The Deficit Reduction Act of 2005 was the major legislation affecting domestic entitlement programs considered by Congress in 2005. The bill cut spending by $38.8 billion over five years, with much of the cutbacks coming from Medicare and Medicaid cuts and the college loan program. The bill increased the interest rates on PLUS loans, taken out by parents to support their children’s college education. It also squeezed billions of dollars out the student loan program by mandating that college lenders who profit from lending at higher rates give excess profits back to the government rather than keeping them or passing the savings on to student borrowers. The bill obtained $16 billion over ten years in savings from Medicaid by increasing co-pays and premiums for health care for low-income people while allowing states to offer scaled-back Medicaid programs with fewer benefits. The bill also cut $2.6 billion from programs including child support enforcement, foster care, and support for the elderly and disabled. The bill included new work requirements for welfare recipients and provided $2.1 billion in health care assistance to survivors of Hurricane Katrina. Finally, S 1932 contained provisions reducing agricultural subsidies, increasing the amount employer pension plans must pay to the Pension Benefit Guarantee Corporation, and generating income for the government by auctioning off the television broadcast spectrum.
The Middle-Class Position:
The Middle Class Opposes. Hurricane Katrina’s devastating aftermath starkly revealed the deep inequalities and entrenched poverty that still afflict our nation. In the wake of the disaster, many hoped that Congress would renew its focus on the hurdles faced by low-income Americans struggling to attain a measure of middle-class security. In the midst of a prolonged budget fight that continued well into 2006, Congress instead approved this legislation, providing inadequate funding to Katrina survivors and imposing arduous new work requirements on welfare recipients while cutting back on programs like Medicaid, foster care and child support that ensure the nation’s poorest and most vulnerable children get a fair and healthy start in life. At the same time, the budget squeezes new government recepits from financially-strapped parents and college students paying student loans, increasing financial hardship for those striving to get the education that can enable them to enter the middle class. While reducing deficits was the pretext for this budgetary attack on the aspiring middle class, the bill’s supporters conveniently ignored the fact that these deficits originated in Congress’ own frequent rounds of tax cuts for the wealthiest Americans, more of which were set to be approved in 2006. Slashing services for the poor to finance tax cuts for the rich is a recipe for shrinking the American middle class.
From the Experts:
“The Congress has now passed a budget that is based on the assumption that the poor are expendable. Each senator and each representative who voted for this budget will no doubt rationalize it as fiscally responsible. But history will record that at a time of great need, when the citizens of this nation were struggling with the ill effects of war and natural disaster, this government turned its back on the poor.” - Rev. Dr. Bob Edgar, General Secretary, The National Council of Churches (December 21, 2005)
“[S.1932] pays for deficit reduction by sending the bill directly to America’s college students and their parents…This is the biggest cut in the history of the federal student loan program… At a time when the nation’s future economic prospects are tied more closely than ever before to a college-educated and highly-skilled workforce, it is shortsighted to ask college students and their families to bear so much of the burden.” -David Ward, President, The American Council on Education, writing on behalf of the Association of American Universities and eleven other higher education associations (December 19, 2005)
Beyond this Bill:
While deficit reduction is a laudable goal, it shouldn’t be done at the expense of the nation’s most vulnerable citizens. A 2007 budget to strengthen and expand the American middle-class would have to reverse and compensate for many of the 2006 cuts to programs serving low-income families. At the same time, the continuation of irresponsible tax cuts aimed at profitable corporations and the wealthiest Americans are not acceptable during a time of deficits and increased need.
Estimated amount of child support that will go uncollected over five years due to this bill’s cuts to enforcement budgets, according to the Congressional Budget Office (CBO): $2.9 billion
Amount of additional childcare funding the CBO estimates states would need over five years to provide programs enabling welfare recipients to meet the new work requirements in this bill: $8.4 billion
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