The $1 Billion GiveBack
One billion dollars. That’s how much federal support the seven counties of Southeastern Pennsylvania will lose if Senator John McCaine’s proposal to reduce discretionary domestic federal spending by 20% is implemented by the next administration.
As reported in the Wall Street Journal on April 16th, the McCain Plan is as follows:
“The bottom line: he wants to cut some $160 billion in discretionary spending out of a budget that totals a bit over $800 billion, said his chief economic adviser, Doug Holtz-Eakin. Only a tiny portion of that is earmarks. If McCain gets his way, the government would eliminate 20% of all discretionary spending. Discretionary spending includes everything but entitlements like Social Security and Medicare, which are automatically funded each year and not part of this calculation.
It’s a huge bite that would affect a wide range of programs, none of which the campaign has detailed. But Holtz-Eakin said that McCain has made no secret of the fact that he thinks the federal government has grown too large.”
The Institute for the Study of Civic Values has completed an extensive analysis of how a 20% cut in discretionary spending could affect the seven major counties in Southeastern Pennsylvania-Philadelphia, Montgomery County, Buck County, Delaware County, Chester County, Berks County and Lehigh County.
The source of the data for the report is the US Census Bureau’s Consolidated Federal Funds Report, which shows the amount of federal money every state and county has received for each year between 1993 and 2006. This federal database is an invaluable resource in helping us understand how our tax dollars are used in the communities where we live.
Our analysis shows that in 2006–the year of the most recent report-- the seven counties of Southeastern Pennsylvania received $5.3 billion to support education, transportation, housing, law enforcement, economic development, and health and human services for people in need. Since there were few changes in the FY2007 federal budget, it is reasonable to assume that $5.3 billion in discretionary pending is what Southeastern Pennsylvania receives at this time.
If this $5.3 billion is cut by 20%, we will lose at least $1 billion throughout the region. Philadelphia will be the hardest hit–with a loss of $656 million. Montgomery and Chester County will each face losses of more than $100 million. Delaware County will lose $71 million and Berks and Lehigh County will lose $85 million of the $427 million they presently receive.
Spending Cuts Protect Tax Breaks
Senator McCain argues that by reducing domestic spending by 20% we can keep in place the tax cuts adopted in the Bush administration that are scheduled to end in 2010 without adding significantly to the federal deficit.
Who will be the major beneficiaries? People earning more than $225,000.
Here are the tax cuts that people in this income level will receive.
Top 95-99 Percent $226,918 $7,871
Top 1 Percent $619,651 $31,628
Top .1 Percent $2,871,682 $269,364
These statistics did not come from the Obama. They are set forth in a detailed analysis of both candidates’ tax plans provided by the Brookings-Urban Tax Policy Center based in Washington, D.C.
The 2000 Census shows that there are roughly 47,000 households in Southeastern Pennsylvania earning more than $200,000 per year out of 1.1 million households living in the region. That’s 4.2% of our population.
Senator McCain is arguing that the investments in the market economy made by that these 47,000 households and their counterparts nationally will produce enough growth to offset the cuts in federal spending that he wants to make and other regions. This, again, is a critical question that the voters must answer for themselves between now and November 8th.
How Will McCain’s Spending Cuts Affect SE Pennsylvania?
How specifically might Southeastern Pennsylvania be affected by the spending cuts that Senator McCain recommends? The Consolidated Federal Funds Report enables us to examine the possible impact on every county in the region.
Here a few examples.
Infrastructure. Governor Rendell and the National Governor’s Association have launched a campaign to increase significantly federal investment in rebuilding the nation’s infrastructure, now estimated to cost $1.6 trillion over the next five years. Southeastern Pennsylvania received roughly $810 million in federal support in 2006 for improving transportation throughout the region. A 20% cut in discretionary spending would cost us $162 million in this area, at the precise moment when Governors and Mayors in both parties have come together to demand more.
Housing. Under strong pressure from President Bush, Congress has reduced federal spending in housing in ways that have cost Southeastern Pennsylvania more than $88 million since the year 2000–from $833 million to $744 million in 2006. An additional 20% cut from the 2006 level would cost the region $150 million. Under this plan, Southeastern Pennsylvania will receive $233 million less than we received in the year 2000.
S-CHIP. A bi-partisan coalition in Congress this year fought hard to increase the State Children’s Insurance Fund in–SCHIP. They failed. The seven counties of Southeastern Pennsylvania received $57 million to support this program. A 20% cut would reduce SCHIP from $57 million to $45 million–$12 million less than we presently receive.
