Big Wins for Low-Income People in Fiscal Cliff Legislation, But Danger of Devastating Spending Cuts Just Ahead
The American Taxpayers Relief Act (ATRA), signed into law by President Obama on January 2 to avert the fiscal cliff, includes several major victories for low-income people. At the same time, it sets the stage for a titanic battle over spending cuts that could devastate programs of critical importance to low-income people.
The major victories for low-income people secured by President Obama in ATRA consist of:
- A one-year continuation of extended unemployment insurance benefits for the long-term unemployed. Without this action, two million long-term unemployed people would have been immediately cut off benefits, and more than five million would have been cut off over the course of 2013.
- A five-year continuation of the 2009 improvements to two low-income tax credits, the child tax credit and the earned income tax credit. These improvements lift a million people out of poverty. Also a five-year continuation of a college tuition tax credit.
- No cuts of any significance to low-income programs including Medicaid and SNAP.
On the negative side of the ledger, no action was taken to prevent expiration of the temporary two-percent reduction in the payroll tax. This will significantly reduce take-home pay, driving down consumer demand and resulting in higher unemployment.
ATRA postpones sequestration--large automatic cuts to domestic and defense discretionary spending--until March 1. This is also when the government is expected to exhaust its borrowing limit, which would require Congress to raise the debt ceiling.
The last time Congress had to raise the debt ceiling, in 2011, House Republicans insisted on a dollar-for-dollar reduction in spending, resulting in $1.5 trillion in spending cuts. The House Republicans have vowed that they again will use the need to raise the debt ceiling as leverage to exact huge spending cuts. This is a potent weapon, since failure to raise the debt limit would cause the United States to default on its obligations, with catastrophic consequences for the worldwide financial system.
The pressure to make big spending cuts is exacerbated by the fact that ATRA wound up raising only $563 billion in new tax revenue over ten years, about $1 trillion less than the $1.6 trillion originally sought by President Obama. The President has said that he will continue to fight for additional revenue through reform of the tax code as part of any future deficit reduction package.
Those who favor large cuts in government spending can be expected to push a number of proposals that would cause grave harm to low-income people, such as:
- A “per capita cap” that would limit states to a fixed dollar amount per Medicaid beneficiary. This is another version of a block grant, which would shift increasing health care costs to the states and lead to major cuts in the services available to low-income Medicaid participants.
- Raising the retirement age for Medicare and/or Social Security from 65 to 67.
- Turning Medicare into a private insurance voucher program, thereby exposing seniors to unaffordable increases in the cost of medical coverage.
- Reducing future Social Security benefits by changing the indexing mechanism to a “chained” CPI (consumer price index).
- Additional deep cuts and structural changes to federal programs, including possible block granting of the Supplemental Nutrition Assistance Program (SNAP).
The major victories that President Obama secured for low-income people in ATRA should be celebrated. At the same, it is urgent that we immediately confront the looming threat of overwhelming spending cuts.