Donald Trump’s budget contains truly shocking cuts to the social safety net: a near-halving of funding for Medicaid, a 25 percent cut to food stamps, and substantial hits to cash welfare and disability benefits as well.
But the general assumption in DC is that most of these proposals are going nowhere. Much of the Medicaid cuts come in the form of an Obamacare repeal and replacement package, and indications are that Senate Republicans want fewer cuts to the program, not more. And with Congress’s time and attention filled up with health care and tax reform efforts, they hardly have time to focus on gutting the social safety net.
This is still my best prediction. But people who care about these programs should think through how these cuts could take effect. If they take effect, they will take effect through the budget reconciliation process, which enables Congress to pass laws without facing a filibuster in the Senate. The process can only be used once per budget resolution, and Republicans’ longstanding plan was to use the fiscal year 2017 budget to repeal and replace Obamacare, and the 2018 budget to do tax reform.
Both of those bills can, and in the former case almost certainly will, include major cuts to social safety net programs.
Any health bill Congress passes will cut Medicaid
This is perhaps an obvious point, but it’s important. The American Health Care Act, as passed the US House, contained about $880 billion in cuts to Medicaid, both through rolling back Medicaid expansion in states that have chosen to expand access through Obamacare and by imposing additional cuts by using a “per capita cap” or a block grant.
That’s about a 25 percent cut to the program — a truly massive amount, and about half the total Medicaid cuts in Trump’s budget. If that passes and makes it to Trump’s desk, then a big chunk of his proposed anti-poverty cuts will have been achieved.
The good news for Medicaid recipients is that Republican senators in states that expanded Medicaid — people like Sen. Bill Cassidy of Louisiana, Sen. Rob Portman of Ohio, and Sen. Shelley Moore Capito of West Virginia — are recoiling from the scale of Medicaid cuts included in the House bill. That could force the Senate bill to include more modest changes, or, best of all for Medicaid recipients, it could kill the Obamacare repeal effort altogether.
But if a repeal bill does make it to Trump’s desk, it’s inevitable that it will cut Medicaid at least somewhat. Sen. John Thune (R-SD), one of the Republicans working on the Senate bill, has told reporters there's broad consensus that the Medicaid expansion has to be rolled back; it's just a matter of providing a "longer phaseout, a smoother glide path."
Rolling back the Medicaid expansion in the Affordable Care Act would be a large cut, no matter how long the phaseout is and no matter whether or not it’s accompanied by other cuts. In 2015, the CBO estimated that simply repealing the Medicaid expansion overnight resulted in a $824 billion cut over 10 years. Simply slowing down the repeal and doing it gradually doesn’t change the fact that ending the expansion will dramatically reduce spending on health care for poor people. At some date, whether it’s 2018 or 2020 or 2025 or whenever, the federal government will be spending hundreds of billions less every year to help poor people who get sick.
Republicans have made it clear that health care is, for now, their main legislative priority. They might fail; plenty of health care reform efforts before have. But the House unexpectedly came around to the AHCA on May 4, and there’s a real chance the Senate will come around too. If they do, that will clear the way for a large chunk of Trump’s proposed anti-poverty program cuts to take effect.
Tax reform is another opportunity to make big safety net cuts
The public line on tax reform is that Congressional Republicans and the White House want a bill that’s deficit-neutral and pays for itself, at least after you assume that the bill will cause a big spike in economic growth.
But the fact of the matter is that putting together a deficit-neutral tax package is very tough, and it’s very, very tough if you want to lower the corporate tax rate from 35 to 15 percent, to let companies deduct the full cost of all their investments immediately, to eliminate the estate and alternative minimum taxes, to cut the top income rate, and to protect popular tax breaks like the health care exclusion, the mortgage interest deduction, and the charitable deduction. It only gets tougher if Obamacare repeal fails and you have to repeal all of its associated taxes through a tax reform bill instead.
The options that Republicans have proposed to raise money to pay for all these cuts are politically contentious at best, and politically toxic at worst. There’s border adjustment, which doesn’t really raise money except in a budget gimmick way and which is massively controversial within the Republican party and among businesses. There’s ending the deductibility of interest on loans that companies take out, which would force many banks and financial companies to totally overhaul their business models and is sure to garner vociferous opposition from Wall Street. And there’s getting rid of the state and local tax deduction, which punishes rich people in blue states with high taxes, rich people like … Donald Trump.
Worst of all, deficit-neutrality isn’t really optional. If you want to do permanent tax changes, not temporary ones that can be substantially reversed upon their expiration as the Bush tax cuts were, and you want to use budget reconciliation to avoid a Democratic filibuster, Senate rules require that the legislation not increase the deficit after 10 years in the future. Republicans want permanent cuts, and they cannot pass anything if they face a filibuster, so they need to pay for these changes in the long run.
This is where spending cuts come in. Why pay for rate cuts with tax increases that Republicans hate when you can just, say, gut food stamps? Why piss off Wall Street by changing the treatment of interest when you can slash Supplemental Security Income instead?
To be clear, Republicans are not publicly proposing paying for tax cuts with spending cuts on programs for the poor. The Trump administration is still laboring under the delusion that their tax cuts will not just be deficit-neutral but actually raise money to pay for deficit reduction. Including cuts to Social Security Disability Insurance would be impossible; reconciliation can’t be used to cut Social Security.
And there are political difficulties with many of these cuts as well. Farm state senators may be reluctant to cut food stamps due to pressure from agricultural companies who benefit from the program.
But this is sure to be an extremely tempting option if Republicans are desperate to get tax cuts done. It allows them to cut taxes in absolute terms without paying for it with increased revenue elsewhere. If a Paul Ryan-esque agenda of dramatic cuts to programs for the poor and big tax cuts is to actually becomes law, this is how it will likely happen.