Pell Grants. Pell Grants remain a major resource available to provide scholarships for low and moderate income students who need financial help in going to college. The Federal Funds Consolidated Report shows that federal spending on Pell Grants rose in Pennsylvania by 34% between 2000 and 2006–from $180 million to $517 million. In Senator McCain’s home state of Arizona, Pell Grants rose from $103 million in 2000 to $188 million in 2006–an increase of more than 400%. A 20% cut in this program would reduce the amount available for Pell Grants by $36 million. Fewer and fewer people will be able to afford college.
LIHEAP. At a time when fuel prices are skyrocketing, is it appropriate to cut the LIHEAP program which helps low income families pay their energy bills by $13 million? In 2006, the region received $64 million from Washington to provide fuel assistance to low income households. Even that was far short of demand. A 20% cut in this program–costing nearly $13 million–would literally leave more people out in the cold.
These are just a sample of the possible consequences to Southeastern Pennsylvania of implementing a 20% reduction in discretionary spending over the next three years. Additional cuts in maternal infant care, day care and Head Start, Title 1 Aid to Schools and school lunches, job training, business development, and a wide range of health and social services will all have to be made in order to achieve the 20% reduction in domestic spending that Senator John McCain believes is essential to our economic recovery.
Senator Barack Obama’s Response
Senator Barack Obama proposes almost the opposite of what Senator McCain would do to stimulate the economy and strengthen communities over the next four years.
In relation to taxes, the Brookings-Urban Institute Tax Policy Center notes that, “Senator Obama’s proposal would make the tax system even more progressive than it was before the 2001-06 tax cuts.
Lower and moderate income households would receive the largest tax breaks as a percentage of income. Upper-income households would receive huge tax increases. In contrast, Senator McCain’s proposal would make the tax system even more regressive than the system created by the 2001-06 cuts. Households in the top 1 percent of the income distribution would receive average increases in after-tax income of more than 8%, in addition to their large benefits under the tax legislation already passed in this decade. Households in the middle...would receive an additional 1.4 percent in after-tax income, on average. Those at the bottom would receive tax cuts averaging just.06 percent of income.”
The debate over taxes between Senators Obama and McCain is being fought at every level-- position papers, town hall meetings, and political ads.
What has not been extensively debated are the differences between Senator Obama and Senator McCain over the specific proposals that Senator Obama has made that will increase federal spending. The differences between the two candidates around National Health Insurance have been widely discussed. When it comes to federal spending, that’s about as far as it goes.
Here a number of the specific proposals that Senator Obama has made:
*$15 billion invested over a ten year period to capitalize new forms of energy
*$60 million in federal support for an affordable housing trust fund.
*A national bank to invest $60 billion over 5 years in infrastructure
*Increased Community Development Block Grant-$5 to $6 billion
*$4.9 billion for Child Support Enforcement
*$10 billion invested in early childhood learning programs.
*A $7.08 billion increase in the Pell Grant Program
*Restoration of the COPS Program to $1.2 billion–its 1998 level.
These are relatively modest proposals, adding roughly $50 billion to the domestic discretionary budget–equivalent to what we are now spending every five months in Iraq.
How, then, might Southeastern Pennsylvania benefit economically from these programs? The short answer is that if we received only 1% of the $50 billion needed to support them–roughly equivalent to the percentage of domestic that we receive now–this would bring an additional $500 million to the entire region. Under McCain’s plan, communities and middle-class families lose $1 billion, but wealthy households will hold onto their tax cuts. Under Obama, communities in Southeastern Pennsylvania receive an increase of $500 million, but wealthy households in the region will lose their tax cuts. The difference nationally has been clear. This is how it affects us where we live.
To Promote the General Welfare
The United States Constitution says that “to promote the general welfare” is a primary mission of the federal government. James Madison–the Father of the Constitution–makes it clear in the Federalist Papers that how we fulfill this mission must be shaped by each succeeding generation to meet the needs of the country .
Conservatives tell us that all federal spending is wasteful–we should spend our own money, not let the government in Washington spend it for us.
Yet a significant portion of the $350 billion described as ‘discretionary’ spending in Washington comes back to our communities It supports housing, highways, schools, and assistance to people in need.
So the question that voters in Southeastern Pennsylvania must answer is this:
Will the country be best served by reducing federal support for communities and families by $1 billion, so that the tax cuts benefitting wealthy households enacted during the Bush administration can be extended into the future, on the assumption that these contribute to economic growth?
Or will the country benefit more by ending tax breaks for people earning more than $250,000 per year and using the new revenues to support energy, affordable housing, education, and services for families in need?
That is our billion dollar question.
For the complete report go to The Billion Dollar Question
