Budget season is upon us, that magical time of year in which the parties announce bold visions of the future of the American experiment and/or mild adjustments to the near-term trajectory of federal outlays and revenues. The White House and the Republican-controlled Senate and House Budget Committees have unveiled their spending plans, meaning all three major players are on the record.
The Senate and House budgets are both attempts to balance the budget within ten years, which results in large-scale cuts, the vast majority of which affect programs for low-income people like Medicaid, Obamacare, food stamps, and more. The House budget also calls for a major change in how Medicare operates. The presidential budget, by contrast, tries to reduce but not eliminate the deficit, primarily by raising taxes, while also creating new benefit programs like universal pre-K and free community college for all.
Here are the major components of the budgets, how they stack up against one another, and what comes next.
What are the big changes in the House budget?
This is the first time since Republicans took control of the House in 2011 that the House budget wasn't created by Rep. Paul Ryan (R-WI), who has given up his Budget Committee chairmanship to chair the more powerful Ways and Means Committee. But his successor Rep. Tom Price (R-GA) retains a number of the Ryan budget's more notable elements.
Privatizing-ish Medicare: The budget would turn Medicare into something more like Obamacare: beneficiaries would be able to pick from a variety of private plans that meet certain coverage requirements, and the government would provide "premium support" payments to assist with the cost of the plans. They could also choose to stick with traditional Medicare if they so desired. "Payments would be adjusted so that those with illnesses would receive higher payments if their condition worsened; lower-income seniors would receive additional assistance to help cover out-of-pocket costs; and wealthier seniors would assume responsibility for a greater share of their premiums," the budget outline specifies.
The original version of this proposal, included in Ryan's budget proposals through fiscal year 2012, didn't allow future seniors the option of staying in traditional Medicare. In late 2011, Ryan crafted a Medicare reform proposal with Sen. Ron Wyden (D-OR) in which Medicare would be allowed to compete with private plans, much as the rejected public option in Obamacare would have. Since then, House budgets have followed the Ryan-Wyden model and included a regular Medicare option.
The Committee for a Responsible Federal Budget (CRFB), which has an anti-deficit outlook but does excellent, careful budget analyses, estimates that the House budget would cut Medicare spending by about $148 billion over 10 years.
Slashing Medicaid: Price's budget, like Ryan's before it, calls for converting Medicaid into a "block grant." Currently, the federal government and the states share responsibility for paying for Medicaid, with each paying a set percentage of each beneficiary's costs. In a block grant, the federal government instead gives each state a lump sum of money to spend as it sees fit (with certain regulations).
While theoretically block grants can hold spending constant or even increase it, in practice they're mainly used to effect spending cuts. CRFB estimates that the budget cuts Medicaid and other non-Medicare/Obamacare health spending by $913 billion over 10 years.
Repealing Obamacare (but not its cuts): This is a Republican budget: obviously Obamacare is repealed. But the budget focuses on the law's expansions of insurance coverage and tax increases rather than its spending cuts. CFRB finds that the budget saves $2 trillion over 10 years from "repealing the coverage expansions in the Affordable Care Act while on net leaving the bulk of the Act's Medicare reductions." The controversial Independent Payment Advisory Board (IPAB), which has the power to unilaterally cut the rates at which Medicare compensates health-care providers for treatments, is repealed.
Cuts to food stamps and Pell Grants: Other social-safety-net programs come in for cuts, as well. The Supplemental Nutritional Assistance Program (SNAP), formerly and still colloquially known as "food stamps," is converted into a block grant, just like Medicaid. The Center for Budget and Policy Priorities estimates the net effect would be a $125 billion cut over five years, for a total cut of about 34 percent. If that cut comes entirely from reducing enrollment, it would cut 11 million to 12 million people from food stamps. If it came entirely from lower benefits, it'd cut $55 per person per month on average; a family of four would lose over $2,400 a year.
CBPP also finds that the budget would significantly cut spending on Pell Grants. "Although Pell Grants already cover a much lower share of college costs than they used to, the plan would freeze the maximum grant level for 10 years even as tuition and room and board costs continued to rise, and then cut Pell Grants in other ways as well," CBPP president Robert Greenstein writes.
Trillions in mystery cuts: The SNAP and Pell Grant cuts are components of a broader, unspecified $1.1 trillion package of cuts to unspecified mandatory spending programs. "Mandatory" spending is spending on programs to which money is appropriated outside the normal budget process; examples include Social Security, most health-care programs, and most income support programs such as SNAP. Besides food stamps and Pell Grants, Greenstein writes that other likely candidates for cuts under this provision include "child nutrition programs, Supplemental Security Income for the elderly and disabled poor, the Earned Income Tax Credit, student loans, veterans’ pensions and disability compensation, federal retirement programs, and farm programs, among others."
Overall, CBPP estimates that 69 percent of non-defense cuts in the budget hit programs for low-income people.
The budget also cuts $710 billion from non-defense discretionary programs — that is, things that are funded through the regular spending process (like scientific research, budgets for agencies like the FBI, CDC, and FDA, Head Start, and public housing support) that are not defense-related. The exact cuts will be worked out in the appropriations process, so what precisely is on the chopping block is unclear. But due to the budget sequestration resulting from the 2011 debt limit deal, along with other cuts, non-defense discretionary spending has already been cut dramatically. "By 2025, total funding for non-defense discretionary programs would be 33 percent below the 2010 level adjusted for inflation" under the House budget, Greenstein writes.
