Press Release

March 30, 2005. The Senate’s plan has considerably smaller cuts in basic low-income programs. Will the Senate accede to the harsher House budget? A press release from the Fiscal Policy Institute.

Contact:  Trudi Renwick, 518-786-3156

New York’s share of federal funding cuts in key programs that assist our state’s low-income elderly residents, families with children, and people with disabilities could be as much as $4.4 billion over the next five years under the budget plan the House passed earlier this month, a new report from the Center for Budget and Policy Priorities finds.  If these cuts are made, a substantial number of vulnerable New Yorkers could lose necessities like health care, child care, or food assistance – and some struggling working families could even face higher taxes – at the same time that affluent households across the nation receive large tax breaks.

Nationwide, the House budget plan could result in an estimated $30 billion to $35 billion in cuts in key low-income “mandatory” (also known as “entitlement”) programs that assist vulnerable Americans, such as the elderly and children.  These cuts are at least ten times larger than the cuts in these programs in the Senate budget plan.

Because the House and Senate are far apart on this matter, cuts in low-income mandatory programs will be a key issue when House and Senate negotiators try to agree on a final budget plan in April.  The House and Senate budget plans are much closer on the issue of tax cuts: both include more than $100 billion in tax cuts, presumably for upper-income households.  Both plans also contain significant reductions in funding for domestic non-entitlement (also known as “discretionary”) programs and significant increases in defense spending.

“If the House has its way on these cuts in basic low-income assistance programs, many vulnerable New Yorkers – including low-wage working families, the elderly poor, and those with disabilities – are likely to face more poverty, receive less help paying for groceries, or go without adequate health care coverage at the same time that out nation’s most privileged individuals will receive a new round of tax benefits,” said Trudi Renwick, Senior Economist for the Fiscal Policy Institute.  “This does not represent a balanced or reasonable policy.”

Medicaid, Food Stamps, EITC, Other Programs Could Face Reductions

The cuts in low-income programs in the House budget plan would come from Medicaid, food stamps, and a set of programs overseen by the House Ways and Means Committee, such as the Earned Income Tax Credit (EITC) (a tax credit for low-income working families), the Supplemental Security Income program (SSI) for the elderly and disabled poor, assistance and services for abused and neglected children and foster and adoptive families, Temporary Assistance for Needy Families (TANF), and child care.  The Center on Budget and Policy Priorities estimates that as a result of these cuts, New Yorkers could lose:

• Between $2 and $2.7 in Medicaid funding.  Almost 4 million children, elderly, people with disabilities, and other New Yorkers rely on Medicaid for their basic health care.
• $280 million in EITC benefits.  Roughly 1.4 million working families in New York receive the EITC, which provides low-wage workers with tax relief and wage supplements.
• $458 million in SSI benefits.  Roughly 624,000 poor elderly and people with disabilities in New York receive modest monthly SSI payments to help them cover their basic expenses.
• Up to $402 million in food stamps.  Roughly 1.6 million New Yorkers receive food stamp assistance that helps them afford a modest, nutritionally adequate diet.
• $352 million in TANF funding, which New York uses to provide income assistance and welfare-to-work programs for 507,500 New Yorkers  as well as child care, transportation, and nutritional assistance for other low-income working families.
• $97 in foster care and adoption assistance funding.  Each month, these programs provide assistance to 61,300 children in foster and adoptive families and funded efforts to find appropriate foster care placements for children and to prepare older children living in foster care for independent living.

Program Cuts Would Be Used to Help Pay for New Tax Cuts, Not to Reduce the Deficit

“What makes these cuts even more disturbing is the fact that they wouldn’t bring down the deficit, in part because Congress also is pushing for more tax cuts tilted toward high-income households,” said Renwick.  Both the House and Senate budget plans would cause deficits over the next five years to be more than $100 billion larger than they would be if no policy changes were made.  The reductions in assistance for poor New Yorkers thus would be used in part to help finance tax cuts going disproportionately to those on the upper range of the income scale.

For example, the House budget plan would use $23 billion to extend existing tax cuts related to capital gains and dividends for two more years, through 2010.  (These tax cuts currently are slated to expire at the end of 2008.)  That cost is equal to about two-thirds of all cuts in low-income mandatory programs in the House budget plan.

Nearly half of the tax cut benefits of extending the capital gains and dividend tax cuts, however, would go to households with annual incomes of more than $1 million.  These very high-income households would receive an average annual tax cut of $10,000 apiece from extending these tax cuts, on top of the $90,000 a year apiece they already receive from other tax cuts enacted since 2001.

Looked at another way, this means that although the House budget plan includes up to $5 billion in food stamp cuts, it finds room for more than $10 billion in tax cuts for people with incomes of over $1 million under the capital gains and dividend provisions alone.

Congress could have extended the capital gains and dividend tax cuts but offset their cost by adopting revenue-raising measures that close unproductive tax breaks and reduce tax avoidance.  In January, the Congressional Joint Committee on Taxation issued a major report outlining options to achieve about $190 billion in tax savings over the next five years through such types of measures.

“The time to stop the House’s cuts in vital services and supports for the nation’s poorest and most vulnerable families is now, before they become part of the final budget resolution,” said Renwick. “The Senate needs to hold firm and say that these program cuts reflect the wrong priorities.  This country stands for something better than hurting vulnerable people at the same time that we lavish more tax cuts on those who least need them and already are benefiting handsomely from the tax cuts enacted to date.”