The Center's work on 'Federal Budget' Issues

The Center informs the debate over federal budget priorities by analyzing the President’s budget and major congressional proposals throughout the annual budget process. We pay particular attention to the adequacy of funding for programs that assist low- and moderate-income families. We also analyze long-term budget challenges and measures to address them. In addition, we promote measures to improve fiscal responsibility.


House, Senate Budgets Have Big Cuts in Transportation Infrastructure

March 27, 2015 at 10:49 am

Now that the House and Senate have both passed their budget plans, here’s one more problem with them: they’d cut highway construction and other transportation infrastructure funding over the next decade by 28 percent and 22 percent, respectively, below the cost of maintaining current funding levels.  Although the plans cite the Highway Trust Fund shortfall to justify these cuts, cutting investments in highways and mass transit isn’t the right solution.

The House budget calls for cutting mandatory funding in the transportation section of the budget by almost 90 percent in 2016, from $54 billion to $6 billion, as the chart below shows.  It then allows only a partial restoration, holding funding well below the 2015 level through the middle of the next decade.  The total ten-year cut is $154 billion (28 percent) below the cost of continuing current funding.

The Senate budget cuts funding far less steeply in 2016, from $54 billion to $42 billion; its ten-year cut is $123 billion or 22 percent.

Virtually all of these cuts appear to come from highway and mass transit programs financed through the Highway Trust Fund.  The House and Senate Budget Committees cite trust fund shortfalls as the reason for the cuts, but these shortfalls are neither new nor unexpected.  Since 2008, dedicated revenues in the trust fund — mostly from taxes on gasoline and diesel fuel — haven’t been sufficient to cover the authorized and ongoing costs of federal highway and transit programs.  One reason is that the taxes aren’t indexed for inflation and policymakers haven’t raised them since 1993.  (The gas tax is 18.3 cents per gallon.)  Also, revenues have slowed due to major fuel economy improvements and some decreases in driving.

To alleviate the shortfall, Congress has supplemented motor fuel tax revenues through various temporary measures, the latest of which will soon run out.  The House and Senate budgets offer a different solution:  to cut infrastructure spending to bring it into line with revenues from motor fuel taxes.  The House version does so suddenly and dramatically, apparently by almost shutting off new contract authority (that is, the authority for states and other entities to sign contracts for highway and mass transit projects involving federal funds) in order to bring spending down quickly.  The Senate takes a more gradual approach.

Both plans, however, will result in significantly smaller highway and transit programs at a time when many urge more investment in infrastructure in order to reduce congestion, increase capacity, and improve the performance and safety of our nation’s highways, bridges, and transit systems.

A Congressional Budget Dictionary

March 27, 2015 at 10:03 am

Congressional Republicans are using complicated — and likely poll-tested — language to make their budget plans’ deep spending cuts and dramatic structural changes in key programs for low- and moderate-income people sound benign and even positive.

As Budget Committee member Sen. Chuck Grassley (R-IA) noted before the plans’ release, “From the standpoint of a budget, the less words of the English language you use, the better off you are.”

While it’s common practice for lawmakers to use language that puts their plans in the best possible light, it’s important to understand exactly what they mean.  Here are three key “translations”:

The House budget summary says:
It will make Pell Grants, which help more than 8 million students from low- and modest-income families afford college, “permanently sustainable.”

This turns out to mean:
The House budget would institute sharp funding cuts in Pell Grants, which in turn would make it harder for millions of students to afford college at a time when those costs are rising quickly.  Over time, this likely would reduce economic opportunity and the readiness of the U.S. workforce.

The House budget summary says:
The budget would convert both the Supplemental Nutrition Assistance Program (SNAP) and Medicaid to “State Flexibility Funds.”  It states that this would give state governments “the power to administer [SNAP] in ways that best fit the needs of their communities with greater incentives to achieve better results,” and also would “empower state policymakers to tailor their Medicaid programs based on the unique challenges they face.”

This means:
The budgets would convert SNAP and much or all of Medicaid to “block grants,” with fixed — and sharply reduced — federal funding.

The programs would no longer respond automatically to increased need due to rising poverty and unemployment during economic downturns.  And the combination of block grants and big funding cuts would leave states having to figure out whose benefits to cut or terminate.  The magnitude of the cuts would leave them without good options.  The SNAP cuts would force states to shrink or eliminate food assistance for millions of low-income families, while the Medicaid cuts would force them to make eligibility and benefit cuts that would likely leave millions of beneficiaries uninsured or underinsured (on top of the loss of coverage that millions of poor Americans would face due to the House and Senate budget plans’ repeal of health reform and its Medicaid expansion).

Finally, sometimes even silence needs a translation.  The House and Senate budgets make no mention of extending crucial provisions of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) for low- and modest-income working people now slated to expire at the end of 2017.

This means:
The plans would allow these provisions to expire,  thereby pushing more than 16 million people — including almost 8 million children — into or deeper into poverty and squandering the opportunity to help promote work, reduce poverty, and support children’s development.

Once you get beyond the euphemisms and flowery language, a clear agenda stands out in these plans:  shrinking government in substantial part through steep reductions in programs for low- and moderate-income Americans that, in turn, would lead to higher levels of poverty and inequality, less opportunity, and a future workforce that’s less able to compete with its counterparts overseas.

