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The American Dream Takes a Tough Hit

Debt Deal Cuts Programs that Enable Low-Income Americans to Climb Out of Poverty

SOURCE: AP/Kiichiro Sato

Further discretionary spending cuts will further squeeze funding for employment programs, housing assistance, heating and cooling assistance to low-income seniors, and child care services that allow mothers to enter the workforce. Cutting these programs will have a profound impact on low-income and minority communities.

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This summer’s protracted debate over how to raise the debt ceiling was a tough blow for struggling Americans on two fronts. First, the final deal includes cuts to services that will affect those hit hardest by the recession and slow an anemic recovery. Second, the deal distracted policymakers from the deficit that Americans are most concerned about: the jobs deficit. 

As we show below, deep cuts and sluggish job growth impact all Americans, but will have a particularly pronounced impact on low-income families and communities of color.

The deal asks those of the most modest means to pay the highest price

It’s true that the deal did allow the United States to avoid a default. Had Congress refused to raise the debt ceiling the entire country would have faced catastrophic consequences including higher interest rates and big cuts to state services. The government would have been forced to discontinue vital programs, juggling decisions about whether to pay out Social Security, military pay, or unemployment benefits. This scenario would have also been devastating for struggling Americans and for communities of color who have disproportionate rates of poverty.

But the price exacted for paying America’s bills was a high one, borne disproportionately by the middle class, low-income Americans, and communities of color.  

What the media missed

Absent from much of the media coverage during the debt ceiling debate last week was what these cuts will actually mean for real families and the long-term impact on our economy.  

These cuts will place restrictions on our annual spending bills that could impact programs ranging from cancer research to national parks. Also at risk are investments to programs that help families get a foothold on the middle class, such as education and training dollars.

The shrinking of the discretionary spending pot will further squeeze funding for employment programs, housing assistance, heating and cooling assistance to low-income seniors, and child care services that allow mothers to enter the workforce. Cutting these programs will have a profound impact on low-income and minority communities.

The deal does nothing about unemployment

The debt ceiling debate also distracted our elected officials from the real crisis: 25 million Americans in need of a full-time job.

What’s more, with unemployment still above 9 percent, and nearly twice that rate for African-Americans, the deal lacked any provision to continue federal jobless benefits for the unemployed who were laid off after July 1. Continuing unemployment benefits is important to help those hit hardest in the recession and to boost demand in the economy as the jobless spend their checks in local stores and keep small businesses humming.

According to the Economic Policy Institute, the combined effect of the deal’s spending cuts and allowing unemployment benefits and the payroll tax holiday to expire would cost the United State economy 1.8 million jobs through 2012 alone.  It will also likely exacerbate poverty as unemployment benefits kept 3.3 million people out of poverty in 2009. Congress must reauthorize federal unemployment benefits before the end of the year as well as pursue a jobs agenda that puts Americans back to work.

What the next round of cuts could mean for those in need

The deal also created a bipartisan “super committee” responsible for coming up with an additional $1.2 trillion to $1.5 trillion in cuts in the next 10 years. For this second round of deficit reduction everything will be on the table from raising taxes to cutting Social Security and Medicaid. Thus far, however, Republicans have flat out refused to raise any revenue even by closing tax loopholes for oil companies and hedge fund managers. In fact, House Speaker John Boehner (R-OH) has already said that he will not appoint any Republicans to the super committee who would vote for any increase of revenue.

Achieving this level of deficit reduction without any revenue would force steep cuts in programs such as Medicaid, Social Security, and food stamps to reach the $1.5 trillion. All Americans would feel these cuts, but they would disproportionately affect communities of color, who comprise 56 percent of the Medicaid population.

Alternatively, if Congress is unsuccessful in reaching an agreement, beginning in January 2013 there will be automatic across-the-board cuts to key programs to achieve $1.2 trillion of deficit reduction split equally between defense and domestic cuts. There is still cause for concern here even though most low-income programs are exempt from these across-the-board cuts. They would take a big bite out of core government functions such as transportation, job training, affordable housing, and the WIC nutrition assistance program for vulnerable pregnant women, new moms, and babies. These types of cuts would also disproportionately hurt communities of color. For instance, 2008 data show that 44 percent and 23 percent of public housing recipients are African American and Hispanic, respectively, and more than 40 percent of WIC recipients are Latino

Revenues must be on the table in any agreement to further reduce the deficit as well as a focus on measures to spur economic growth and job creation.

We need to bring more people into the economy—not force them out

Millions will feel pain from these cuts in the short term as they slow an already sluggish recovery and ask those who have the least to sacrifice the most. But there is also a long-term impact.

In the short term, these unbalanced policies limit the incomes lower- and middle-class families have to spend on goods and services, which will slow demand and place our fragile economy at further risk. And the Great Recession proves that when the economy stumbles, minorities are most severely impacted with higher rates and longer periods of unemployment. 

In the long term, the centralization of wealth and income in a few families restricts the struggling middle class from investing in the education of their children and taking risks to start new businesses—the engines of long-term growth and prosperity.

The debt ceiling deal will further exacerbate the income and wealth disparities that grew over the past few decades. The cuts place none of the financial burden on wealthy hedge fund managers but ask struggling families who have lost a job or have an underwater mortgage to shoulder the financial burdens of our nation. The result is that we will see an expansion in the already wide wealth gap, wherein African American families hold roughly 2 percent of the wealth of white families.

While the nation averted financial crisis, the price exacted for paying America’s bills was high for the nation overall and for the millions of struggling Americans and people of color who will be pushed further out of the economic mainstream because of the unbalanced approach pushed through Congress.

Everyone agrees that we have to reduce our deficits. But this deal has thus far asked the middle class and low-income Americans to make all the sacrifices. If we are to preserve the American Dream we must pursue a more balanced approach to reducing our deficit and invest in job creation. America’s future depends on engaging communities that have been left out of the economy—not pushing more out.

Melissa Boteach is the Half in Ten Manager and Desmond Brown is a Consultant for Half in Ten at American Progress.

To speak with our experts on this topic, please contact:

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