Fight Looms on Budget Cuts, Tax Breaks - Many Programs Slashed

October 20, 2005

In a crass exploitation of a national tragedy, Republican budget chieftains are using the cost of addressing the Katrina hurricane disaster as cover for their plans to slash nearly $50 billion from a wide range of important human needs programs. Adding to their duplicity, they also propose extending $70 billion or more in tax breaks for the wealthy.

Appropriations committees in both the U.S. House and Senate will be finalizing fast-tracked reconciliation bills during the next week, while the Democratic leadership seeks to stop the cuts and end the tax giveaway. NOW and other progressive organizations are mobilizing their grassroots activists to speak out against the dangerous cuts to vital public service programs and to block the new tax breaks to the wealthy.

House Minority Leader Nancy Pelosi (D-Calif.) and Rep. John Spratt (D-S.C.), ranking member on the House Budget Committee, sent a letter to the Republican leadership requesting that efforts to pass a reconciliation bill be halted. Senate Minority Leader Harry Reid (D- Nev.) sent a similar letter opposing this misguided effort. In addition to the wrong-headed budget cuts and tax breaks, the Republicans have used this opportunity to suspend a number of civil rights and other measures protective of workers - such as waiving the Davis-Bacon "prevailing" wage requirements. In addition, Republican leaders are using Katrina as an excuse to push through the use of education vouchers.

The proposed budget cuts would be felt most deeply by low- and middle- income folks who rely on food stamps, student loans, housing assistance, health care, nursing homes, and school lunches. Domestic programs that primarily benefit women and children are being targeted. These budget reductions will be paired with a tax reconciliation bill that will extend existing tax breaks that mainly benefit the top two percent of taxpayers.

Under consideration by Republican budget leadership is a package of tax breaks amounting to at least $70 billion that would likely involve extension of the reduced tax rates on capital gains and dividend earnings, an estate tax reduction, repeal of the Alternative Minimum Tax and other regressive tax breaks. We know from recent history that a similar tax break package passed after 9/11 provided very little stimulus to the economy and was mainly just a huge gift for special interests.

With the long-term cost of Katrina recovery estimated at $150 billion, the Republican leadership has seized upon this unexpected opportunity to further advance their agenda to cut federal spending to the bone. Some in Congress are cavalierly ignoring the need to repeal tax breaks for the wealthy or to allow some of the tax breaks to expire to help pay for the recovery, steps that would avoid the need to cut critical domestic programs. A few brave lawmakers have indicated a willingness to look at new or restored taxes, an idea that George W. Bush has rejected out-of-hand.

The Brave Few Protest Tax Breaks - Judd Gregg (R-N.H.), chair of the Senate Budget Committee commented on the Senate floor recently that he will not rule out tax increases to offset disaster relief to the Gulf Coast. Sen. George Voinovich (R-Ohio) told reporters that he does not think lawmakers should make the tax cuts permanent. Senate Finance Committee Chair Charles Grassley (R-Iowa) has gone on record stating that it would be "unseemly" to cut the estate tax at a time when so many people are suffering. Democratic Senators Joe Biden (D-Del.) and Barack Obama (D-Ill.) have also recently called for the rejection of the tax reconciliation bill and an end to considering permanent elimination of the estate tax.

The National Organization for Women and over 750 organizations from every state signed a letter (PDF), organized by the Coalition on Human Needs, urging Congress to reassess its priorities and to abandon plans to cut necessary programs. The letter indicated that getting rid of unnecessary government spending is a laudable goal, but targeting working families, the disadvantaged, and the vulnerable (while many are struggling with the aftermath of a natural disaster) represents a badly misguided policy. Furthermore, cutting safety net programs while doling out additional tax cuts and making the deficit worse — as Republicans propose to do through reconciliation — displays profoundly misplaced priorities.

Some of the Katrina relief measures: On Sept. 21, Congress passed a package of tax incentives as short-term Katrina relief. One key feature is a Katrina Disaster Employee Retention Credit that would provide a 40% tax credit to employers for retaining employees, plus incentives to employers who hire displaced workers. Another provision calls for tax deductions for people who provide short term housing for survivors rent-free. Costs involved could total $6.11 billion over 10 years. Total spending on Katrina-related measures and tax breaks already reaches $71 billion, pushing the federal deficit to more than $314 billion.

