Congress Agrees on a Budget Resolution

House and Senate Republicans have agreed on a congressional budget resolution for the 2006 fiscal year (which begins on October 1, 2005). Republicans control both chambers of Congress and did not admit Democrats to the negotiations. The budget resolution lays out the plan for the budget for the next five years, and now both houses will attempt to enact the actual appropriations and revenue bills along the lines set forth in the resolution before September 30, 2005 (the end of the current federal fiscal year).

The plan contains significant cuts in entitlement programs such as Medicaid and discretionary programs such as federal aid to education, but these are more than offset by large increases in tax cuts (mostly for wealthy investors) and defense. The bottom line is that, in spite of the spending cuts, over the next five years the deficit will increase by $168 billion more than it would without the changes in the budget resolution. The Center on Budget and Policy Priorities has produced an excellent summary of the budget resolution: James Horney, “Assessing the Conference Agreement on the Budget Resolution” (May 6, 2005), available at www.cbpp.org/4-28-05bud.htm. Here is a summary of some of the details involving low-income programs.

Reconciliation
The budget resolution includes instructions to the relevant committees of the House and the Senate to come up with specified amounts of entitlement cuts and tax cuts. Simply given an amount of money to achieve, the committees must come up with what is called “reconciliation” legislation that specifies how the spending and tax cuts will be achieved. Because whatever is included in “reconciliation” legislation is not subject to Senate filibuster, the legislation needs only a simple majority to pass (not the 60 votes needed to stop a filibuster). Included in the reconciliation instructions are $35 billion in entitlement cuts and $70 billion in tax cuts.

Entitlement Cuts
About $10 billion of the $35 billion in entitlement cuts is to come from programs under the jurisdiction of the Senate Finance Committee. The assumption appears to be that most or all of these cuts will come from Medicaid. A commission under the direction of U.S. Department of Health and Human Services Secretary Michael O. Leavitt will be studying how to achieve these Medicaid cuts over the next few months.

The House and Senate Agriculture Committees are directed to fashion legislation cutting programs in their jurisdiction by $3 billion. This sets up a battle between agriculture interests out to protect farm subsidies and limit increases in agriculture-related fees and low-income advocates intent on protecting the Food Stamp Program from cuts.

Tax Cuts
The budget resolution contains $106 billion in tax cuts. Of this amount, $36 billion is to come in legislation outside of the reconciliation process, but $70 billion will be in reconciliation legislation protected from filibuster. While the resolution does not specify the tax cuts, knowledgeable sources expect that they will include extension of the dividend and capital gains cuts enacted in 2003, now scheduled to expire in 2008. Almost 80 percent of the benefit of these two tax cuts goes to families making over $200,000 per year, or the highest 3.1 percent of households.

Discretionary Program Cuts
The budget resolution assumes that funding for domestic discretionary programs (not including entitlements or funding within defense and international areas) will be cut in 2006 by $35 billion from 2005 levels—a 5.9 percent cut. Over the five years, the total cuts in these programs will be $212 billion, some of which will not be effective until after the five years (the cut during the five years is $143 billion).

These cuts would affect almost every domestic program, including TANF (Temporary Assistance for Needy Families), child care block grants, and community development block grants. For example, funding for education and training programs would be cut by $35 billion over five years. Natural resource and environmental programs would lose $30 billion over the five years. By contrast, defense would increase by $178 billion over the five years, mostly to fund the wars in Iraq and Afghanistan.

Cuts in discretionary programs are not included in the reconciliation process. The budget activity now turns to the relevant committees in both houses to produce the legislation that will accomplish the goals set out in the budget resolution.

For more information, contact John Bouman , the Shriver Center’s director of advocacy.