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Fact Sheet: House Republican Budget Resolution: Same Failed Top-Down Economics

March 17, 2015

With more than 12 million private-sector jobs created over the last 60 months, it is clear that the President's middle class economic agenda is working. But instead of taking the steps we need to strengthen the standing of working families, the House Republican budget for fiscal year (FY) 2016 would return our economy to the same top-down economics that has failed us before. The Republican budget cuts taxes for millionaires and billionaires, while slashing investments in the middle class that we need to grow the economy, like education, job training, and manufacturing. The Republican proposal stands in stark contrast to the President's FY 2016 Budget, which would bring middle class economics into the 21st Century.

The President's Budget builds off the progress we've made and shows what we can do if we invest in America's future and commit to an economy that rewards hard work, generates rising incomes, and allows everyone to share in the prosperity of a growing America. It lays out a strategy to strengthen our middle class and help America's hard-working families get ahead in a time of relentless economic and technological change. And it makes the critical investments needed to accelerate and sustain economic growth in the long run, including in research, education, training, and infrastructure.

House Republicans have chosen different priorities. Yet again, they are seeking to balance the budget on the backs of the middle class, while cutting taxes for the wealthy and well-connected. House Republicans still won't say where close to $1 trillion of their spending cuts come from. But they are clear that their budget would continue the harmful cuts known as sequestration in 2016, threatening economic growth, cutting programs middle-class families count on, and attempting to fund national security through irresponsible budget gimmicks. Their budget slashes domestic investments that support middle-class even more significantly after 2016, along with programs that serve the most vulnerable Americans. It would end Medicare as we know it, transforming it from a guarantee seniors can count on into a voucher program. And, despite the more than 16 million Americans who have health insurance today as a result of the Affordable Care Act (ACA), it yet again proposes to repeal the law's coverage expansions.

The choice could not be more clear and the consequences more stark. Thanks to President Obama and the resilience of the American people, the economy is growing again. The Republican budget would put that growth at risk and limit opportunity for the middle-class and those seeking to join it.

In a budget that claims to be fiscally responsible, House Republicans start by promising large tax cuts for the wealthy and big corporations. Among the few specific tax proposals in the House Republican budget is a promise to spend hundreds of billions on high-income and business tax cuts, with up to trillions more in unspecified high-income and corporate rate reductions. The proposals they specify would cut the tax bill of the average millionaire by more than $50,000, before even adding the proposed cuts to tax rates. Meanwhile, the House Republican budget does nothing to prevent a tax increase on 26 million working families and students. And in the past, they have made clear they would let this tax increase happen – raising taxes by an average of $900 apiece for 16 million working families and by $1,100 for 12 million families and students paying for college.

Because House Republicans refuse to ask millionaires and billionaires to pay their fair share or to raise a single dollar of revenue, their budget relies on the same, failed top-down economics as in previous years. Specifically, it would:

•      Cut investments in the middle class by maintaining sequestration funding levels. Under the House Republican budget, both non-defense and base defense discretionary funding in 2016 would be at the lowest real levels in a decade. Investments in the middle class would be heavily impacted: real preK-12 per pupil education funding would fall to its lowest levels since 2000, and real R&D funding would fall to its lowest level since 2002, except when large sequestration cuts also took effect in 2013. Compared to the President's Budget, the Republican budget would result in: [1]

o      35,000 fewer children on Head Start.

o      $1.2 billion less in Title I education funding, enough to fund 4,500 schools, 17,000 teachers and aides, and 1.9 million students.

o      $347 million less in IDEA funding, an amount that could support up to 6,000 special education teachers, paraprofessionals, and other related staff.

o      More than 2 million fewer workers receiving job training and employment services.

o      Elimination of the Manufacturing Extension Partnerships, which serve 30,000 small manufacturers that contribute to the creation of middle-class jobs and economic growth.

o      1,300 fewer medical research grants at NIH.

o      950 fewer competitive science research awards at the NSF, affecting 11,600 researchers, technicians and students.

o      133,000 fewer families receiving Housing Choice Vouchers, and another 20,000 fewer rural families receiving help for affordable rental housing.

o      Fewer community-based services for seniors, including approximately 500,000 fewer rides to doctors and grocery stores, approximately 200,000 fewer hours of assistance for seniors unable to perform activities of daily living, and approximately 100,000 fewer hours of care for dependent adults.

o      3,500 fewer low-income homes achieving annual energy cost savings through residential energy retrofits.

