Squeeze Time

All budgets have got to be based on priorities,” George W. Bush said on February 8, “and mine are clear.” He wasn't lying. The president's $2.57 trillion budget proposal for fiscal year 2006 calls for a 16-percent cut in all non–homeland domestic discretionary spending -- which includes most education, housing, environmental-protection, and research programs -- in five years and devastating cuts to low-income entitlement programs like Medicaid, in part to help finance $1.6 trillion in tax cuts in the coming decade. In the name of a five-year deficit-reduction plan universally dismissed as hallucinatory, the proposal targets low-income programs that have contributed to, at most, about 6 percent of the increase in deficits in the last four years, according to the Center on Budget and Policy Priorities (CBPP).
Outrageous, to be sure, but what else is new? The president has included many of the same cuts and provisions in past budget submissions, and has rarely pushed hard to overcome congressional resistance to them. Indeed, Republican governance during his first term was characterized by a candy-for-all fiscal policy -- combining massive tax cuts with steady spending increases -- that may have lulled many into thinking that starve-the-beast conservatism is a thing of the past. When it comes to the overall growth in government spending, it likely is a thing of the past: The White House's FY 2006 budget proposal is one-third bigger than the last budget of Bill Clinton's presidency. But this year, for the first time, the threat that deficit politics poses to programs serving the most vulnerable Americans looks to be more real than theoretical. And this year's debate won't only concern cuts; it will concern structural changes the Republicans seek that would make deep cuts a permanent and continuous part of the budget process. It just might provoke the most intense budget battle since the Gingrich-Clinton showdown of 1995.
Ask Democrats and low-income advocates about the coming budget fight this year and they reach for outsized clichés: “the mother of all battles,” “the fight of a lifetime,” “the perfect storm.” No one doubts that most of the spending cuts Bush is calling for -- farm subsidies, defense projects, Amtrak funding -- amount to the usual hot air that permeates all budget proposals and stand no chance of actually passing. But a confluence of circumstances has led observers to take the threat of cuts to programs benefiting low-income Americans more seriously than they have in the past few years.
What has changed? Broadly speaking, the rapidly expanding deficit, combined with the president's simultaneous pledges to halve that deficit in four years and to make his tax cuts permanent, have sharpened the focus on curtailing spending growth. More precisely, a political dynamic that began in 2002, when Republicans took control of the Senate, is bringing the spending issue to a head. This was already in evidence in the huge FY 2005 omnibus appropriations bill passed late last year, which surprised many with its austerity in funding social programs. (It was the first appropriations bill during Bush's presidency that actually cut non–homeland domestic discretionary spending -- by 1.7 percent in real terms.) According to Scott Lilly, former House Appropriations Committee staff director and now a senior fellow at the Center for American Progress, for years Republicans had enjoyed the luxury of scapegoating Democrats whenever they outspent their own budget resolutions.
“As long as the Democrats controlled the White House or the Senate, Republicans could always come up with an excuse that someone else made them do it,” he explains. “But once the Republicans controlled the House, the Senate, and the White House -- and this past budget cycle was the first one in which that's happened -- they didn't have an excuse and they couldn't play that game anymore.”
Hence, the squeeze.
But Republican politicians, being politicians, seek to deflect responsibility for unpopular spending cuts just as fervently as they hope to obscure their indulgences in spending profligacy. That's why the most important vehicle for rolling back spending this year, most observers say, is an array of budget-process changes that the White House and congressional conservatives are advocating. Process rules are the perfect way to curb spending without associating specific lawmakers with specific cuts. For Republicans, they also provide a fail-safe way to ensure that the “right” programs -- services to politically vulnerable and traditionally Democratic constituents -- feel the brunt of the pain. In 1981, David Stockman, Ronald Reagan's first budget director, made a famous distinction between “weak clients” (vulnerable constituents deserving protection from budget cuts) and “weak claims” (programs of dubious legitimacy serving constituencies with real political clout). Current GOP strategy reverses that calculus: Through a series of structural changes and buck-passing mechanisms, Republicans intend to pit program against program in a battle for diminished resources -- and may the stronger clients win.
The White House budget, for example, calls for a five-year cap on non–homeland domestic discretionary spending without specifying funding for individual programs during fiscal years 2007–10. CBPP President Robert Greenstein, who says this is the first time since 1989 that a budget has omitted such information, stresses the danger that “the discretionary programs with weaker constituencies [will] get cut deeper and deeper and deeper.”
