House of Representatives’ proposed FY 2007 budget plan calls for large cuts in domestic programs while increasing the federal budget deficit

April 3, 2006. Press release:

House Budget Calls for Large Cuts in Domestic Programs and Would Worsen Deficit

Program Cuts Even Larger Than Those Proposed by President or Senate, Yet Would Be Offset by Tax Cuts and Added Defense-Related Spending

The five-year budget plan approved on Wednesday, March 29, 2006, by the US House of Representatives’ Budget Committee is badly out of step with both America’s needs and Americans’ concerns for fiscal responsibility and adequate funding of critical services.

Both houses of Congress are now in the process of finalizing their budget plans (in the form of “budget resolutions”) for FY 2007 (the federal fiscal year that begins on October 1, 2006 and ends on September 30, 2007).  The Senate passed its FY 2007 budget resolution on March 16th and the House of Representatives is scheduled to act this week on the budget resolution recommended by the House Budget Committee on March 29.

The House budget plan would provide $10.3 billion less in funding for domestic discretionary programs (the part of the budget that includes education, veterans’ medical care, law enforcement, transportation, environmental protection, and medical research) than is needed simply to keep pace with inflation.  This reduction means that either fewer people will be served by these programs in coming years or that the level or quality of services will have to be cut back in other ways.

In later years, the House budget would cut this part of the budget by even larger amounts than President Bush proposed earlier this year.  The House budget, for example, fails to include funding that was requested by the President (and that was included in the US Senate’s budget) that is needed to prevent hundreds of thousands of children and parents in low-income working families from losing health coverage.  This funding would plug a 2007 shortfall in the State Children’s Health Insurance Program and extend the component of Medicaid that continues health coverage for up to a year for families that work their way off welfare.

In addition to these short-term deficiencies, the House budget plan would cause the federal deficit to be at least a quarter-trillion dollars higher over the next five years than if current policies were continued.  That is because the House budget plan contains more than $200 billion in tax cuts – most of which would go to high-income households.

“Overall, the House budget plan would be more harmful than either President Bush’s budget or the budget plan recently approved by the Senate,” said Trudi Renwick, Senior Economist for the Fiscal Policy Institute.  “Over the next five years, the House budget calls for even larger funding cuts in domestic discretionary programs than the other two plans.  The result is that the cuts in federally-funded services would be even more severe and widespread if the House plan were to be adopted.”

The House budget plan would:

  • Reduce funding for domestic discretionary programs.  Funding would be cut by $9 billion in fiscal year 2007 and $169 billion over five years, compared to the 2006 funding levels adjusted for inflation.
  • Require cuts in entitlement programs.  $7 billion in cuts in entitlement programs would be required over the next five years.  Some $4 billion would have to come from programs overseen by the Ways and Means Committee including the Earned Income Tax Credit for low-income workers, the Supplemental Security Income Program for low-income people who are elderly or have a disability, child support assistance for low-income parents, and the Social Services Block Grant, which helps fund a range of services for low-income, elderly, and disabled individuals.
  • Provide large, unpaid-for tax cuts, mostly for the wealthy.  These tax cuts would likely cost much more than the House’s estimate of $228 billion over the next five years, mostly because the House’s estimate does not include the cost of extending relief from the Alternative Minimum Tax (AMT) after 2006.  If AMT relief were extended through 2011, as virtually every lawmaker and analyst expects, the cost of the House tax cuts would more than double.
  • Increase the federal deficit by at least $256 billion over the next five years.  The savings from the program reductions in the House budget would be used not to reduce the deficit, but instead to offset a portion of the plan’s tax cuts, as well as the increases in defense spending it calls for.  Overall, the House budget plan would increase the deficit over the next five years by $254 billion compared to what deficits would be if current policy were left unchanged.  But the actual increase in the deficit under the House plan is likely to be much more than $254 billion, because the House Budget Committee has understated the true price tag of the tax cuts it is proposing.

“New Yorkers are concerned about our country’s growing deficits and they don’t want more unaffordable tax cuts that lead to cuts in critical government services and higher deficits that weaken our economy,” said Frank Mauro, Executive Director of the Fiscal Policy Institute.  “The House budget plan shows that House leaders haven’t heard these messages, so it’s important that House members hear them as they consider this budget and decide to do what is best for their communities and their constituents.”

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Fiscal Policy Institute