Guide to the Federal Budget Process Navigating the Road Ahead Sequestration

President Obama and Congress have taken significant steps over the last few years to reduce the nation’s deficit and stabilize the nation’s debt.  To date, policymakers have reduced deficits by $2.35 trillion over the next ten years through a combination of spending cuts and raising revenues, although it has been heavily skewed towards spending cuts.  The deficit reduction debate is far from over, and the threat to children and low-income families from repeated cuts on top of state and local cuts remains high.  In the coming months, your Senators and Representatives will make critically important decisions about the federal budget that will impact our nation’s children and the long term economy health of the United States.  Please share CDF’s budget principles with family, friends and colleagues and hold your Representative and Senators accountable in these coming months. Make sure you tell them “Be Careful What You Cut”.

Children's Defense Fund: Budget Principles

The Children’s Defense Fund (CDF) supports a federal budget that protects children and low-income families from budget cuts, invests in children to promote long-term economic growth for the nation, and ensures that the most advantaged Americans and corporations pay their fair share.

Any budget deal must improve and not worsen the state of America’s children by:

1. Protecting investments in children and low-income families from cuts.
• Since the bipartisan Balanced Budget Act of 1985, the fundamental principle of protecting children and other vulnerable populations has been a cornerstone of deficit reduction in America. Every automatic budget cut mechanism of the past quarter-century has exempted core low-income assistance programs from all cuts.
• Children are the poorest age group in America, with more than 1 in 5 children—1 in 3 children in communities of color—living in poverty. Recent polling conducted by the Pew Research Center found almost 60 percent of Americans oppose cutting investments in anti-poverty programs, while a Public Opinion Strategies poll showed even larger numbers of likely voters oppose cuts to Medicaid (73 percent) or education programs (75 percent).
• Cutting children from the budget now will cost us more later. Eliminating the Earned Income Tax Credit now would increase child poverty 23 percent. Since poor children are more likely to drop out of high school, they are less likely to find steady work as adults. Paying for each year of high school dropouts costs us more than $125 billion over the course of their lifetimes. Be careful what you cut!
2. Investing in children to create jobs and promote economic growth for the nation.
• Economists agree that investing in children promotes economic growth. For example:
• Early childhood programs have an estimated inflation-adjusted annual rate of return of 10 percent or higher, and studies show that while children and their families benefit, society as a whole enjoys the majority of the economic return through the contributions that skills and productive workers make to the economy.
• Investments in education that raise high school graduation rates have been shown to yield a public benefit of $209,000 per student in higher government revenues and lower government spending, and an economic benefit to the public purse that is 2.5 times greater than the costs.
• Investments in early childhood and health coverage for children, supplemental nutrition assistance, work supports like child care and job training, and the Earned Income and Child Tax Credits help create jobs now while preparing children for the jobs of the future.
3. Ensuring the most advantaged Americans and corporations pay their fair share.
• Any action to reduce the nation’s deficit must adopt a balanced approach, relying more on revenue increases than on spending cuts.
• Allowing the Bush tax cuts for the wealthiest two percent of Americans to expire on schedule is critical to achieving a more just society while maintaining a strong safety net that all Americans can count on.
• In 2010, the lowest 60 percent of taxpayers took in about the same share of income as the highest one percent.
• Corporate tax expenditures (deductions, exemptions and credits) cost the nation about $103 billion in lower tax receipts in 2011. At the same time, American corporations reaped profits at an annual rate over 10 times this amount in late 2010 –$1.678 trillion. Clearly corporate tax loopholes could be closed without much dent in profits. Each hour about $11.8 million is lost to these loopholes – money that could instead pay for:
• Annual salaries for 420 Head Start teachers; or
• Pell Grants for 3,100 low-income students to attend college; or
• Medicaid benefits for 4,800 low-income children for a year; or
• WIC benefits for 23,600 women and children for a year; or
• SNAP benefits (food stamps) for 9,700 children and adults for a year

Download CDF's Budget Principles.

Navigating the Road Ahead

With the 113th Congress now well underway, action continues on a number of budget issues that will have important implications for low-income families with children. The voices of children must not be drowned out by louder, better funded voices. Tell your elected representatives to be careful what they cut!

Here’s a primer on some of the budget issues making news in 2013:

Sequestration—Last year, Congress and the White House struggled to come to agreement over how to try to balance the budget. Ultimately, a bipartisan deal was reached whereby Congress would try to find $1.5 trillion through cuts or tax increases over 10 years, and if they were unable to do so, automatic, across-the-board cuts known as “sequestration” would go into effect in January 2013. Designed to be unpalatable to both parties, sequestration would result in equal cuts to defense and non-defense discretionary funding, starting with nearly $110 billion in 2013—almost $55 billion in cuts to each.

