excessive payments that MedPAC, Congress' official advisory body on
Medicare payments, has said the prescription drug legislation will provide to
private managed-care companies. Nor would it enable Medicare to save
money by using its large purchasing power to negotiate lower prices from
pharmaceutical companies. Instead, it would simply force Medicare
enrollees to wait another year before benefiting from the drug benefit that was
enacted two years ago.
The RSC package also includes a proposal that would increase the premiums
that Medicare beneficiaries must pay for physicians' coverage under
Medicare Part B. Under current law, Medicare Part B premiums are set each
year at the level that is estimated to cover 25 percent of the costs of the
health-care services provided under Part B. For 2006, each Medicare Part
B enrollee is required to pay a premium of $88.50 a month, or $1,062 a
year.
Under the RSC plan, the premium paid by each enrollee in 2006 would be
increased by $212, to $1,274 a year. Paying this premium increase would
not be a major problem for higher income beneficiaries. But for many
seniors who already are struggling to get by on Social Security and limited
savings, such an increase would represent a significant hardship.
The RSC package also includes two proposals that would increase the
cost-sharing payments that Medicare enrollees must make. One proposal
would establish, for the first time, a co-payment equal to 10 percent of the
cost of the home health services that Medicare covers. For frail
beneficiaries who need extensive home health services, the increased charges
could be very large. This proposal would cut Medicare expenditures by an
estimated $31.5 billion over ten years.
The other such proposal would be an alternative to establishing a new
home-health services co-payment. It would restructure many of Medicare's
cost-sharing requirements. It would establish a single deductible
covering all services provided by Parts A and B of Medicare, set a uniform 20
percent co-payment for all of those services (including home health services),
and place an annual cap on each beneficiary's total cost-sharing liability.
This would cut Medicare expenditures by an estimated $87.5 billion over
ten years.
CBO estimates that the cap on cost-sharing expenses for individuals would
reduce cost-sharing liabilities for about 7 percent of Medicare beneficiaries
who have very high annual Medicare costs. For another 14 percent of
Medicare beneficiaries, cost-sharing liabilities would remain about the same.
But for the remaining 79 percent of Medicare enrollees - nearly 34
million people - CBO expects that cost-sharing liabilities would increase by an
average of $650 per person per year under this proposal. Here, too,
higher-income enrollees would not have a problem paying the additional amounts,
while many beneficiaries with more modest incomes would have to struggle to pay
them.
School Lunch Program
The National School Lunch Program subsidizes nutritious meals for more than
29 million school-children each day. The program provides per-meal
reimbursements to schools that vary with the income of the students receiving
the meal. The program currently provides $2.50 per lunch for students who
receive free meals (those with family incomes at or below 130 percent of the
poverty line), $2.10 per lunch for students who receive "reduced-price meals'
(students with family incomes above 130 percent of the poverty line but at or
below 185 percent of the poverty line), and $0.39 per lunch for students who
pay the full price of the meal (those with family incomes above 185 percent of
the poverty line). The program also provides subsidies for breakfasts
served.
The RSC package includes a proposal that would eliminate the 39 cent per
lunch and 23 cent per breakfast subsidy for students whose household income is
above 350 percent of the poverty line.[8] This would save an estimated $6.7
billion over 10 years.
The reduction in the subsidy proposed by the RSC would force schools to
raise meal prices for students. If a family with two school children
faced increased meal charges equal to the amount of the per-meal subsidy that
would be eliminated, the family would have to pay an additional $1.24 a day -
or $223 per year - if its children ate both school lunches and breakfasts.
Meal prices, however, would likely rise more than this. Research in
the field, as well as past program experience, strongly suggests that a
substantial number of middle-income children would stop purchasing school
lunches if these subsidies were eliminated and school meal prices were raised
significantly to compensate for the loss of federal funds. This drop in
participation, in turn, would lower the volume of meals served and thereby
cause the per-meal costs that schools incur in preparing and serving the meals
to increase. To address the rise in the average cost of producing a meal,
schools would have to raise meal prices further. These additional price
increases could apply to students between 185 percent and 350 percent of the
poverty line, as well as to those over 350 percent of poverty.