Meanwhile, as a wide range of national security experts ranging from former Secretary of Defense Robert Gates to Ambassador John Bolton have pointed out, locking in sequestration for defense would undermine our readiness and efforts to secure technological superiority for U.S. forces in future conflicts. Instead of providing a plan to appropriately fund our national security, House Republicans try to have it both ways on defense funding – maintaining sequestration and then using overseas contingency operations funds intended for wars and not subject to budget caps to fund the day-to-day operations of the Pentagon. This is both bad budgeting and harmful to military planning -- Senator John McCain has called it a "gimmick" and former House Budget Chairman Paul Ryan referred to it as treating overseas contingency funding as a "slush fund."

•      More than doubles cuts to middle class investments starting in 2017. In 2017, the House Republican budget more than doubles its cuts to these investments, and the cuts grow even deeper after that. The budget hides these deep cuts in later years to mask their effects. But if non-defense discretionary funding were cut 12 percent below sequestration levels in 2016 – the cut the Republican budget would make in 2018 – it would mean the following compared to the President's Budget: [2]

o      More than 157,000 children would lose out on access to Head Start services.

o      More than 4 million workers would lose out on job training and employment services.

o      Title I education funding would be $2.7 billion lower, enough to fund about 10,000 schools, 38,000 teachers, and aides, and 4.2 million students.

o      IDEA funding would be nearly $1.6 billion lower, an amount that could support up to 26,800 special education teachers, paraprofessionals, and other related staff.

•      Take away health insurance from more than 16 million people who have gained coverage under the Affordable Care Act. The Affordable Care Act is working. Thanks to its coverage provisions, the share of Americans without health insurance is at or near historic lows – and these provisions are costing almost one third less than the Congressional Budget Office (CBO) initially projected. Almost exactly five years after the ACA was enacted into law, Republicans will be voting for the more than 50th time to repeal these provisions. Beyond the effect on the millions who have gained health insurance coverage through the ACA Marketplaces or through Medicaid, the House Republican Budget would:

o      Deprive up to 130 million Americans with pre-existing conditions of the security of knowing they will still be able to buy affordable health coverage if they lose their jobs or otherwise lose their health insurance;

o      Deny millions of young adults of the option to stay on their parents' plans if they re-enroll in school or get a job without health coverage; and;

o      Increase prescription drug costs for more than 4 million seniors and people with disabilities.

•      Reaches its fiscal targets through unspecified cuts and gimmicks, plus deep cuts to programs that serve the most vulnerable. On top of its cuts to middle-class investments and the ACA, the Republican budget calls for an additional nearly $2 trillion in cuts to health, safety net, and other mandatory programs. For the fifth year in a row, the budget declines to specify where almost $1 trillion of these savings would come from. But the budget does single out a few programs as the first places it would look to reduce the deficit:

o      It eliminates mandatory funding for Pell Grants and freezes the maximum grant at its current level, instead of allowing it to increase to keep pace with inflation, and makes other unspecified cuts to the program. Over time, this would reduce financial aid for almost all of the more than 8 million students who rely on Pell Grants to afford college.

o      It block grants Medicaid, cutting resources for Medicaid and the Children's Health Insurance Program by more than $900 billion, on top of the impact of repealing the ACA coverage provisions. A Kaiser Family Foundation analysis of a similar proposal in previous Republican Budgets found that as many as 20 million people would be denied the coverage they would have gotten under pre-ACA Medicaid.

o      It cuts the Supplemental Nutrition Assistance Program (SNAP) by about $140 billion over 10 years and in 2021 would block grant the program, jeopardizing the more than 46 million Americans who depend on it, the majority of them children, the elderly, or people with disabilities. Research has shown that SNAP not only helps families put food on the table, but it also has a positive long-term impact on children's health and education outcomes.

