What is Smart about Budget Cuts that Push More People into Poverty?

Last week, House Speaker John Boehner said, “sequestration is going to remain in effect until the president agrees to cuts and reforms that will allow us to remove it. The president insisted on the sequester none of us wanted, none of us like it, there are smarter ways to cut spending.” It’s true that sequestration takes a meat ax to discretionary spending in the federal budget, indiscriminately cutting spending across-the-board and slowing the economic recovery. Of course, there are smarter ways to alleviate longer-term budget problems, most of which would not kick-in until after the economy recovers from the Great Recession. But what are the “smarter” ways House Republicans have offered?

One proposal, championed by House Majority Leader Eric Cantor and Chairman of the Committee on Agriculture Frank Lucas, is to cut the Supplemental Nutrition Assistance Program (SNAP) by $40 billion over 10 years. Some in the conservative Republican Study Committee would go even further and reduce SNAP by that amount per year—a reduction of over 50 percent. Using the Census Bureau’s Supplemental Poverty Measure (SPM), which allows for the inclusion of both in-kind government benefits and taxes in poverty analysis, I estimate that this latter policy could increase the number of people in poverty by 2.2 million. Almost one million of these people would be children.

Another Republican proposal, one contained in the Rep. Paul Ryan budget plan, would hold the level of funding for Medicaid level for the next 10 years. Medicaid is a means-tested federal medical program for the poor and near-poor. The budget savings from holding funding level would primarily be achieved by throwing people off of the program or by reducing benefits received by all. The upshot is, poor people’s out-of-pocket expenses for medical care would increase (or they would go without care). Using the SPM and assuming a 19 percent increase in the out of pocket medical expenses of Medicaid recipients, I estimate this could throw an addition million people into poverty.

One last proposal, and one the Obama administration has suggested, is to use the chained CPI to index Social Security benefits (as well as the tax code). Since 2000, inflation calculated using the chained CPI has been 35 basis points (0.35 percentage points) lower than the usual calculation. This would imply that Social Security cost of living increases would have been lower. Assuming a difference of 30 basis points, had the chained CPI been used for indexing Social Security all along, an additional 640,000 elderly could be pushed into poverty using the SPM.

All of these so-called “smart” ways to cut spending have a common theme: they increase poverty and push those already in poverty deeper in poverty. Surely, Speaker Boehner and House Republicans are smart enough to come up with smart ways to address long-term budget problems without increasing poverty, which is at an already high rate of 16.1 percent using the SPM.