Research and past experience also demonstrate that with a subsidy cut of
this magnitude, a substantial number of schools would be expected to drop out
of the programs altogether. Adding to the likelihood that schools would
drop out is the fact that the proposal would make the school meal programs more
cumbersome and costly to administer than at any time in the programs'
history, because schools would be required to ascertain into which of four
different income categories each student should be placed and would have to
collect and process school meal applications from a much greater number of
children than they do now. (Applications would have to be sought from all
children below 350 percent of the poverty line, instead of just from those
below 185 percent of poverty.) When a school drops out of the program,
low-income children at the school lose access to free and reduced-price meals
and consequently may be at risk of missing meals and developing nutritional
deficits.
Centers for Disease Control and Prevention
The Centers for Disease Control and Prevention conducts research and
undertakes active disease-control measures to protect the United States from
epidemics of infectious disease, biological and chemical terrorism, and
occupational and environmental hazards. The CDC is the first line of
defense against public health threats such as anthrax, smallpox, avian
influenza, SARS, HIV/AIDS and other infectious diseases.
The RSC document does not clearly state what level of funding is proposed
for CDC - it simply says that "the CDC's funding increased 25% over last year'
in the House-passed fiscal year 2006 appropriation bill and claims the RSC
proposal would reduce funding for the CDC by an estimated $25 billion over ten
years. $25 billion represents nearly half of the baseline funding for CDC
projected by CBO for 2006 through 2015. (The baseline assumes that the
2005 funding level, as adjusted for inflation, will be provided each year in
the future.) It is likely that the RSC is measuring its savings from an
adjusted baseline that includes the effects of the increase for fiscal year
2006 contained in the House-passed appropriation bill; under that calculation,
achieving savings approaching $25 billion would require funding for the CDC to
be frozen for ten straight years at the dollar level of the 2005 appropriation,
without any adjustment for inflation over this period. That would reduce
CDC funding by almost 20 percent by 2015, relative to the real
(inflation-adjusted) amount appropriated for the CDC in 2005.
First Responder Grants
First Responder Grants are provided by the Department of Homeland Security
to help local authorities prepare for terrorist attacks. About $4 billion
were appropriated for these grants in 2005. The RSC proposal would limit
the availability of these grants to large communities deemed to be at high risk
from terrorist attacks. The recent disasters have demonstrated, however,
that emergency preparedness programs are crucial for all communities.
The proposal would cut an average of a little more than $650 million a year
from the program, for a total reduction of $6.8 billion over ten years.
State and Community Grants for Energy Conservation
State and Community Grants for Energy Conservation help state and local
governments support energy conservation efforts. Funds go to programs
such as weatherization assistance for low-income households, carpooling
programs, and initiatives to decrease energy consumption in public buildings.
These programs could become increasingly important as energy prices rise
in the wake of Hurricanes Katrina and Rita.
The RSC proposal would eliminate State and Community Grants for Energy
Conservation, cutting $500 million over 10 years.
Federal Grants for Wastewater Infrastructure
Federal Grants for Wastewater Infrastructure allow states to help
communities meet federal waste-water and drinking-water standards. The
grants fund investment in wastewater infrastructure and programs to keep
drinking-water safe and protect natural waters from contamination.
The RSC proposal would eliminate Federal Grants for Wastewater
Infrastructure, a cut of $23 billion over ten years.
Corporation for Public Broadcasting
The Corporation for Public Broadcasting is dedicated to providing
high-quality, non-commercial programming both by developing programming and by
helping local stations better serve their communities. CPB provides
educational programming for children, programs for underserved audiences, and
informational programming.
The RSC proposal would eliminate all funding for the Corporation for Public
Broadcasting. This would reduce federal expenditures by an estimated $5.6
billion over ten years.
National Endowments for the Arts
The National Endowment for the Arts has brought museums, theater, symphony
orchestras, ballet and other art organizations to communities across the
country and funded such projects as the design competition for the Vietnam
Veterans Memorial, the American Film Institute, and arts education programs for
children and adults.