Even more significant this year than the squeeze on discretionary programs is the threat against entitlement spending, from Medicaid to food stamps to Supplemental Security Income. Most observers see the ascension of the Senate Budget Committee's new chair, Judd Gregg, an entitlement hawk who bucked his party's leadership in opposing the 2003 Medicare law, as a sign of the fight to come. “It really is the absolutely perfect set of serendipitous circumstances for them,” says one budget analyst closely following the process in Congress. “Who do you have on the budget committee? Judd Gregg. What is Judd Gregg's mission in life? To control entitlement spending.”
That Medicaid is in the crosshairs has been obvious since Bush tapped Michael Leavitt to become the new secretary of health and human services. As governor of Utah two years ago, Leavitt restructured the state's Medicaid plan to cut benefits and raise co-payments for more than 17,000 people. Then, in 2003, he lent vocal support to the president's proposal to transform Medicaid into a federal block grant to states -- which would have effectively ended the Medicaid entitlement at the same time that health-care costs continue to skyrocket. [See Barbara T. Dreyfuss, “A Dirty Job,” The American Prospect Online, February 2, 2005.]
The block-grant proposal stalled in the face of opposition by most governors and the pledge of a filibuster signed by 48 Democratic senators. The White House, along with Leavitt, has taken pains to stress that it is not reviving a block-grant proposal now -- a claim that few observers believe. On top of the $45 billion cut in federal Medicaid funding that the president's budget proposes upfront, most are interpreting both language in the budget proposal and comments made by Leavitt during his Senate confirmation hearings to mean that Republicans will push for further federal cuts and greater flexibility for states this year. The largest changes would most likely apply to “optional” Medicaid beneficiaries (about one-third of all enrollees) and benefits (which include services like prescription drugs and clinic care).
Republicans are hoping that the carrot of greater flexibility will induce governors to accept reductions in federal support. As Ron Pollack, president of the health-care coalition Families U.S.A., puts it, “Flexibility is a euphemism for allowing [governors] to reduce benefits considerably, to increase cost-sharing requirements with people, and to eliminate the guarantee that anyone eligible for coverage receives it.” Meanwhile, Democratic opposition to a Medicaid overhaul is no longer relevant, given the stated intention of both Gregg and his counterpart in the House, Jim Nussle, to push through such changes in a reconciliation bill that cannot be filibustered. Here the results of November 2, where Republicans gained four seats in the Senate, may prove decisive. As Pollack puts it bluntly, “This is the biggest threat to public-health programs in the history of the country.”
Medicaid is hardly the only endangered entitlement. Budget-process changes that would devastate an array of mandatory spending programs are more likely to pass this year than ever before. These include both long-range caps on entitlement spending and “one-sided PAYGO” rules that would straitjacket spending programs while doing little to alleviate deficits. The pay-as-you-go budget provisions of the 1990s required lawmakers to pay for any increases in entitlement spending or decreases in revenues (i.e., tax cuts); such changes had to be offset either by equivalent budget cuts or by revenue increases elsewhere. Since those rules expired in 2002, congressional Republicans and the White House have strived to enact a variation on PAYGO that completely exempts taxes from the equation: No tax cuts would require offsetting, and spending increases could only be offset by entitlement cuts elsewhere -- never by tax increases.
Structural spending caps and one-sided PAYGO proposals very likely constitute the most important front in the budget fight this year. If the Republicans succeed in instituting such reforms, the ensuing spending cuts and entitlement shortfalls would compound over years, eventually forcing rollbacks in government services that no politician of either party would ever have signed off on in the first place. That, of course, is precisely the point. As the budget analyst puts it, such caps are “the ultimate ‘look, Ma, no hands,' no-accountability moves” -- technical accounting tweaks that ensure “permanent, structural, irreversible changes” in government commitments to social spending.
Such changes came close to passing in the last two years; moderate Republican Senators Olympia Snowe, Susan Collins, and John McCain managed to prevent the passage of a budget resolution last year specifically over opposition to one-sided PAYGO. Whether they stand firm this year is an open question. There is a serious risk that such self-professed deficit hawks will cite the urgency of the fiscal situation to justify signing off on various entitlement-cap provisions this year.
Still, none of this is a done deal. Advocates and organizations representing low-income constituencies -- shaken out of complacency by the bite of last year's appropriations bill -- are gearing up for a fight. If anything, the biggest danger for such advocates is that the Republicans' likely retreat from most of the explicit program cuts they're seeking will only obscure the real stakes of the fight over budget-process rules. After all, says the budget analyst, “It'd be one thing if this was just about cutting. But it's not. It's really about putting in place long-term mechanisms that will force the decline, year after year after year, of critical spending and critical investment programs.”
Sam Rosenfeld is a Prospect Web writer.