Outlook 2006: Congress Pursues Tax Cuts and Moves toward Slashing $40 Billion from Domestic Programs

by Mary A. Cooper

Advocates for low-income people will have their work cut out for them in 2006, if they hope to reverse the devastating blows dealt to the nation's poor by the U.S. Congress in the last year.

At the last minute before adjourning for the holidays, Congress moved closer to passage of a budget reconciliation bill that will slash a number of crucial programs for the neediest people. The measure passed the House by a vote of 212-206. In the Senate, the vote was tied 50-50, with five Republicans (Senators Smith of Oregon, Chafee of Rhode Island, DeWine of Ohio, and Snowe and Collins of Maine) joining the body's 44 Democrats and one Independent in opposition. Vice-President Cheney, who had cut short a trip to the Middle East to be present in the event of such an occurrence, cast the tie-breaking vote. Prior to the Senate vote on the budget bill, Senators accepted a budget point of order, meaning the Senate bill now differs from the House bill. Before these cuts can go into effect, the House must pass the Senate-approved package. The vote could take place when the House reconvenes on January 31, 2006.

When Members of Congress return to Washington, they are also expected to work out differences between the House- and Senate-passed tax cut packages. The Senate version, S 2020, contains nearly $60 billion in tax cuts over five years, including a one-year fix of the alternative minimum tax and $7 billion in Katrina tax relief. The House version, HR 4297, includes $56.1 billion worth of tax cuts, including a two-year extension of capital gains and dividend tax breaks, not included in the Senate bill. The House also passed three other tax bills, HR 4096, a $31 billion bill AMT package, HR 4440, a Katrina-relief tax bill, and HR 4338, bringing the total tax cut proposals to nearly $100 billion.

Among cuts included in the $40 billion budget reconciliation spending reduction package were the following:

• Medicaid recipients will be required to pay higher premiums and co-payments;
• Benefits will be less generous under Medicare for some imaging techniques and for home health care;
• Less funding will be available for child support enforcement, the program that requires absentee parents to contribute to the support of their children; and
• $12.7 billion was cut from education programs by raising interest rates on student loans.

Of the few victories for the advocacy community, perhaps the most significant is that proposed cuts in the Food Stamp Program were eliminated.

TANF

Having failed for nearly three and a half years to reauthorize TANF, the nation's primary program of cash assistance to low-income families (which expired in August 2002 and has been kept alive by continuing resolutions), Congress gave up the effort to have a substantive debate, opting instead to sweep TANF reauthorization into the budget reconciliation package. In theory, such budget measures are not supposed to be used for making changes in policy; but in fact, the original TANF program was created in 1996 as part of another reconciliation act. The new version makes the original, vigorously opposed by the advocacy community, look generous by comparison.

One of the original purposes of TANF was to require adults in families receiving welfare benefits to get jobs and leave welfare within two years. The theory was that having a job would provide sufficient funds to support a family without further need for government assistance. In fact, many studies have shown that, while the program has succeeded in forcing people off welfare, it has not helped the majority escape poverty. The jobs available to former TANF recipients generally pay poorly and offer few benefits.

Advocates for low-income families have supported providing more job training and education for people on TANF, with the goal of improving their earnings capabilities. Congress did not change the work requirements for recipients, but does require states "to make sure 50 percent of their recipients are engaged in work. Critics say that provision imposes new requirements on states without additional money to meet them and provides insufficient money for government-subsidized child care programs - $1 billion extra over five years. (Congressional Quarterly, 1/2/06, p.59)

Advocates for working families will press Congress in 2006 to provide greatly increased subsidies for child care. Numerous studies and surveys of low-income families have shown that lack of affordable, dependable child care is the single greatest barrier to sustained employment. The newly-reauthorized TANF program does almost nothing to address this problem, providing only an additional $1 billion for child care over five years. A bill approved by the Senate in the last Congress and reported again by the Finance Committee in 2005 would have added $6 billion, but the House position prevailed. The Center on Budget and Policy Priorities has estimated that the approved funding level for child care is more than $11 billion less than what is needed by the states to meet the new work requirements and protect existing child care subsidy programs for poor working families who do not receive TANF benefits. The shortage of funds in this area has the potential of pitting one group of poor people against another for limited resources.

Passage of this TANF measure may force Congress to address another issue in 2006, and that is fiscal relief for the states. The reconciliation act mandates that states meet strict new work participation rates for welfare recipients, having half of their caseloads in the work force in a year. The act, however, does not provide resources to help states accomplish this goal. The Congressional Budget Office has estimated the cost to states of this requirement at $8.4 billion over the next five years, to pay for welfare-to-work training programs.

The National Governors Association has repeatedly urged Congress not to impose such unfunded mandates. Faced with similarly rising costs in other areas, many states are approaching the breaking point. It is ironic that one of the alleged goals of TANF was to allow states some flexibility in designing welfare programs appropriate to their own needs and abilities, a goal Congress has rendered unattainable through its insistence on mandating arbitrary national standards and performance criteria without providing the necessary funds to meet them.

Housing and Minimum Wage

On December 13, the National Low Income Housing Coalition released Out of Reach 2005, a report that calculates how much a worker must earn to be able to afford rent and utility costs in every market in the country. The calculation assumes that the individual works 40 hours a week and 52 weeks a year. For 2005, the figure is $15.78 an hour, more than triple the federal minimum wage. The report indicates that there is no place in the country where a full-time worker earning minimum wage can afford a one-bedroom apartment. The full report is available online.

According to Sheila Crowley, President of NLIHC, "The disparity between what people earn and what even modest rental housing costs grows larger each year. This is the housing market in which millions of low wage workers and elderly or disabled people must try to find safe and decent homes. Now tens of thousands of displaced people from the Gulf Coast have joined them in this competition for scarce housing that they can afford. And FEMA wonders why evacuees are still in hotels." The effects of Hurricanes Katrina and Rita on the national housing market are not included in this report, which was written before they occurred. It is certain that the two storms have greatly exacerbated the problem by reducing the supply of available housing while increasing the competition for the supply that exists.

Among other findings, the report states that:

• 81percent of renter families live where a two-bedroom apartment at the Fair Market Rent is not affordable to a family with two full-time minimum wage workers; and
• 12 million households earn less than $10,712 a year, or the amount an individual earns at minimum wage working full-time all year.

The minimum wage has been set at $5.15 per hour for eight years. Repeated congressional efforts to increase it by $1.50 over two or three years have been stymied. Sen. Edward M. Kennedy (D-MA) annually makes numerous attempts to attach an increase to other pieces of legislation, only to be defeated by the same Congress that insists people leave welfare for work and that they earn enough to support themselves and their families without government aid. Senator Kennedy will resume his efforts when Congress reconvenes.