The RSC proposal would eliminate funding for the National Endowment for the
Arts, cutting an estimated $1.8 billion over ten years.
National Endowment for the Humanities
The National Endowment for the Humanities provides grants to museums,
archives, libraries, universities and other cultural institutions to support
education, research, and public access to resources. The NEH has funded
such projects as the "Treasures of Tutankhamen" exhibition seen by more than
1.5 million people, the documentary "The Civil War' viewed by 38 million
Americans, and 15 Pulitzer-prize winning books.
The RSC proposal would eliminate funding for the National Endowment for the
Humanities. This would reduce federal expenditures by an estimated $2
billion over ten years.
A Balanced Deficit Reduction Package Would Include Program and
Revenue Proposals
The RSC package of spending cuts seems based on the assumption that current
and projected deficits are the result of an explosion of federal spending to
dangerous and unprecedented levels - and that only reductions in such spending
can bring deficits under control. This assumption is fundamentally
inaccurate. Actions by Congress and the Administration to reduce revenues
have played a larger role in the return of the deficits that the nation faces
than actions to increase expenditures for federal programs. Moreover, it
almost certainly will take a combination of carefully considered cuts in
programs and revenue increases to put the nation back on a path to fiscal
responsibility.
Even with the additional funding anticipated for relief and recovery from
Hurricanes Katrina and Rita, federal spending over the next five years will not
be high by historical standards. If funding for hurricane relief and
reconstruction is as much as $200 billion (which is more than is likely to be
needed if assistance is temporary and is appropriately targeted), total federal
spending will average 20.1 percent of the Gross Domestic Product (the basic
measure of the size of the economy) over the next five years. This is
lower as a share of the economy than in any year from 1975 through 1997.[9]
- Deficits will be large over the next five years, primarily because revenues
as a share of the economy have been reduced to unusually low levels. To
be sure, revenues have risen in 2005 from last year's level of 16.3 percent of
GDP, which was the lowest level since 1959. But revenues are projected to
average only 17.2 percent of GDP over the next five years - lower than in any
year from 1977 through 2002.
- Furthermore, the tax cuts enacted in 2001 and 2003 are costing more each
year than the total amount expected to be spent on relief and recovery from
Hurricanes Katrina and Rita. The tax cuts will cost $225 this year alone,
and will climb to still higher levels in the future as more of the tax cuts
enacted in 2001 take full effect. Assuming that expiring tax cuts are
extended and relief from the Alternative Minimum Tax is continued, the cost of
the tax cuts will average $250 billion a year over the next five years.
The cost of tax cuts in a single year thus exceeds the total anticipated
costs of all expenses related to the hurricanes over the years to come.
* The nation's serious deficit problem predated Katrina
and Rita, and will be made only modestly worse by the spending associated with
relief and recovery from them. (See the box below.)
The Real Fiscal Problem Is Not Hurricane-Related Costs but Mid- and
Longer-Term Deficits
Contrary to the statements some policymakers have made in recent weeks,
economists and fiscal policy experts broadly agree that the costs of hurricane
relief and recovery do not by themselves represent a serious threat to the
nation's fiscal or economic health. Even if hurricane-related
expenditures total $200 billion over the next five years (and they ultimately
may not be that high), that would increase total federal spending by less than
2 percent in 2006 through 2010. The key point is that as long as
hurricane-related costs are temporary, one-time costs of this size would not
have a significant effect on the long-term path of the federal budget or on the
interest rates the Treasury must pay to borrow money to finance the
deficit.
The cost of relief and recovery from the hurricanes does not represent the
largest immediate pressure on the deficit either. Congress has already
provided nearly $200 billion in funding over the last two years for the war in
Iraq, and CBO estimates that expenditures over the next ten years for that war
and activities in Afghanistan could total $383 billion even if military
operations are phased down in the years ahead. Furthermore, the tax cuts
enacted since 2001 will reduce revenues by an average of $250 billion per year
over the next ten years if the tax cuts are extended beyond 2010. The RSC
has not suggested that the much larger costs for Iraq and the tax cuts be paid
for.
