Talking points from congressional Republican leaders are now filled with concern about inequality, the struggling middle class, and stagnant wages, but their budget plans do not match this rhetoric.
The new talking points are at least an improvement over the old rhetoric that attempted to downplay rising inequality and portrayed many struggling Americans as lazy takers. For example, in 2012, Rep. Paul Ryan (R-WI), then chairman of the House Budget Committee, told the conservative MacIver Institute, “We risk hitting a tipping point in our society, where we have more takers than makers in society. Where we will have turned our safety net into a hammock.” The year before, Rep. Ryan released a report on economic inequality, and while he acknowledged the “painful fact that millions of Americans are materially impoverished,” he attempted to diminish and undermine this fact by arguing, “In many important respects, the difference between ultra-elites and average Americans is less pronounced today.” This claim was based on the increased affordability of consumer goods such as televisions, cell phones, and cars, but the availability of inexpensive electronics and vehicles does not make it acceptable for a working family to struggle to afford even basic housing, nutritious food, and utilities.
What a difference a few years can make. Rep. Ryan now says he “was wrong to talk about ‘makers and takers.’” And other congressional leaders are tripping over themselves to express their newfound interest in addressing stagnant wages, rising inequality, and the detrimental effects of poverty. House Speaker John Boehner (R-OH) says inequality is a problem that his caucus wants to address. Rep. Ryan spent a significant amount of time on an anti-poverty tour in 2014. Indeed, the House budget itself talks about how “wages have stagnated, median income is down.” So have these congressional leaders become the new champions for working and middle class families?
Rising income inequality and wage stagnation are the greatest economic challenges of our generation. But there is a big difference between congressional leaders’ rhetoric and the reality of their proposals and policies. In reality, little has changed. On the issues that matter to everyday American families—from combating income inequality to providing economic security for families, from boosting economic growth overall to boosting wages for workers specifically—the congressional budgets fail. Instead of offering new solutions to address these challenges, the congressional budgets resort to the same trickle-down policies that have increased inequality and hurt economic growth.
The congressional budgets increase income inequality
Congressional leaders are using a new sales pitch, but they are selling the same old thing. While these politicians are correct about the problems of rising income inequality and stagnant wages, the solution they propose—cutting taxes for the wealthiest Americans—would only exacerbate inequality and hurt working- and middle-class families. This is the same tired policy that trickle-down believers have pushed for decades as being good for the economy, but a growing body of economic research demonstrates that tax cuts for the rich do not generate economic growth. And while correlation does not prove causation, trickle-down adherents still need to explain how these tax cuts can possibly be such a powerful growth engine when low top tax rates are actually associated with periods of relatively low economic growth.
Both the Senate and House budgets propose massive spending cuts without seeking to raise even a nickel of new tax revenue. While struggling families lose the programs that offer a foothold to climb into the middle class, these budgets give a free pass to millionaires, billionaires, and big corporations. Both budgets cut taxes on wages and investment income for high-income taxpayers by repealing the tax changes in the Affordable Care Act. The House budget also repeals the Alternative Minimum Tax—a tax cut that would almost exclusively benefit taxpayers making more than $200,000 per year. The White House estimates that these tax changes would cut taxes by at least $50,000 per year for the average millionaire.
The House budget calls for lower tax rates for large corporations and individuals with business income, which would be a windfall for those at the top. Corporate taxes are mostly paid by the wealthy, with the nonpartisan Congressional Budget Office estimating that the top 1 percent of households paid 48.7 percent of corporate income taxes in 2011. If a corporate tax reform package ended enough tax breaks, it would be possible to lower the corporate tax rate and reduce deficits at the same time, but the congressional budgets do not identify even a single tax loophole to close. A special low rate for business income not taxed at the corporate level would also disproportionately benefit the wealthy. While business income only accounted for 7 percent of the total market income for all American households in 2011, the top 1 percent received 22 percent of their income from this source.
While this year’s congressional budgets do not specify how much to lower tax rates, their tax reform parameters are consistent with more specific tax cuts from earlier House budgets, which would have cost approximately $5.7 trillion over 10 years. The lack of details is troubling for low- and middle-income taxpayers, since any tax reform that cuts taxes so steeply for the rich will have to raise taxes on others to make the numbers add up. Cutting the top tax rate might not be correlated with economic growth, but it is correlated with making the rich even richer and increasing inequality.
The congressional budgets make middle-class economic security even more unaffordable
Congressional leaders have also recently expressed concern about the rising costs of living for the middle class. Rep. Ryan remarked that it is becoming “a serious problem for many Americans,” while Sen. Marco Rubio (R-FL) spoke about how the American dream is “increasingly difficult to achieve for far too many” in part because “everyday costs have risen.” Both are right about the challenges families face with rising costs. An analysis by the Center for American Progress shows that from 2000 to 2012, a median-income married couple with two kids saw their income rise by a mere $600, while the cost of the pillars of middle-class security—such as health care, child care, housing, retirement, and higher education—rose by more than $10,000.
