Exclusive Commentary

Balance the Budget, but Not on the Backs of the Poor, By Rebecca Thiess, Federal Budget Policy Analyst, and Andrew Fieldhouse, Federal Budget Policy Analyst, Economic Policy Institute

- Posted November 10, 2010


With concern about rising deficits taking center stage in Washington, President Obama formed the bipartisan National Commission on Fiscal Responsibility and Reform to make recommendations on how to ensure a sound fiscal future for our country. As the Commission deliberated, Spotlight on Poverty and Opportunity believed their efforts to rein in deficits and manage the budget should include a focus on the potential impact on low-income people.

This commentary is the latest in our series, entitled “Poverty, Opportunity, and the Deficit.”


Voters, pundits, and politicians are wondering what recommendations President Obama’s National Commission on Fiscal Responsibility and Reform will deliver this December, and how those proposals will affect national priorities and economic well-being.

 

The Commission is charged with proposing recommendations that will balance the budget – excluding interest payments – by 2015 and improve the long-run fiscal outlook. While the outcome of the Commission remains a source of speculation, we believe any recommendations must adhere to three principals.

 

First, the recommendations of the Commission must take into account the severity of the Great Recession and its adverse impact on both low- and moderate-income Americans and the unemployed. Premature budget cuts would jeopardize the weak economic recovery, possibly throwing the country back into recession and unnecessarily inflicting pain on millions of Americans. 

 

The economy is growing again and jobs are being added, albeit slowly, but the recovery is very uneven. Though corporate profits and Wall Street bonuses have bounced back, the labor market remains in shambles, with five unemployed workers for every current job opening. In this context, the first priority for fiscal sustainability must be putting the economy on a path for a strong recovery that lifts the boats of all Americans.

 

Second, when the time comes for spending cuts and tax increases, the budget should not be balanced on the backs of poor and working-class Americans. Cutting supports to those in need is both morally and fiscally misguided. Lower-income Americans neither caused the financial crisis nor benefited from the Bush tax cuts for the rich—two major sources of our present budgetary challenges. Income supports are not the drivers of our long-term budgetary challenge; indeed, they make for excellent fiscal stimulus, providing some of the highest bang-per-buck initiatives to help the economy get moving again. 

 

Unfortunately, we have already seen attempts to balance the budget on the backs of the poor. The recently enacted state fiscal relief and teacher jobs bill was largely financed by making cuts to the Supplemental Nutrition Assistance Program (formerly food stamps). While this stimulus was desperately needed – and the funding could one day be restored – Congress should not have looked to food stamps to create offsets, especially given that food insecurity has been severely worsened by the recession. If we can afford to fund foreign wars without finding offsets – as Congress recently did once again – we can afford to keep teachers in classrooms without cutting food stamps.

 

Lastly, budget deficits should not be curbed through regressive benefit cuts to Social Security, which the Commission may be considering. One option, particularly popular with Washington deficit hawks but not popular among mainstream Americans, is increasing the retirement age, potentially to age 70. This would disproportionately affect low- and moderate-income Americans, many of whom rely on Social Security for the bulk of their retirement income and security. Low-income workers have seen a smaller increase in life expectancy after the age of 65 when compared with higher-income earners, making an increase in the retirement age particularly regressive. 

 

The Commission has been issued an important task: the gap between spending and revenue policies must be narrowed to sustainability, but only after the economy has strengthened.

 

Commissioners should bear in mind that cutting deficits too early could derail the economic recovery, seriously worsening poverty and unemployment at a time of crisis. Our fiscal challenges should be resolved largely by progressively raising taxes – reversing the Bush tax giveaways to the rich – and curbing excess cost growth in the health care sector. Cutting food stamps and other income support programs will not fix our long-term budget outlook. Balancing the budget on the backs of the poor is both fiscally and socially wrong.

 

Rebecca Thiess and Andrew Fieldhouse are Federal Budget Policy Analysts for the Economic Policy Institute.