The serious fiscal threat facing the nation is the specter of unsustainable
longer-term deficits. This threat existed before Katrina struck. It
is being made only modestly worse by spending for hurricane relief and
recovery. Assuming that the 2001 and 2003 tax cuts are made permanent,
relief from the Alternative Minimum Tax is extended, and the costs of
operations in Iraq and Afghanistan phase down over the next several years, the
deficit is projected to total $4.1 trillion in 2006 through 2015, before any
hurricane-related costs are taken into account. (The deficit
picture grows worse in years after that.)
If as much as $200 billion in funding is provided for hurricane relief and
recovery, the deficit over the next ten years will be increased by $300 billion
(including the interest payments that will be made on the $200 billion of
increased borrowing). This will raise the projected deficit over the next
ten years from $4.1 trillion to $4.4 trillion, an increase of seven percent.
In 2015, the effect of Katrina relief and recovery on the deficit would
be limited to the $15 billion in higher interest costs that would result from
having borrowed $200 billion. That $15 billion increase in the deficit
would represent a three percent increase over the $530 billion deficit
projected for that year without the Katrina spending.
By contrast, if the tax cuts are made permanent (and AMT relief is
extended), the cost of these measures will be $732 billion in 2015 (including
the increased interest payments on the debt) - nearly 50 times as much as the
hurricane-related costs. In short, while deficit increases of $300
billion over ten years and $15 billion in 2015 are not insignificant, they pale
in comparison with the underlying deficit problems we already face and with the
contribution that tax cuts are making to those problems.
Addressing the serious long-term deficit problems the nation faces will
require a balanced approach that entails shared sacrifice and puts everything -
spending and revenues both - on the table, and has everyone - the President and
Congressional Republicans and Democrats alike - at the table. Such an
approach was successful in 1990, when the current President's father negotiated
a plan with Congressional Democrats and Republicans that raised taxes,
constrained spending, and reduced the deficit by $500 billion over five years.
This is the kind of effort that is needed now, not a proposal to move
forward in implementing more tax cuts for the wealthiest Americans (and making
permanent an array of existing tax cuts that heavily favor these individuals),
while cutting deeply into programs for the poor, modest-income elderly people
living on fixed incomes, and millions of other Americans who are not
affluent.
End Notes:
[1] House Republican Study Committee, "RSC Budget Options 2005: Summary and
Explanation of Offsets,' September 21, 2005,
http://johnshadegg.house.gov/rsc/.
[2]See Robert Greenstein, Joel Friedman, and Isaac Shapiro, "New Tax Cuts
Primarily Benefiting Millionaires Slated to Take Effect in January,' Center on
Budget and Policy Priorities, September 19, 2005.
[3] Because the proposal would cap the maximum amount that Medicare
beneficiaries would have to pay in premiums, deductibles, and co-payments in a
single year, the proposal would reduce costs for those with very high health
care costs. As noted, however, most Medicare beneficiaries would pay
higher costs, which would average $650 a person a year for those beneficiaries.
See Congressional Budget Office, "Budget Options,' February 2005, pp.
208-209.
[4] Jessamy Taylor, "The Fundamentals of Community Health Centers,' National
Health Policy Forum, August 31, 2004.
[5] Office of National AIDS Policy:
http://www.whitehouse.gov/infocus/hivaids/.
[6] See Robert Greenstein, "The Earned Income Tax Credit: Boosting
Employment, Aiding the Working Poor,' Center on Budget and Policy Priorities,
revised August 17, 2005.
[7] The sum of the estimated savings of each of the RSC's Medicare proposals
is $235 billion, but two of the proposals overlap.
[8] The proposal would also increase the subsidy for reduced-price meals by
20 cents per meal.
[9] Projections in this section start with the baseline in the Congressional
Budget Office's August 2005 report, The Budget and Economic Outlook: An Update.
That baseline is then adjusted to include the effects of the following
alternative policies shown in Table 1-6 of CBO's report: (1) extending
expiring tax cuts, except for the provision dealing with repatriation of
profits held abroad by American corporations; (2) reform of the alternative
minimum tax; and (3) a phase-down of activities in Iraq and Afghanistan.
CBPP!
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