CBPP has the latest on reconciliaiton…
Reconciliation Bills Would Increase the Deficit and Favor the Well-Off, 9/8/05
As a result of the need to devote attention to legislation dealing with the aftermath of Hurricane Katrina, Congressional leaders apparently plan to delay scheduled action on reconciliation legislation (the deadline for committees to act on the first of two reconciliation bills was September 16) by two or three weeks. As Congressional committees strive later this month to meet to meet the new deadline to report reconciliation legislation cutting mandatory programs by $34.7 billion over five years, we are likely to hear committee leaders claim that “we have to use the reconciliation process to make these painful cuts in Medicaid, Food Stamps, Student Loans and other programs because we must reduce deficits that are unacceptably large.”
Such statements, however, would not be accurate. While projected deficits are too large, the reconciliation process this year will not reduce them. To the contrary, if the reconciliation bills envisioned by this year’s Congressional budget resolution are enacted, deficits will be increased by more than $35 billion over the next five years.
KEY FINDINGS
▪ Taken together, the two planned reconciliation bills — one cutting programs, the other cutting taxes — would increase the deficit by more than $35 billion over five years.
▪ Never before has Congress split reconciliation into two separate bills when the overall effect of reconciliation would be to increase deficits, rather than reduce them.
▪ The separation into two bills may be intended, in part, to divert attention from the fact that the cuts of almost $35 billion in programs such as Medicaid, Food Stamps, and student loans would be used not to reduce the deficit, but to offset partially the $70 billion in tax cuts.
▪ A significant part of the budget cuts would come in programs serving low- and moderate-income Americans, while the benefits of the tax cuts are likely to go overwhelmingly to the best-off taxpayers.
Just one week after Congressional committees are to act on legislation to reduce mandatory (i.e., entitlement) programs by almost $35 billion, the House Ways and Means and Senate Finance Committees are supposed to report separate reconciliation legislation that will cut taxes by $70 billion. This $70 billion reduction in revenues would more than offset the effect on the deficit of the program cuts in the first reconciliation bill. Taken together, the two reconciliation bills would increase the deficit by more than $35 billion over five years, not counting the effects of this increase in deficits and debt on federal interest payments. When the increases in interest payments are taken into account, the increase in the deficit is likely to be closer to $40 billion over five years. (See Table 1.)
Indeed, Congress appears to be using two separate reconciliation bills, rather than a single bill, at least in part to mask the fact that reconciliation is being used this year to increase deficits rather than shrink them. The reconciliation process has been in use for 25 years. Never before in this 25-year span has Congress split reconciliation into two bills when the net effect of reconciliation was to increase the deficit. Presumably, Congressional leaders hope that separating the two bills will keep journalists and the public from realizing that the program cuts in areas such as health care, food assistance, and student aid are not contributing to deficit reduction but instead are being used to offset part of the cost of the tax cuts.
Filed under: Economics
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