Senate Finance Committee Chair Charles Grassley (R-Iowa) has proposed legislation that would extend Medicaid benefits to hurricane-affected areas, but is facing opposition from some quarters.

Women Heads of Households Most Affected - The question about how to help victims of both Hurricanes Katrina and Rita becomes even more compelling with the news that women of New Orleans and the Gulf Coast region are especially hard-hit. According to a new study by the Institute for Women's Policy Research, women in the affected areas are more likely than men to be in poverty and to head single-parent families. For instance, in New Orleans 56% of all families with related children are headed by women. Additionally, poverty rates among these families are very high: about 40% in New Orleans, nearly 35% in the Beaumont-Port Arthur area and 28.6% in Biloxi-Gulfport-Pascagoula. The national poverty rate was 12.7% in 2004.

Some experts question whether any of the tax breaks being proposed would help the vast majority of persons most affected by the hurricane. Louisiana Gov. Kathleen Blanco (D), Mississippi Gov. Haley Barbour (R), and Alabama Gov. Bob Riley (R) told Congress that their states need direct federal aid to help them rebuild. Experts agreed that grants or loan subsidies may be more appropriate than tax breaks for addressing the problems in the Gulf region.

Among the several questionable ideas ventured in Republican-led hearings: tax policies as a means to rebuild the Gulf Coast, such as a "Gulf Opportunity Zone, or GO Zone, which would provide business tax breaks, such as increased business expensing for new equipment and a 50 percent bonus depreciation rate.

A recent report from the non-partisan Congressional Research Service concludes that most victims of Hurricane Katrina would receive little or no benefit from an extension of the administration's 2001 tax cuts. The study determined that the emergency tax package being considered by the House and Senate would only have a limited impact on hurricane survivors and several provisions will likely provide disproportionate benefits to the wealthy.

The Rich Get Richer - Recent studies show that households with incomes of more than $1 million a year - the richest 0.2 percent of the population - already receive tax cuts averaging $103,000 this year. Additional tax breaks to take effect next year will give these well-heeled folks another $20,000 and relate to changes for itemized deductions and personal exemptions in the tax code that will benefit high-income taxpayers.

They Have No Shame - The right-wing Republican leadership is intent on pushing their long-term agenda to eliminate hundreds of federal programs and to dismantle the rest of the social safety net. In fact, the Republican Study Committee, composed of over 100 of the most conservative House members, in late September issued its recommendations for $950 billion in spending cuts over the next 10 years - ostensibly to offset Hurricane Katrina recovery costs.

In reality, the report is a right-wing hit list, containing proposals like eliminating Legal Services, the National Endowment for the Humanities, and the Corporation for Public Broadcasting. The most severe cuts proposed are to programs that serve the poor and middle class: Medicaid would be slashed by $75 billion over five years and by $246 billion over 10 years. Medicare premiums would jump by 36%. Funding reductions are also proposed for a wide swath of education, environmental, military family aid and other programs.

With three more years of George W. Bush and right-wing control of Congress, we may well see the full deconstruction of the New Deal-Great Society and the hopes of an equal opportunity society disappearing into the mist.

More info:

• Take Action: Oppose Harmful Budget Cuts and Tax Breaks for Wealthy
• NOW Board Calls for Disaster Planning Without Discrimination
• The Women of New Orleans and the Gulf Coast: Multiple Disadvantages and Key Assets for Recovery, Part I. Poverty, Race, Gender and Class (PDF)
• Meeting the Basic Needs of Katrina Victims: Recommendations to Federal Policy-Makers
• The House Republican Study Committee's Proposals to Offset Costs of Hurricane Relief
• New Tax Cuts Primarily Benefit Millionaires Slated to Take Effect in January: Should They by Implemented While Katrina Costs Mount
• Analysis of proposed House budget cuts
• State by state analysis of the proposed budget cuts