GOP Budget Plans Would Put Burden on the Poor : Congress: Republicans agree the needy will be the hardest hit. But they say spiraling costs must be brought under control.

WASHINGTON — America’s poor and nearly poor would bear much of the burden of the spending cuts and program modifications contained in the massive budget bills that cleared the House and Senate last week.

Half of the program reductions included in the budget packages would fall on the poorest fifth of American families, according to projections by the Democratic staff of Congress’ Joint Economic Committee. Another 25% of the changes would be felt by the next poorest fifth of the population.

At the same time, the richest 5% of the population would benefit from tax breaks that, on average, are almost as large as the reductions in income and health benefits facing families with children, according to a separate analysis by the Office of Management and Budget.

During last week’s heated floor debate in the House and Senate, there was remarkably little disagreement over the question of whether the Republican budget cuts are concentrated on those Americans at the bottom of the income scale. The immediate impact on the poor, both sides agree, is substantial.

But advocates and foes of the GOP fiscal plans differed sharply over whether the reductions would make life intolerable for low-income Americans, and whether they eventually might gain more than they would lose if a balanced budget leads to greater national prosperity.

“The truth is that a balanced budget means a brighter future for our children and grandchildren,” Senate Majority Leader Bob Dole (R-Kan.) said Friday in defense of the GOP budgets.

The immediate result, however, is likely to be an increase in the average rate of poverty nationwide and harder times for many families and individuals, Clinton Administration officials and independent budget analysts contend.

The final scope and shape of the cuts remain subject to change because President Clinton has vowed to veto the final budget package if it resembles the House blueprint or even the slightly more moderate Senate version. The Administration argues that balancing the budget is a worthy goal, but criticizes the GOP budgets for directing many of their cuts at the neediest Americans.

“The burdens are being imposed on working Americans, working poor and the poor,” said Labor Secretary Robert B. Reich. “Those earning between $20,000 and $50,000 are being hurt, as well as the poor. The only people who will benefit are those earning well into six digits.”

Reductions in the scope of Medicare, Medicaid, welfare and other assistance programs come at a time when economic forces have already driven down the value of low-wage jobs available to this segment of the population.

“This exacerbates a pattern in the country over the past 15 years,” Reich said. “The middle class and the poor share a smaller and smaller slice of the country’s wealth. Republican leaders are surely exacerbating this problem.”

During three days of debate in the House and Senate last week, Democrats emphasized the potential impact of the GOP budget blueprints on the poor.

“It is a transparent scheme to take from the needy and give to the greedy,” said Sen. Edward M. Kennedy (D-Mass.).

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Republicans, for their part, argued just as intensely that the cost of providing federal benefits to these Americans has risen to unsustainable levels and must be brought under control.

“Do we want to pay our debts, or do we want our children and grandchildren to pay for the government we want to give to people but can’t afford?” asked Senate Budget Committee Chairman Pete V. Domenici (R-N.M.).

For congressional Republicans, this argument has all but replaced Ronald Reagan-era economic rhetoric about rising tides lifting all boats.

“For 40 years the federal government has been preoccupied in doing things for people who are riding in the wagon. Our new Republican majority is determined to do something for people who are pulling the wagon for a change,” said Sen. Phil Gramm (R-Tex.), a GOP presidential contender.

For better or worse, the budget changes represent a major shift in the relationship between federal government and the poor.

Budget analysts say the prospective impact on low-income Americans would be much greater--both in dollar and percentage terms--than cuts approved during the Reagan Administration.

If the GOP budgets go into effect as written, annual spending on means-tested programs would be $75 billion less by 2002 than under current law. That would amount to a reduction of about 22%.

The Reagan Administration cuts, in contrast, reduced spending on such programs by $11 billion (adjusted for inflation) in 1985, the year of their greatest impact, a decline of about 10%, according to an analysis by the Center on Budget and Policy Priorities, a Washington-based liberal research institute.

“We’re talking about very substantial and steadily deepening weakening of assistance to all types of poor people. Among those hit hardest are the working poor and the elderly and disabled poor,” said Robert Greenstein, the center’s executive director.

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The GOP budget packages mandate significant reductions in the rate of future spending, compared to what would be spent under current law, for several big-ticket entitlement programs: Medicare, the health insurance program for the elderly; Medicaid, which provides health benefits and nursing home care to the poor and disabled; Aid to Families with Dependent Children, the primary cash-assistance program for the poor; Supplemental Security Income; food stamps; child nutrition; student loans; veterans benefits, and Civil Service retirement.

At the same time, the plans would curtail the earned-income tax credit, designed to encourage the poor to work by providing refundable tax credits that sometimes exceed the taxes owed. That amounts to a tax increase for an estimated 18.4 million working taxpayers and their families, the Treasury Department says.

Although Medicare provides health coverage to elderly Americans of all income groups, proposed cuts in the rate of future spending would hit hard at the poorest seniors. Currently, Medicaid covers the cost of Medicare premiums for low-income retirees. The guaranteed premium subsidy would disappear under the Republican budgets, and monthly premiums would increase from the current $46.10 to about $90 in 2002.

Besides the big changes in entitlement programs, Congress has voted to significantly reduce spending on discretionary programs that help low-income Americans: housing subsidies, energy assistance, education and job training, to name a few.

“What’s not well understood is that each group of the poor would be hit hard in a number of different ways at the same time,” Greenstein said.

An elderly American, for instance, could face a rent increase, a reduction of health-care benefits, a smaller allotment of food stamps and the elimination of a federal subsidy that helps pay utility bills--all at the same time.

In addition to restricting the growth of spending, the budget packages would bring about far-reaching, fundamental change in the basic ground rules of Medicaid and AFDC. Currently, both programs require states to provide guaranteed benefits to every eligible family or individual.

The GOP plans would change them into state-run programs funded by lump-sum federal block grants. States would have broad authority to determine eligibility, and the guarantee of benefits would be canceled.

The precise impact of these changes is not clear because states have not yet developed their new systems.

“It’s harder to determine for the welfare and the Medicaid changes just how painful they are going to be for low-income families,” said Gary Burtless, an economist at the Brookings Institution, a Washington think tank. “A lot depends on how states respond to their new authority.”

One thing is clear: Existing differences in cash welfare and low-income health care among states will become more extreme.

“My guess is that there are several states that will respond in quite a mean-spirited way,” Burtless said. “The reason is not entirely or even mainly that state legislatures and governors are mean-spirited people. It is that the incentives of the new federalism really encourages it,” he said.

While Republican governors appear to have signed off on the GOP bargain, Democrats such as Colorado Gov. Roy Romer are worried about the long-term impact.

By 2002, Colorado would receive 31% less federal money than it would under current law to pay for health insurance for poor children and their mothers, the disabled and for long-term nursing home care for the elderly and disabled.

Since the nursing home lobby is politically powerful in his state and across the nation, Romer said he believes that many states will be forced to concentrate the cuts in health care benefits to children and the disabled. If that’s not enough, he said, they may turn next to education funds.

“It will seriously erode the state’s ability to educate children,” Romer told reporters last week.

Perhaps the biggest change for Medicaid and AFDC is that funding will no longer increase automatically along with need. If a state faces a deep recession and applications for welfare and Medicaid soar, it may not have adequate funds to meet the demand.

“The big unknown is the economy,” said LaDonna Pavetti, a welfare specialist at the Urban Institute, a liberal research center in Washington. “If the economy continues at the current level, the beginning part will be smoother. If the economy goes into a downturn, everybody is going to be in trouble.”

* CLINTON SAYS ‘BACK OFF’: President Clinton says he will not accept GOP budget. A22