Yet while these politicians may be saying the right things, their actions tell a different story. Rather than strengthening programs that build middle-class economic security, the congressional budgets would shift even more costs to American families.
Health care gets hit the hardest, potentially doubling the number of uninsured Americans. Both budgets repeal the Affordable Care Act, or ACA, taking away health insurance from millions of Americans. And repealing the ACA means that all Americans lose the protections provided by the law to ensure that health insurance will actually cover necessary treatments without discriminating based on gender and pre-existing conditions. The House budget also turns Medicare into a voucher program, jeopardizing the guarantee of dependable and affordable Medicare coverage for seniors. The 69 million low-income Americans who are covered by Medicaid and the Children’s Health Insurance Program suffer worst of all under the congressional budgets. In 2016, both budgets would eliminate coverage for about 12 million low-income Americans by repealing the ACA’s Medicaid expansion and then leave states to decide how to implement even more cuts.
The congressional budgets also undermine federal housing and higher education programs, which would make homeownership and college even more unaffordable for middle-class families. Both budgets push a gimmick they call fair-value accounting, which would artificially inflate the fiscal costs of mortgages and student loans. Current accounting rules already accurately measure the costs, benefits, and risks of federal credit programs, and these new rules simply add the additional cost that the free market would charge for the same loans. This is really just added-cost accounting, since the federal government is not a private company and is uniquely situated to manage these programs. If this new system is adopted, mortgages and student loans would suddenly appear to be much more expensive for the federal government, and bringing those costs down would require charging Americans higher interest rates and fees for the same loans. The House budget also freezes the maximum Pell Grant that each low-income student could receive for 10 years, making college less and less affordable at the very moment when the nation’s employers are crying out for more college graduates.
Even worse, while congressional leaders are using accounting tricks to exaggerate the costs of these middle-class programs, they are using a different accounting trick called dynamic scoring to hide the full costs of tax cuts for the rich. The House of Representatives already changed its rules to force dynamic scoring, and the Senate budget follows suit with its own dynamic scoring requirements.
Finally, stagnant wages mean that many full-time jobs pay below the poverty level, placing strain on working families. Many minimum-wage workers have to turn to programs such as the Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps, to make ends meet and feed their families. Raising the federal minimum wage to $10.10 per hour would save the federal government an estimated $4.6 billion per year on SNAP benefits. But instead of raising the minimum wage, the House budget cuts about $140 billion from SNAP benefits, which were already cut in the most recent farm bill. Again, despite their stated concern about inequality and poverty, congressional leaders are cutting a critical lifeline that keeps nearly 5 million Americans out of poverty.
The congressional budgets hurt economic growth overall and wages for workers
A key way to help boost wages for all workers is to ensure that the government makes the investments needed to ensure the nation’s economic competitiveness. Public investment in education, research, and infrastructure creates good-paying jobs. It also helps workers build the skills they need to compete for higher wages and increases long-term economic growth and competitiveness for the country as a whole.
Congressional leaders may seem to be on board with efforts to grow the economy and increase wages in their rhetoric. For example, Rep. Pete Sessions (R-TX) says he is “committed to pro-growth solutions that will help get the American people back to work.” But when we look beyond this rhetoric, we see the same stale trickle down ideas. The House budget slashes $759 billion from nondefense discretionary spending, which is the part of the budget that funds the investments that Congress should be making to grow the economy. The Senate budget cuts $236 billion from this sector.
Earlier rounds of misguided spending cuts have already done enough damage to the economy. A study by Macroeconomic Advisers found that discretionary spending cuts eliminated 1.2 million jobs between 2010 and 2013. After the government shutdown in 2013, a bipartisan two-year budget agreement finally reversed some of these cuts and enabled modest investment to help grow the economy. With the bipartisan agreement expiring on September 30, 2015, this year’s congressional budgets must determine what to do next. But instead of adjusting their policies to match their new rhetoric and economic reality, congressional leaders keep pushing more failed austerity.
Congressional leaders are right to express concern about income inequality, declining wages for the middle class, and the many issues facing low-income families. But despite their new rhetoric, the ideas in their budgets would hurt working- and middle-class families while benefiting the very wealthy few.
This year’s congressional budgets differ in one meaningful way from earlier budgets proposed under Rep. Ryan’s leadership of the House Budget Committee: They hide even more of the details, particularly in the Senate’s version. But the agenda remains the same. Politicians who are truly serious about helping families should support real policies to grow the economy, raise wages, and help families afford the pillars of middle-class security.
Harry Stein is the Director of Fiscal Policy at the Center for American Progress. Anna Chu is the Director of the Middle-Out Economics project at the Center.