More defense spending: Under the sequestration deal, discretionary spending has to stay below certain caps, which are divided into defense and non-defense spending. The House budget obeys those caps in fiscal year 2016 but after that lowers the non-defense spending caps while raising the defense cap. In total, CRFB estimates the budget hikes defense spending by $358 billion over 10 years. What's more, the budget provides $36 billion more next year for Overseas Contingency Operations (budget-ese for "war spending") than President Obama requested, which CRFB says "appears to be a way to use that category as a slush fund to provide back-door defense sequester relief."
A TBD tax plan: In addition to repealing Obamacare's tax increases, the budget calls for "comprehensive tax reform that would include lower rates for individuals and families as well as large corporations and small businesses who often file their tax returns through the individual side of the tax code. We would repeal the Alternative Minimum Tax and transition away from a worldwide tax system to a more competitive international tax system. Along with lower rates, we propose broadening the tax base by closing special interest loopholes that distort economic activity."
There are a couple of real ideas there, including ending the AMT and adopting a "territorial" corporate tax system, but simply saying "we'll cut taxes and pay for it by cutting tax deductions and credits" is very vague. It's vaguer, in fact, than Ryan's budget was. Ryan specifically called for two individual income tax rates: a 10 percent bracket and a 25 percent bracket, a massive cut from the current top rate of 39.6 percent. That would have required $5.7 trillion in loophole closures to fill, but it was at least more specific than what Price is giving us.
One other thing: while the budget repeals Obamacare's tax increases, CBPP's Joel Friedman notes that it also assumes revenue neutrality. So the money lost from those tax hikes will have to be made up for with even more deduction and credit cuts.
How does the Senate budget compare?
The Senate budget is, unsurprisingly, very similar to the House one. Here are the main differences:
- It cuts Medicare more by stating it would save as much money there as Obama's budget does (without endorsing Obama's specific cuts; while Obama mitigates the cuts' effects by directing some of that money toward getting rid of the "sustainable growth rate," a Medicare cut from 1997 that lawmakers repeal every year, Enzi's budget does not).
- Initially, the budget wouldn't increase defense spending, but an amendment by Sens. Lindsey Graham (R-SC) and Kelly Ayotte (R-NH) passed in committee increases war spending by $38 billion next year, to be paid for with defense cuts later on.
- It has lower non-defense discretionary cuts, because it doesn't have to pay for a large defense hike.
- It has even larger cuts to income security programs like the Earned Income Tax Credit, food stamps, and Supplemental Security Income: about $660 billion over 10 years. CBPP estimates that 69 percent of the budget's non-defense cuts are from programs to help low-income people (just like the House budget).
But other than that, the topline figures are very similar. The Affordable Care Act's coverage provisions are repealed, and Medicaid is block-granted and cut significantly.
That said, the Senate budget takes a different approach to Medicare than the House budget, even apart from the size of cuts. It declines to say that it wants to semi-privatize the program, and shies away from endorsing specific reforms. In many ways, this is how budgets normally work, leaving big reforms to the House Ways and Means and Senate finance committees and focusing on topline numbers. Ryan's budgets broke from that model, both on Medicare and on tax policy, and the House (on taxes) and Senate (on both) are moving back toward normal operating procedure.
How does President Obama's budget compare?
Obama's budget is, naturally, different in almost every particular:
- It raises discretionary spending on both defense and non-defense programs above the sequestration caps, by $193 billion and $178 billion over 10 years, respectively.
- It includes $1.55 trillion in tax increases over 10 years. A third of that comes from capping tax deductions and exclusions for top earners; other changes include increased capital gains and dividends taxes, reforms to the estate tax, a one-time tax on certain kinds of foreign income, and an increase in tobacco taxes meant to pay for universal pre-K.
- With pre-K, it includes $475 billion in new spending, including free community college, more transportation spending, and increased access to child care.
- It spends $465 billion on new tax breaks, including extending an expansion of the child tax credit, doing the same for EITC and also expanding it further, and expanding education tax breaks.
- It cuts health-care spending by $195 billion primarily through reducing spending on prescription drugs, raising Medicare premiums for high earners, and "reducing spending on post-acute care." It permanently gets rid of the "sustainable growth rate." The permanent repeal reduces the size of the health cuts substantially. (The House budget also junks the SGR.)
- Rather than using Overseas Contingency Operations as a backdoor mechanism to increase defense spending, the budget cuts it by $615 billion over 10 years, assuming that US operations in Afghanistan will continue to draw down. This accounts for half the deficit reduction in the budget.
- The budget assumes immigration reform passes and saves $173 billion over 10 years, as the CBO estimated the Senate-passed bill would do in 2013.
How do these three stack up next to one another?
Here's how CRFB projects these budgets will affect the US's debt load, relative to current projections (in black):
The House and Senate budgets cause the debt to start shrinking (the gray line shows the Senate budget if economic effects of its enactment are factored out; the Senate budget committee claims it would boost growth in ways that reduce the deficit). The president's budget slows growth considerably, but the debt load is still growing.
Here's what happens to the budget deficit:
The House and Senate budgets balance (or come close) within 10 years. Obama's doesn't, but it does prevent the deficit from increasing substantially.
Many thanks to the Committee for a Responsible Federal Budget's Marc Goldwein, Loren Adler, and Adam Rosenberg and to the Center on Budget and Policy Priorities' Joel Friedman for their help nailing down some of these numbers.