Means-Tested Programs Should Bear Part of the Deficit Burden

November 15, 2010

With two prestigious commissions about to make recommendations regarding the deficit and the American public telling pollsters they think the deficit is the nation’s top priority, now is the time to get specific about how to proceed.

Almost any reasonable approach to reducing the deficit will have four characteristics:

  1. It will involve some combination of spending cuts and revenue increases
  2. It will avoid implementing serious measures until the economy shows stronger signs of recovery
  3. It will implement cuts and revenue increases gradually over a period of years so that the pain does not come all at once
  4. It will impose substantial savings on the big three entitlement programs—Social Security, Medicare, and Medicaid

But beyond these general guidelines, the specific measures will necessarily involve lots of give and take between the parties, between Congress and the President, and between interest groups. Tables all over Capitol Hill and K Street will be covered with a red substance before the deficit is significantly dented.

One of the most important questions that should be widely discussed as the work begins is how the pain will be distributed among the nation’s economic groups. Specifically, will the cuts and revenue increases provide some protection to poor and low-income individuals and families?

There are at least three reasons special consideration might be granted to the poor. First, many of them are already living on the margin of serious hardship. Additional cuts in their benefits or increases in their taxes could throw them into serious pain—serious enough that there could be effects on their health and well-being. The rich and the middle-class may have to work a few more years before retirement whereas the poor may have to sacrifice an adequate diet or needed medical care.

Second, the American people have repeatedly demonstrated their desire to help the poor and destitute. The federal income tax code, for example, is highly progressive. A recent analysis by the Congressional Budget Office showed that the households in the bottom 20 percent of income on average actually paid negative taxes – they received a check from the government through the tax code – while those in the middle 20 percent paid 4.6 percent of federal income taxes and those in the top 20 percent paid 86 percent. In fact, the one percent of households at the top paid nearly 40 percent of all federal income taxes. On the spending side, the federal government spends about $700 billion a year and rising on programs to help the poor and near-poor.

Third, the equity principle, which drives a great deal of American social policy, requires that the poor be at least partially protected from the cuts and tax code changes.

There are equally valid arguments in favor of including programs for the poor when the budget onslaught begins. A useful slogan for deficit cutters is: “Everyone’s ox gets gored.” For citizens, the watchword should be: “We’re all in this together.”

The principle here is that, in a crisis, no individuals or groups are exempt from contributing to the solution. Every interest group, many with high-priced lobbyists behind them, will be presenting reasonable arguments about why their group should be exempt from the cuts or tax increases.

Under this circumstance, it will be helpful to the members of Congress and the administration who are making the decisions to hold to a hard and fast principle: everyone must share the pain. But once even a single exception is made, why not one, or ten, or a hundred more? Once the favors begin, where will they stop and who will be able to stop them?

Another argument in favor of including the poor in the great distribution of pain is that there really is something important and just in the claim that in a crisis everyone should help. Like the rest of the country, the poor will suffer greatly if the debt crisis leads to a catastrophic event such as a financial meltdown or default on the federal debt. If the rest of the nation has to sacrifice, why should the poor be exempt, especially if they will share the benefits of a long-term solution to the debt crisis? Besides, if the poor are exempted, others will have to accept more pain.

An additional and reasonable argument for not exempting the poor is that those who benefit most from government have a special responsibility to bear part of the burden. The poor have an even greater stake in the fiscal sustainability of federal spending because a higher proportion of their income, meager though it might be, is paid by government than the proportion of any other group with the possible exception of the elderly. Why would we give a pass to those who would lose the most if Uncle Sam goes broke?

Finally, granting a pass to programs for the poor will have political consequences in the negotiations between Republicans and Democrats and between the House and Senate. Although it may be somewhat exaggerated to label Republicans as the party of the middle class and the rich and Democrats as the party of the working class and the poor, the history of political fights over social policy shows unequivocally that Republicans lobby harder for the rich – consider the Bush tax cuts – and Democrats try much harder than Republicans to enact or defend policies for the poor.

Given the iron rule of tit-for-tat in Congress, if programs for the poor are exempted from the deluge, it will be considered a break for Democrats and Republicans will demand their break in return, which inevitably will be some favor for business or some other group represented by guys in $600 shoes.

Although there are reasonable arguments on both sides, I think the argument that everyone should contribute is the most important, both substantively and politically.

We should follow the equity principle by making the cuts on the poor smaller as a percentage of income as revealed in distribution tables, but at least some cutting of programs for the poor should be a part of the final deal. Advocates for the poor should begin thinking of which program cuts would produce the least damage.