Key deficit reduction principles

The national debate over deficit reduction and raising the debt limit has intensified this week, as the President and members of Congress work toward an August 2nd deadline.  While the debate rages over the size and scope of a package, it is vital that any deficit reduction efforts protect key programs for low-income Americans -- something that can only be accomplished if special tax breaks for high-income families and corporations are reduced or eliminated. 

Accordingly, any final deficit reduction package must:

Exempt programs that affect low-income families and individuals

Any deficit reduction package that relies entirely on spending cuts would likely increase poverty and inequality. Cuts to programs such as Medicaid, Medicare, possibly Social Security will harm lower-income families, seniors, veterans, people with disabilities, and children.  These vital public structures are pivotal to the economic security of millions of Americans.  Cutting them now would greatly harm our economic recovery and could throw millions into deep poverty.

Furthermore, cuts to these programs would likely take an enormous toll on states. The lingering effects of the recession have left states in no position to absorb higher costs. Yet, cuts to programs like Medicaid that are funded jointly by the states and the federal government would do just that. (In the current biennium alone, Washington state has already cut approximately $4.5 billion from health care and education services in order to keep the state budget in balance).

Take a balanced approach to deficit reduction

Significant revenue must be included in any deficit reduction package. Special interest tax breaks and tax cuts for high-income individuals should not remain at the expense of programs that benefit all Americans. Without additional revenue, spending cuts are the only option. All forms of government spending – including spending on narrow tax breaks – need to be on the table.

Reject a global spending cap

Some in Congress have proposed a “global spending cap” which would mean a cap on total federal spending each year. While this might sound harmless, it would put the burden of deficit reduction entirely on the direct spending side of the budget while ignoring spending on narrow tax cuts or breaks. One proposal would arbitrarily limit total spending to 20.6 of Gross Domestic Product (GDP)—which is significantly below current and projected levels.

According to the Center on Budget and Policy Priorities (CBPP), if the cuts to reach the target came entirely through an automatic global spending cap, over the first nine years alone (2013-2021) they would total $1.3 trillion in Social Security benefit cuts, $860 billion in Medicare cuts, and $550 billion in Medicaid cuts.

Notably, federal programs like unemployment insurance, food stamps (SNAP), and Medicaid are designed to provide an automatic cushion for families and the economy during recessions. A global spending cap would prevent these programs from providing an effective backstop during economic downturns.

Furthermore, a global spending cap would force cuts in federal spending during a weak economy. The cap could result in a devastating cycle of a weak economy turning into a deeper recession, and further slowing economic recovery.

The results of any deficit reduction package this year will have ramifications for decades to come. Therefore it is essential that deficit reduction negotiations should include revenues and exclude a global spending cap. A balanced approach by national lawmakers will ensure protection of programs for low-income families and will not increase poverty or income inequality.