Estate Tax Repeal: A Misguided and Costly Policy

March 25, 2015 at 5:29 pm

Eliminating the federal estate tax on inherited wealth, which the House Ways and Means Committee approved today and which we’ve explained would increase deficits and inequality, is a misguided — and expensive — policy, new data show.  New cost and distributional estimates from the Joint Committee on Taxation (JCT) confirm that repeal would reduce revenues by $269 billion from 2016 through 2025 (adding $320 billion to deficits once the additional interest cost on the national debt is included), with the entire benefit going to the nation’s roughly 5,400 wealthiest estates.

The JCT distributional estimates show that in 2016:

  • Only the nation’s wealthiest 5,400 estates would benefit — about 2 of every 1,000 estates — because only those estates currently face the estate tax to begin with.
  • The nation’s wealthiest 1,336 estates — those worth $20 million or more — would receive 73 percent of the benefit, with each receiving a tax windfall averaging roughly $10 million.
  • The nation’s wealthiest 318 estates — those worth at least $50 million — would receive tax windfalls averaging more than $20 million each.

Ways and Means approved this windfall for heirs of extremely wealthy estates on the same day the House is considering a Republican budget plan that would shrink programs for people with low- and moderate-incomes by an average 43 percent in 2025.  Such deep cuts would produce a dramatically weaker safety net, driving millions of people into poverty and denying or weakening health coverage for tens of millions more.  They would also reduce opportunity for students from modest backgrounds who are striving for a college education and a better future (see graphic). Proponents of the budget plan contend that such cuts are needed to meet their goal of balancing the budget in ten years.

In backing estate tax repeal, however, the House Ways and Means Committee suggests that the nation can afford $320 billion in higher deficits to deliver a tax cut to the wealthiest estates.

Fixing Sequestration Is Key to Restoring Housing Vouchers and Reducing Homelessness

March 25, 2015 at 4:14 pm

With millions of renters facing unaffordable housing costs and homelessness a large problem in many areas, policymakers should fully reverse the loss of 100,000 housing vouchers due to the sequestration budget cuts.  As our new report explains, the President’s 2016 budget would finish the job Congress began in 2014 of restoring all lost vouchers.  Unfortunately, the budget plans before the House and Senate this week not only have no plan to fix sequestration; they’d impose further cuts in programs for low-income people such as housing vouchers.

The President’s budget would renew all of the vouchers that more than 2 million low-income families — mostly seniors, people with disabilities, and working families with children — will use this year and restore 67,000 other vouchers no longer in use due to sequestration.

It would target 30,000 of those 67,000 vouchers to reduce homelessness, provide safe homes for victims of domestic and dating violence, and prevent low-income children from being separated from their families because their family can’t afford adequate housing.  This strategy of targeting vouchers on particularly urgent needs builds on the proven success of the HUD-VA Supportive Housing (VASH) program, which is largely responsible for a 33 percent drop in veterans’ homelessness between 2010 and 2014.

Also to reduce homelessness, the Obama budget funds more than 25,000 new units of supportive housing for people with disabilities who have experienced long or repeated periods of homelessness — the so-called “chronically homeless” people who live mainly on the street.  These funds are essential to meet the federal goal of ending chronic homelessness within the next several years.

The President’s budget proposes to undo sequestration and, thus, can provide the resources to restore vouchers and reduce homelessness — as well as to increase support for veterans’ services, Head Start, job training, medical research, and other critical non-defense discretionary programs affected by sequestration.  Congress should end sequestration and provide communities with additional resources to restore housing vouchers and reduce homelessness.

House Budget Would Reduce College Access by Cutting Pell Grants

March 25, 2015 at 1:51 pm

We noted today that nearly every state is funding higher education at lower levels than before the recession, forcing tuition hikes that make college less affordable — and some states are planning more funding cuts.  The budget plan that the House is expected to approve today would likely put a college education further out of reach for many young Americans.  As our new paper explains, the budget deeply cuts Pell Grants, which help more than 8 million students from low- and modest-income families afford college.

Research shows that Pell Grants and other need-based aid enable more low- and moderate-income students to attend and complete college.  Unfortunately, Pell Grants have lost considerable purchasing power over time.  The maximum grant now covers about 30 percent of the average cost of a four-year public college, the lowest share in 40 years.  The House budget would shrink Pell Grants’ purchasing power further by freezing the maximum grant ($5,775 per student for the 2015-2016 school year) for ten years, even as tuition and room and board costs will continue to rise (see chart).


The House budget also eliminates Pell Grant funding on the “mandatory” (entitlement) side of the budget and squeezes Pells’ other funding source, non-defense discretionary funding, over the next ten years.  Thus, under this budget, it would be virtually impossible for Pell Grants to receive sufficient funding to maintain current eligibility rules, even at the frozen grant levels the budget proposes.  Policymakers would likely restrict eligibility or cut benefits even more, or both.

The House budget’s justification for cutting Pells — that the program’s finances are unsustainable — is unconvincing.  Program costs did rise substantially between 2007 and 2010, largely due to the recession (which depressed family incomes and led more people to pursue college in order to improve their education and skills) and modest expansions of Pell benefits.  But costs have since fallen by roughly one-fifth in inflation-adjusted dollars and are projected to keep falling slightly over the next decade.

The House budget’s Pell cuts would add another barrier to education for low-income students — a group with disproportionately low rates of college attendance and graduation.  Also, it would likely increase their debt burden.  Pell Grant recipients are already more than twice as likely also to have student loans as other students.

In short, the budget would reduce opportunity for students from modest backgrounds who are striving for a college education and a better future.