In the early hours of the New Year, Congress reached a deal to avert the “fiscal cliff”, postponing the sequester until March 1 and giving Congress another opportunity to agree upon a combination of spending cuts and new revenues to replace the automatic cuts. However when Congress was again unable to reach a deal, on March 1, 2013 $85 billion in cuts began to go into effect.  Rather than reducing the debt in a rational way, these blunt cuts are now affecting critical life-altering services for many low income children and families: for instance, up to 775,000 pregnant and breastfeeding women, and infants and children could lose nutrition assistance, up to 70,000 at-risk young children could lose Head Start education, 373,000 children and adults with mental illness could lose treatment and 750,000 Americans across the country could lose their jobs.

When FAA furloughs caused 7,000 flight delays just days before members of Congress were scheduled to fly home in April, Congress acted with lightning speed to life sequestration for air traffic controllers to get them  back to work.  There have been more than a dozen pieces of stand-alone legislation introduced to address specific agencies and programs hit by sequestration. The Children’s Defense Fund believes the only responsible course is to repeal the sequester and replace it with a balanced approach by investing in early childhood development and learning, education, health, and nutrition and asking the wealthiest Americans and corporations to pay their fair share.

Learn more about what sequestration means for children and tell your members of Congress that while children don’t have high priced lobbyists to protect their interests, it benefits us all to make children a priority in their budget decisions

Funding for fiscal year 2013—In late March, the government passed a Continuing Resolution (CR) to fund the government through the end of the current fiscal year (FY 2013). This $984 billion spending bill reflected a carefully negotiated compromise between the widely divergent priorities of the House and Senate. While the CR left the across the board spending cuts (the “sequester”) largely intact, the Child Care and Development Block Grant and the nutrition assistance program for low-income pregnant women, infants and young children (WIC) received small bumps in funding, slightly lessening the impact of the cuts to those programs.

Funding for fiscal year 2014—With FY2013 funding wrapped up, Congress moved on to set tax and spending targets for the federal government for FY 2014, which starts on October 1, 2013. Both the House and Senate have passed budget resolutions, and the President has also released his budget proposal.  These budget plans provide starkly contrasting visions of the future direction of the nation and merit scrutiny.

The Senate budget resolution, authored by Senator Patty Murray (D-WA), would eliminate the sequester cuts that went into effect March 1. The Murray budget would reduce the deficit by $1.85 trillion over the next ten years through a balanced mix of $975 billion in additional spending cuts (on top of the $2.4 trillion in deficit reduction already achieved) and $975 billion in revenue increases through closing loopholes and revising the tax code.

The  House of Representatives budget resolution, authored by Rep. Paul Ryan (R-WI),  would cut the deficit by $4.6 trillion by slashing spending on services that help children, low-income families and the middle class over the next 10 years, but does not increase taxes or close loopholes. This budget would cut health care spending by $2.7 trillion over the next ten years by block granting Medicaid and repealing the Affordable Care Act. It would make an additional $1 trillion in cuts (on top of the cuts already enacted) to other mandatory programs such as food stamps and student loans, and include significant cuts to other programs, including education. The Ryan budget does not ask the wealthiest Americans or corporations to pay their fair share; instead the wealthiest Americans get a new tax cut while raising taxes on middle class families. Two thirds of the cuts in the Ryan budget come from programs serving low or moderate income Americans.

In contrast, the President’s Budget would replace the automatic across-the-board spending cuts, raise new revenues, and make a historic investment in early childhood development and education. It addresses the epidemic of gun violence in our nation by proposing important investments in gun safety, school safety and access to mental health services. It would protect Medicaid and make additional investments in education, child nutrition initiatives, and supports for low-income families that will help level the playing field for children across the country, strengthening the foundation for success all children need to survive and thrive.  The President’s budget included the deficit reduction compromise he had offered House Majority Leader Boehner during the fiscal cliff negotiations in 2012. Unfortunately, this compromise embodies an imbalance between spending cuts and new revenues, and leaves intact some of the tax breaks and loopholes for the wealthiest Americans and corporations.

Learn more about what President Obama’s Budget does for children and families with our analysis.

Now all eyes turn to Congress to see whether the House and Senate are able to come to an agreement and strike a deal among these three dramatically different proposals.

Increasing the Debt Limit—Until recently, raising the debt ceiling has been a fairly routine action, requiring authorization by both chambers of Congress. Since 1980, the debt limit has been raised 39 times, each with strong bipartisan support. However, last summer, our nation was brought to the brink of default when Republicans refused to raise the debt limit without exacting huge budget cuts that would have disproportionately harmed the poor, while Democrats insisted on a balanced approach that included new revenues in addition to cuts. In order to avoid such a crisis this year, in late January, Congress passed a bill that temporarily suspended the statutory debt limit through May 18. However, higher tax returns, the impact of the sequester cuts, and decline in health-care costs, means we’ll hit the debt ceiling later than previously expected, sometime this fall.   

A “Grand Bargain”—Some continue to hold out hope for a “grand bargain” later this year that would eliminate the sequester and potentially address other large issues such as entitlement reform and tax reform.  A “grand bargain” would likely include a permanent replacement for the sequester rather than the program-by-program approach to restoring the cuts, which favors the most visible programs with the most powerful lobbies.  We’ll be following these developments closely, so check back often!