Since even these cuts leave the Republican budget short of its fiscal goals, House Republicans get the rest of the way there by policies such as:

o      Declining to implement their own policies in their budget. While claiming to "fully repeal Obamacare" and stripping away health coverage from millions, the House Budget retains the ACA's savings, claiming they will replace the revenues through unspecified tax reforms. And while House Republicans have voted to extend hundreds of billions in business tax cuts without offsets, their budget adds up only by assuming those measures would be paid for.

o      Counting about $150 billion in deficit reduction from highly uncertain "dynamic scoring." Not only is dynamic scoring uncertain in general, but the dynamic estimates of the Republican budget take into account only its deficit reduction, not the long-term economic costs of its cuts to research, education, and other investments.

o      Terminating the FDIC's Orderly Liquidation Authority. This authority was enacted to ensure taxpayer funds are never again used to bail out 'too big to fail' financial institutions. And though the House budget says it does "not rely on gimmicks or creative accounting tricks", the 'savings' from this termination are both, because, by law, any costs of the program must be recouped from the financial industry.

The Republican budget also proposes other policy changes that generate little or no savings, but would have severe consequences for seniors and the middle class. It would:

•      End Medicare as we know it. For new beneficiaries starting in 2024, the House Republican budget would end Medicare as we know it by substituting guaranteed access to the traditional Medicare program with a voucher program, increasing costs for millions of seniors and forcing millions out of traditional Medicare, risking a death spiral as private plans siphon off healthier and less expensive beneficiaries. Beneficiaries would receive a premium-support payment that may not completely offset the premium for the Medicare plan of their choice (either a private plan or the traditional Medicare program). As CBO and numerous outside analysts have found, under a voucher system healthier, lower-cost Medicare beneficiaries would be more likely to enroll in private plans. Meanwhile, traditional Medicare would increasingly be left with sicker, more expensive beneficiaries.

•      Undercut important consumer protections. In addition to cutting services and aid for the most vulnerable, the House Republican budget calls for rolling back key aspects of Wall Street Reform, while underfunding the agencies working to implement it. It terminates mandatory funding for the Consumer Financial Protection Bureau (CFPB), greatly limiting the independence of this watchdog for the rights of consumers. In the process, the House budget gains 'creative accounting' savings by shifting CFPB funding to appropriations. In addition, it risks returning us to the days of "too big to fail," protecting Wall Street firms from important regulatory safeguards and putting ordinary citizens and the economy at risk.

•      Do nothing to address our Nation's crumbling infrastructure. The President has put forth a detailed plan to make significant investments in repairing and modernizing our infrastructure, paid for by closing specific loopholes that allow U.S. companies to shift profits and jobs to tax havens as part of pro-growth business tax reform. Not only does the House Republican budget lack a real plan to address the looming insolvency of the Highway Trust Fund by establishing an unspecified reserve fund "to provide for innovative thinking," but House Republicans' extreme sequestration cuts put funding for successful infrastructure programs like TIGER grants at risk.

The consequences of the Republican budget approach for the economy and the middle-class are stark. The budget's own numbers show that its deep near-term spending cuts would reduce the size of the economy by an average of 0.5 percent over the next three years, costing hundreds of thousands of jobs. Its cuts to investments in education, training, research, and manufacturing would have compounding effects on the economy over time.

Instead of the same top-down economics that led to the financial crisis, the President's Budget invests in an economy that puts the middle class first and cuts the deficit in a balanced way by closing tax loopholes to ensure millionaires and billionaires pay their fair share. Now is the time to strengthen the standing of working and middle class families, not go back to the same failed Republican top-down economics.

[1] Similar to the analysis of House Republican budget cuts in 2016, the analysis of the 12 percent cut relative to sequestration levels assumes an across-the-board reduction to the enacted 2015 levels and compares to the President's 2016 proposals.

[2] Because the House Republican budget does not provide specific discretionary program levels, this analysis assumes an overall nominal percentage reduction in available non-defense discretionary funds of 1.5 percent below currently enacted 2015 levels, in order to account for both sequestration and unavoidable cost growth in certain areas (such as veterans' medical care). This reduction is applied mechanically across-the-board to all discretionary programs. To prevent cuts of this magnitude in any specific program would require deeper cuts than described in other programs.

Barack Obama, Fact Sheet: House Republican Budget Resolution: Same Failed Top-Down Economics Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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