Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to compensate for declining federal funds. These cuts would come at a particularly difficult time, when many states already are cutting programs to balance their budgets and half of the states face budget gaps for the upcoming fiscal year of more than $34 billion.
The President’s budget would provide more tax cuts heavily skewed to the most well-off while cutting vital services for low- and moderate-income Americans, generating large deficits, and increasing the strain on states already confronting budget problems as a result of the economic downturn. The budget reflects misguided priorities that would leave the American people more vulnerable in a number of ways.
On September 26, Opportunity 08 joined Saint Anselm College in Manchester for a forum examining key domestic issues facing presidential candidates in the New Hampshire primary.
The Senate continues the budget battle this week with the consideration of the Labor, Health, and Human Services Appropriations bill, which sets levels for education spending, as well as other key domestic programs. President Bush has already stated he plans to veto the bill because it provides $64.9 billion for the Education Department. Bush’s proposed budget appropriates only $61 billion–$3.9 billion less than Congress’ budget and $1.3 billion less than the Education Department received last year. The Bush administration, in the same year that it is spending $50 billion each month on operations in Iraq, plans on vetoing a bill because it increases funding for American schools by $2.6 billion, among other domestic budget increases. What’s even more surprising is that Education Secretary Margaret Spellings actually announced back in February that Bush’s newly proposed budget would increase education funding by 41 percent relative to 2001. A look at the president’s budget tells a different story. As this new interactive map shows, 44 out of 50 states would see reductions in federal funding for elementary and secondary education for fiscal year 2008 if the Bush administration got its way. Rather than bold increases, states on average will see a -1.4 percent decrease in elementary and secondary school funding.
From the summary:
The annual 50-state survey of state officials on Medicaid and state budget actions reports enrollment in Medicaid declined for the first time in nearly a decade. The 0.5 percent enrollment decline in fiscal year 2007 was driven primarily by two factors. States reported that the new citizenship documentation requirements were causing significant delays in processing applications, affecting mostly individuals already eligible for the program. State officials also cited the good economy and lower unemployment for reducing enrollment. Faced with an improving economy, 42 states expect to expand coverage to the uninsured in the next year.
• Executive Summary
• Press Release
Source: U.S. Census Bureau, Press release, CB07-141, October 9, 2007
From the press release:
Social Security, Medicare and Medicaid accounted for more than $1 trillion of the $2.3 trillion the federal government spent in 2005, according to the U.S. Census Bureau, which publishes the only consolidated source of data on the geographic distribution of federal expenditures.
The Consolidated Federal Funds Report for Fiscal Year 2005 is a presentation of data on most domestic spending by the federal government for state and county areas of the United States, including the District of Columbia and U.S. outlying areas. The data include expenditures for the Defense Department and the Department of Homeland Security.
The report covers direct payments, grants, procurement awards, and salaries and wages by federal agency and program. The report does not include expenditures for selected intelligence agencies, international payments, foreign aid and interest on the federal debt.
• Direct to Detailed Tables
• Federal Aid to States for Fiscal Year 2005
President Bush has said he will veto the appropriations bill that funds the Departments of Labor, Health and Human Services, and Education for the coming fiscal year if Congress sends the bill to him with funding at the level either the House or Senate has approved. The Administration says the funding provided in the House- and Senate-passed bills is “excessive” and “irresponsible” and has sought to portray them as part of a congressional plan that would constitute “runaway spending.” This short analysis finds these claims to be misleading or inaccurate.
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The “Mid-Session Review” that the Office of Management and Budget issued last month projects that revenues will be slightly above their 30-year average in 2007, measured as a share of the economy. The Administration and many of its supporters have cited this fact as evidence that current tax policies are generating an appropriate level of revenue and the Administration’s tax cuts therefore should be made permanent without the costs being offset. Similarly, Senator Charles Grassley, the ranking Republican on the Senate Finance Committee, has cited this fact as a reason for repealing the Alternative Minimum Tax without offsetting the large costs involved.
The simple fact that the government collected a particular level of revenue in the past says little, however, about what level of revenues is appropriate today, will be appropriate or necessary in the future, or even was appropriate in the past.
Source: Warren B. Rudman, J. Robert Kerrey, Peter G. Peterson, and Robert Bixby, The Brookings Institution, Opportunity 08: A Project of the Brookings Institution America’s Economy: Headed for Crisis 2, August 2007
From the summary:
An honest assessment of the nation’s long-term fiscal outlook almost makes one wonder why, in 2008, so many people are interested in being elected President. And why so little attention is being paid to a problem that budget analysts of diverse perspectives routinely describe as “unsustainable.”
One thing is clear: the status quo is not acceptable. The next President will inherit a fiscally lethal combination of changing demographics, rising heath care costs, and falling national savings. The public should take care not to buy the proposals of Presidential candidates that either ignore the magnitude of the long-term fiscal challenge or lock candidates into positions that make the problems insoluble. Improving the nation’s long-term fiscal outlook will require hard choices on spending and tax policy. Presidential candidates and their consultants might shy away from endorsing such choices on the campaign trail, but they should not rule them out.
The next administration must enter office with a mandate to act on this problem. Doing so will likely require a mix of options arrived at through bipartisan negotiations. The more options taken off the table through ironclad campaign promises, the more difficult it will be to find meaningful solutions once the campaigns are over and the time for governing begins. Candidates must acknowledge the magnitude of the problem, the need for trade-offs and the necessity for prompt action. Vague promises of “fiscal responsibility” give the public insufficient insight into how well candidates understand the task at hand.
Comprehensive solutions may take considerable time to develop, and once implemented, should be subject to periodic review. However, as a framework for action the next President should:
● Commit to a balanced budget
● Take every reasonable step to constrain the rising cost of heath care and retirement programs — Social Security and, most especially, Medicare
● Make clear to Americans that taxes cannot be cut over the long-term unless programs are cut commensurately, and
● Prevent total spending, taxes, or debt from reaching levels that could reduce economic growth and future standards of living.
Under the Administration’s budget, domestic discretionary programs — the programs that are funded each year through the annual appropriations process, other than defense and international programs — are slated for sizable reductions over the next five years. The budget calls for these cuts to start in 2008, when domestic discretionary programs as a whole would be funded below a freeze of the levels provided for 2007 in the full-year continuing resolution now moving through Congress.[i] The cuts would then grow deeper each year after 2008, and would come from almost every part of the domestic budget. The largest cuts would come in 2012, when domestic programs would be cut $34 billion, or 7.6 percent, relative to the 2007 funding level, adjusted for inflation.