Commentary | Budget Taxes and Public Investment

Discretionary Spending Cuts Would Reduce Jobs, Hurt Social Programs

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Before President Obama gives his State of the Union address, the House of Representatives will vote on a resolution to cut non-security discretionary spending back to fiscal year 2008 levels for the last seven months of this fiscal year (which is currently being funded through a temporary continuing resolution). What will this accomplish? If spread over an entire year’s worth of discretionary spending, reverting to 2008 spending levels would result in a cut of about 13% to all non-defense programs, totaling around $60 billion in cuts. But if the cut is instead squeezed into the remaining seven months of fiscal year 2011, then it grows to around 22%.

What Republicans in the House fail to either understand or accept is that it is imperative that our efforts be focused on immediate job creation as opposed to immediate deficit reduction. Focusing on deficits now is not only a distraction, but actually undermines the goal of generating more jobs. In fact, making these cuts to the discretionary budget would reduce the number of jobs available significantly. Okun’s rule of thumb states that when gross domestic product (GDP) declines, there is a correlating increase in unemployment. A $60 billion cut, when assigned a fiscal multiplier of 1.5, would impact GDP by roughly $90 billion for the rest of this fiscal year alone. This would result in a decline in output by a little more than one-half of a percentage point of GDP, resulting in a loss of around 590,000 jobs.

For months now we have been hearing that if we don’t cut $100 billion from the discretionary budget, we will be leading our country deeper into a budget mess. That is not entirely true. Cuts of $100 billion to the non-security portion of discretionary spending would barely dent our projected debt obligations, and worse, have a huge negative impact on government programs, state budget crises, and employment.

A cut of this magnitude would result in the single biggest cut to discretionary spending in modern American history, reducing such spending as a share of GDP to historically low levels. Over the past 30 years, non-security discretionary spending has been, on average, 3.3% of GDP, never falling below 2.6% of GDP. Cuts of around $60 billion – which are what the House will specifically be voting on – would bring this spending down to the lowest level it has been during the last 30 years. Cuts of $100 billion would be even more disastrous, resulting in an immediate decline in non-security discretionary spending to 2.3% of GDP this year – a catastrophically low level of spending to push for during weak economic times.

Below are some examples of how specific programs would fare if $60 billion in cuts were actually enacted:

  • Under the cut, the Department of Education would lose $6.2 billion, the Department of Housing and Urban Development would lose $5.7 billion, and the Department of Transportation would lose around $3 billion.
  • The single biggest program to lose funding would be the Department of Health and Human Services’ budget for the National Institutes of Health. Funding for health research and training would be slashed $4.1 billion under the cut. This is money that supports pre-doctoral and postdoctoral training opportunities across the country, and funds research on cancer, autism, Alzheimer’s, HIV/AIDS, diabetes, and a host of other important medical areas. Cuts of this magnitude would roll back grants for health research and training, and would undoubtedly result in a slowdown of medical knowledge and breakthroughs.
  • The next largest program to be hit would be funding under HUD’s Public and Indian Housing Program for tenant based rental assistance, which would be cut $2.4 billion. Tenant based rental assistance is a subsidy that helps households afford various housing costs including rent, utility costs, and security deposits, by helping low-income families make up the difference between housing costs and what a family can afford to pay. Rental assistance helps prevent homelessness and other hardships – which have increased substantially during the economic downturn. Recent reports have shown that the number of homeless families has risen significantly, by 3% between 2008 and 2009. The number of Americans who have doubled up in homes rather than live on the street increased by around 12% over the same time period (National Alliance to End Homelessness).
  • The Office of Elementary and Secondary Education within the Department of Education would lose $2.1 billion from their “Accelerating Achievement and Ensuring Equity” program. This program targets elementary, secondary, and vocational education, and serves a number of purposes, including awarding Title I Grants to local educational agencies (which provide supplemental education funding in high-poverty areas and extra academic support to help raise the achievement of students at risk of educational failure) and providing financial assistance to state educational agencies (for improving educational programs for children of migratory farmworkers and fishers). Among a host of other services, this program also provides education services to neglected and delinquent youth in local state-run institutions.
  • Popular programs would suffer as well. The Corporation for Public Broadcasting (CBP) would lose $66.7 million. CBP promotes public telecommunications services, investing in more than 1,000 local radio and television stations, and reaching almost every household in the country. Cuts to this program would stand in the way of CBP’s mission to both develop and ensure access to non-commercial, high-quality educational programming.
  • The Environmental Protection Agency’s ability to conduct oil spill response, through their Pollution Control and Abatement activities, would be cut $2.3 million. EPA was instrumental in responding to the BP oil spill last summer, monitoring air, water, sediment, and waste generated by cleanup operations. If it were decided that politically sensitive programs, such as this one, should be exempted from cuts, it would only mean greater cuts to the rest of the non-security discretionary budget.

While cutting down the deficit may be a valid long-term goal, the short-term reality is that people who benefit from the programs described above are already hurting. Unemployment is hovering well above 9% and will only drop below this level thanks to the recent round of stimulus included in President Obama’s tax compromise of last December. Forecasters are not predicting unemployment to drop to 6% – the height it reached during the recession in 2003 – until 2013. Cutting services in this type of environment is not only callous, but would ultimately be destructive. While the GOP leadership has been busy labeling many of the opposing party’s initiatives as “job-killing,” (see related commentary), their very own proposal to cut discretionary spending for the rest of this fiscal year would have a very clear negative impact not only on important social programs, but also on our jobs picture.

 

 

Sources:

National Alliance to End Homelessness, Homelessness Research Institute, “State of Homelessness in America,” January 2011. http://www.endhomelessness.org/content/article/detail/3668.

Office of Management and Budget (OMB). “Budget of the United States Government, Fiscal Year 2011.&r
dquo; Analytical Perspectives, Aid to State and Local Governments, p. 254. http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/topics.pdf

Office of Management and Budget (OMB). “Budget of the United States Government, Fiscal Year 2011.” Public Budget Database, Budget Authority. Washington, D.C.: OMB. http://www.whitehouse.gov/omb/budget/Supplemental/


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