U.S. House Budget Would Make it Harder to Respond to Future Recessions

Wednesday, April 20, 2011 at 11:09 PM by

The budget plan approved by the U.S. House of Representatives, and spearheaded by Wisconsin’s own U.S. Rep. Paul Ryan, would slash federal anti-poverty programs and support for working families. Of the $4.5 trillion in federal spending cuts included in the plan over the next ten years, about two-thirds would come from programs for low- and moderate-income families. The effects on Wisconsin families still struggling to shake off the effects of the recession could be devastating.

The House budget could also limit the federal government’s ability to respond to future recessions. The proposed changes would make significant structural changes to food stamps and Medicaid, both of which were temporarily expanded by the Recovery Act. Increased food stamp benefits put money directly into the pockets of people who had been adversely affected by the recession, and the enhanced Medicaid program proved effective in delivering resources to cash-strapped state governments. These and other provisions in the Recovery Act kept 4.5 million people out of poverty.

If the U.S. House has its way, food stamps and Medicaid would switch to a block grant structure, making these programs less effective as anti-recession tools, and limiting our options for future stimulus efforts. Here’s how the structural changes and spending cuts in the budget plan would affect Wisconsin:

  • Food stamp funding would be cut by almost 20 percent over the decade starting in 2012. The budget provides no details on how the cuts would be achieved, but if the cuts were to come solely from dropping participants, an estimated 148,000 people – more than the population of Green Bay – could lose access to food stamps in Wisconsin in 2012. Over the next 10 years, low-income Wisconsin residents could lose $1.8 billion in federal food stamp benefits.
  • Medicaid funding to states would be cut by 35 percent nationwide by 2022 — and 49 percent by 2030 — below the levels the federal government is projected to provide for the program under current law. If a similar block grant plan had been enacted in 2000, Wisconsin’s Medicaid funding would have been 40 percent lower by 2009 than it actually was, and the state would have lost a 10-year total of $6.9 billion.

The Wisconsin Council on Children and Families made a similar point in today’s Milwaukee media briefing about the House budget, highlighting how the changes would hinder future stimulus efforts:

Medicaid responds automatically in a weak economy, helping vulnerable Americans weather tough economic times. If Medicaid had been changed into a block grant a few years ago, tens of thousands of additional Wisconsin families would have become uninsured during the severe economic downturn and wouldn’t have been able to get the care they needed. (Click here for the full statement.) 

But at least the spending cuts and structural changes mean will result in lower deficits, right? Not so much. Over 90 percent of the program cuts ($4.2 trillion) would go toward tax cuts, not deficit reduction, according to an analysis by the Center for Budget and Policy Priorities. One of the larger tax cuts would repeal the 28, 33, and 35% federal income tax bracket, which – in addition to reducing revenue by a trillion dollars over 10 years, according to the Tax Policy Center – would reduce the progressivity of the federal income tax.

One lesson of the recession and the Recovery Act should be that the federal government and states need to maintain the fiscal flexibility necessary to respond appropriately to downturns. If we follow the lead of the U.S. House budget plan, we could find ourselves without that flexibility at a time when we need it the most.

Tamarine Cornelius

Categories: Blog, federal issues, food stamps, Medicaid, Recovery Act | Comments Off on U.S. House Budget Would Make it Harder to Respond to Future Recessions

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