June 2011 U.S. Poverty Action
Protect Families Living in Poverty in Budget Negotiations
Take Action! Write Letters to Oppose Balancing the Deficit on the Backs of the Poor
NOTE: You can use the following talking points to draft a personal letter or email to send directly to your senators and representative. If you are unable to write a letter, use our call-in alert to call Congress toll-free or send e-mails to Congress through our website.
Deficits and Debt
There is no doubt that long-term deficits and debt are a significant problem for the United States. The federal budget deficit in 2010 was $1.3 trillion, which has helped to create a federal debt — the accumulated annual federal budget deficits over our country’s history — to just over $14.3 trillion.
While deficits really began to skyrocket in the 1980s when taxes were cut and military spending went up, the last decade has seen the problem at its worst. Before 2001, the U.S. government was running an annual surplus. However, that year, President George W. Bush and Congress passed major tax cuts, with most of the benefits going to higher income earners. Since then, we have deficits return and grow. Couple the tax cuts the wars in Iraq and Afghanistan and the Medicare prescription drug benefit, all of which have been financed by borrowing, as well as the economic downturn, and we can see the root causes of our current fiscal deficits. In fact, the Center on Budget and Policy Priorities says that the Bush tax cuts and continuing wars in the Middle East make up almost half of the public debt over the next decade (see chart at right). Despite these facts, leaders in Washington have not looked at addressing these causes to find a solution. Instead, they are using this “crisis” to justify massive cuts to programs millions of Americans rely on.
The Ryan Budget
On April 5, House Budget Committee Chairman Paul Ryan (R-WI-1) proposed his FY 2012 budget. It makes radical changes to the way our government serves its people. The budget would cut Medicaid and SNAP by hundreds of billions of dollars and then transform them into block grants (lump sum payments to states). It also converts Medicare into a voucher program Seniors would get a voucher to buy private health coverage; if the insurance is more than the voucher, the consumer would have to make up the difference. These and other proposals would dramatically shift the cost of health care and other necessities onto states and citizens. In addition, his budget will cut non-defense domestic discretionary spending by $500 billion over the next five years. This includes Head Start and child care, along with other programs like community health centers, Pell grants, and other public services. It is unlikely any of these important programs would escape harmful cuts under such a drastic proposal. Rep. Ryan argues that these cuts are necessary, claiming they will cut $4 trillion in federal spending over the next decade.
However, to add insult to injury, the Ryan budget also gives millionaires and billionaires, along with corporations, trillions in tax cuts. When these tax cuts and the already-planned drawdown of troops in Iraq and Afghanistan are taken into account, his plan only saves about $400 billion over the next ten years. Considering the trade-offs to achieve those savings, the Ryan budget is a disaster.
The House passed the Ryan budget 235-193 on April 15. Fortunately, the Senate rejected the House budget 57-40 on May 25. The budget process will still move forward but there is great deal of uncertainty on what the FY 2012 budget will look like at this time.
It is fairly clear that Congress will enact some kind of deficit reduction plan in 2011; what is not know is what it will look like. One idea being proposed is a “global spending cap,” i.e. capping the amount of money the government can spend each year. Most of the proposals choose an arbitrary cap amount (e.g. the Corker-McCaskill “CAP Act” would cap all government spending at 20.6 percent of U.S. gross domestic product; current spending is about 25 percent of GDP). Under these proposals, if the cap is exceeded, automatic “trigger” procedures would kick in and force immediate across the board cuts.
This approach is seriously flawed. The spending levels on these caps are arbitrary and unrealistic. They fail to take into account how our country has changed over the last few decades. We now have more retirees relying on Social Security and Medicare, with many more retiring in the coming years. We also have skyrocketing health care costs that increase more rapidly than inflation and are driving up the cost of Medicare, Medicaid, and CHIP. Furthermore, we are coming out of a financial crisis that saw tax revenue plummet and government spending increase as more Americans turned to government programs like Medicaid, SNAP, and unemployment insurance for help. Trying to meet these unrealistic levels (like in the CAP Act) would require massive cuts to these and other important public services.
To make matters worse, these spending cap proposals only measure deficit reduction in terms of spending cuts. Revenues from tax increases or closing tax loopholes would not be counted as part of deficit reduction. In other words, deficit reduction could only be achieved through spending cuts.
The results are easy to imagine. By capping government spending at arbitrary and unrealistic levels, Congress would be forced to make major structural changes in the social safety net. This means block-granting Medicaid and SNAP, privatizing Medicare, cutting Social Security, and forcing other disastrous cuts would be unavoidable. It is easy to see these proposals for what they are — a Trojan Horse designed to enact the Ryan budget plan.
The Balanced Budget Amendment
Another proposed deficit reduction solution being proposed is a balanced budget amendment (BBA). This would be an amendment to the U.S. Constitution requiring Congress to balance the federal budget each year, meaning all spending would have to be offset by revenues collected in the same year. Essentially, this means the federal government must pay cash for everything. This may sound like a reasonable requirement but in practicality, it is even more dangerous than the Ryan proposal and spending caps. If revenues dropped, like they have during the recent economic downturn, spending would have to be immediately cut. Generally, when the economy slows or goes into recession, revenues drop and spending increases, as more people rely on public programs (Medicaid, SNAP, unemployment benefits) until they get back on their feet. This government spending helps keep families on their feet while also preventing the economy from becoming worse. A BBA would undo all this. Once revenues began to drop in a struggling economy, those public supports would have to be cut to match the lower revenues. These cuts would then pull the economy down further, making revenues worse, forcing more cuts, and the cycle downward would continue. Worse yet, having it enshrined in the Constitution would make it all but to impossible to undo when these negative results come to pass.
Proponents of the BBA use the analogy that if a family has to balance its budget regularly, then so should the government. This sounds common-sensical but it’s a fantasy. Families do not balance their budgets, i.e. carry no debt, on a regular basis. If families were precluded from carrying debt, there would be no mortgages, no student loans, no car loans, no credit cards - no credit whatsoever. Not all debt is bad, as BBA proponents would have us believe. For families, going into debt allows people to invest in the future (buying a home, going to college), maintain their incomes (buying a car to get to work), and weather emergencies (credit cards). The same is true for the government. Investing in infrastructure, education, energy independence, and poverty reduction are just some of the ways the government can help build a better future for our nation. Sometimes these investments require us to go into debt in the short-term, but the dividends these investments will create down the road will more than pay for it.
A balanced budget amendment is just another ruse to destroy to social safety net. It is not about balancing budgets; it is about removing government’s obligation to help its citizens in time of need.
The Right Way Forward
There is no question that our long-term debt is a serious problem. However, the Ryan budget and arbitrary spending caps are the wrong way to do it. We need a balanced approach to our fiscal issues, not proposals that abandon the middle class and working families. While sacrifice will be needed to solve our fiscal woes, that sacrifice must be shared and borne fairly and equitably. As such, here are RESULTS’ priorities for any deficit reduction plans passed by Congress: