On Wednesday night, the House passed a budget that purports to eliminate the deficit entirely within 10 years. It includes no tax increases but trillions in spending cuts, the vast majority of which affect programs for low-income people, like Medicaid, Obamacare, food stamps, and more. It would also begin to privatize Medicare. And while most of these cuts are used to reduce the deficit, some are used to pay for increased spending on defense.
The budget's passage is not binding. There are still significant disagreements that House Republicans need to work through with their Senate counterparts, and even then they'll need President Obama's cooperation to actually enact the policies they're proposing. But it's nonetheless an important window into the House GOP's priorities.
What does the House budget do on health care?
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 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. 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 lIndependent Payment Advisory Board (IPAB), which has the power to unilaterally cut the rates at which Medicare compensates health-care providers for treatments, is repealed. The taxes in Obamacare are repealed, but the budget also assumes tax revenues are unchanged, meaning that revenue will have to be made up for elsewhere.
What does the budget do to other programs for low-income people?
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.
What does the budget do on 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.
But Price still finds a way to increase spending in 2016. Spending on "overseas contingency operations" — wars — is not subject to the sequestration caps. Originally, Price's budget would have spent $36 billion more on OCO than President Obama requested to fund operations in Afghanistan, against ISIS, and elsewhere in 2016. Of that, $20 billion would be offset with spending cuts later to blunt the fiscal impact. But defense hawks protested, so Price offered two versions of the budget on the House floor: one with the original approach, and one that boosts OCO by $38 billion in 2016 and doesn't offset any of it. The latter won out, and thus the final budget boosts OCO next year without any pay-fors.
What does the budget do on taxes?
In addition to repealing Obamacare's tax increases (and requiring the revenue be made up elsewhere), 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.
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.