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Timeline: Cutting Poverty and the Federal Deficit Is Possible

Congress Came Together to Do Both in the ‘80s and ‘90s

SOURCE: AP/J. Mark Kegans

Angelica Segovia, 7, left, and her brother, Santiago Fernandez, 5, eat lunch with their mother, Juanita Fernandez, right, at King Elementary School in Des Moines, Iowa. The school offers free lunches to neighborhood children as part of the federal government's free and reduced-price lunch program for low-income children.

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See also: Making the Right Choice for Fiscal Stability by Donna Cooper

Our nation unequivocally boasts the resources to dramatically cut poverty while simultaneously cutting the federal government’s long-term deficit. Unfortunately, too many of our political leaders put these two goals at odds, arguing that the way to stabilize our fiscal outlook is to hand the bill to middle- and low-income Americans. The House Republican leadership, for example, pushed through the chamber a budget in April that seeks nearly two-thirds of its cuts from programs helping low-income Americans, gutting health care, education, nutritional assistance, and investments that help struggling families make it into the middle class.

But this argument that poverty reduction and deficit reduction are mutually exclusive shows a lack of imagination. The Center for American Progress has outlined investments to restore broadly shared economic prosperity, balanced with tax reform that raises needed revenue and strategic cuts that could set us on a course to put our fiscal house in order over the next several decades.

Indeed, this myth that we can’t afford to cut poverty reveals not only a lack of imagination but also a lack of historical perspective. In the 1980s and 1990s, nearly every major bipartisan deficit reduction package simultaneously protected and invested in programs that help struggling families access greater economic opportunity. (see timeline)

Here are the details of these past bipartisan agreements that have cut both poverty and the deficit.

Consolidated Omnibus Budget Reconciliation Act of 1985

Most Americans probably don’t know that the COBRA program that allows workers to continue purchasing unsubsidized health insurance through their former employer came out of a deficit-reduction package. This package also expanded Medicaid coverage for young children and pregnant women, all while reducing the deficit by approximately $24.9 billion.

Omnibus Reconciliation Act of 1987

This bill increased Medicaid coverage significantly, particularly for pregnant women and low-income children. What’s more, the bill cut the deficit by $39.6 billion between 1988 and 1989.

Omnibus Budget Reconciliation Act of 1990

The Omnibus Budget Reconciliation Act of 1990 ensured that budget cuts would not affect the implementation of important reforms to the earned income tax credit, a program first created in 1975 and expanded under President Ronald Reagan, which provides a tax credit to help low-wage working families. This package also provided supplemental tax credits for families with young children and included funds for parents to buy their children health insurance if they were uninsured, all while cutting the deficit by $482 billion.

All in all, these reforms of the earned income tax credit moved more than half a million families into the workforce and out of welfare assistance programs in the 1990s. This was accomplished as part of a deal that established “pay as you go” rules to ensure Congress paid for new tax cuts or spending increases with revenue increases or spending cuts elsewhere.

Omnibus Budget Reconciliation Act of 1993

In 1993 the earned income tax credit was expanded even further, especially for families with more than one child, and the full effects of this expansion were in place by the end of 1996. According to research conducted by the Center on Budget and Policy Priorities, more than 19 million low- and middle-income families benefited from the tax credit in 1996 alone. Columbia University’s National Center for Children in Poverty found significant effects for young children, whose poverty rate dropped by nearly a quarter. In fact, 4.6 million low-income people of all ages would have been living beneath the poverty line in 1996 without the reforms provided for in the 1993 budget bill.

The legislation also included the Mickey Leland Childhood Hunger Relief Act, considered by some to be the most significant antihunger legislation since 1977. This provision increased funding for nutrition assistance and helped increase access to food for families with children who are at risk of becoming homeless. All this was accomplished as part of a package that reduced the deficit by $433 billion over five years.

Balanced Budget Act of 1997

The Children’s Health Insurance Program was enacted through the Balanced Budget Act of 1997, which devoted new federal funds to help uninsured children access coverage. According to a study by the National Institutes of Health, after the enactment of the Balanced Budget Act of 1997 and the implementation of the new Children’s Health Insurance Program, there was a significant increase in public coverage (between 14 and 20 percentage points) without causing a decrease in employer coverage.

In fact, as many as 4 million low-income children in working families were able to access health care. The Balanced Budget Act of 1997 also restored nutrition aid to certain single, childless adults and devoted $3 billion for original welfare-to-work initiatives.

Conclusion

As we consider plans to reduce our long-term federal deficit, it is important to have an honest conversation about the art of the possible. In the past our leaders have come together to enact bipartisan deficit-reduction agreements that protected and invested in cutting poverty and creating economic opportunity.

Arguing that we must leave people on the economic margins in order to reduce our deficit is  a flawed philosophy. Slashing investments that grow our middle class slams the brakes on our economy, reduces our tax base, and undermines economic growth—all trends that seriously harm our long-term fiscal outlook.

We know that we can dramatically reduce poverty while cutting our long-term deficits if we make the right choices. And if past is prologue, we can rise to the occasion again.

Sophie Feldman was an intern with the Poverty to Prosperity program at the Center for American Progress and Melissa Boteach is Director of the program.

See also:

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

Print: Katie Peters (economy, education, poverty, Half in Ten Education Fund, women's issues)
202.741.6285 or kpeters@americanprogress.org

Print: Tom Caiazza (foreign policy, health care, LGBT issues, gun-violence prevention, the National Security Agency)
202.481.7141 or tcaiazza@americanprogress.org

Print: Chelsea Kiene (energy and environment, Legal Progress, higher education)
202.478.5328 or ckiene@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Rachel Rosen
202.483.2675 or rrosen@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org