EXPLAINING THE FEDERAL BUDGET
What Does It Mean for California and
Children and Youth with Special Health Care Needs?
Center on Budget and Policy Priorities
March 2, 2010
Impact of Federal Budget and Tax Policy
• The Federal budget is the blueprint for our national
priorities. It has a direct impact on income equality
throughout the nation and sets the “rules of the game”
for key federal policy decisions.
• Federal budget and tax policies also significantly and
directly affect states like California.
• Nationwide, more than one-quarter of state general
revenues come from the federal government. More in
• Much of it is provided through Medicaid.
Critical State Programs Depend on Federal
• Federal funding levels determine whether vital state
programs, like those serving children and youth with
special health care needs, will be adequately funded
over the long-term.
Medi-Cal, Healthy Families, and other health programs
Food stamps and child nutrition
Social services and supports
Where Do Federal Tax Dollars Go?
Source: Congressional Budget Office, 2008.
Note: Percentages may not total 100 due to rounding.
States Depend on Federal Funding
State General Revenue
Source: CBPP calculations based on Census data
I. The Federal Fiscal Outlook
• Federal fiscal outlook over near- and long-term is bleak.
• Key factors have been past policies: enactment of tax cuts
skewed towards the wealthy and failure to address rising
health care costs.
• Contributions of last year’s economic recovery legislation
• Restoring budget balance over the long-run is essential to
preserve and strengthen existing federal programs serving lowincome and other vulnerable populations including children
and youth with special health care needs.
Key Contributions to Deficits Over Next 10
Long-Term Budget Projections
Rapidly Expanding Federal Debt Levels
Effects of Recovery Legislation on the LongTerm Fiscal Outlook
Long-Term Deficits Damage the Economy
• Deficits reduce national savings (we spend
more than we bring in).
• Depress investment and productivity gains.
• Weaken the economy and drag down growth.
• Likely harm to many low- and moderateincome individuals and families in a slow or
II. Rising Income Inequality
Long-Term Growth in Income for Top 1%
Effects of the Bush Tax Cuts Skewed to
Percent Increase in After-Tax Income From 2001 &
2003 Tax Cuts When Tax Cuts Are Fully in Effect
Source: Tax Policy Center
III. This Year’s Federal Budget (FFY 2011)
• Context: growing public and media concern about
budget deficits. Intense criticism from conservatives.
Slow economic recovery and continued
• Pressures to deal with budget deficits over short- and
• Need to further support economic recovery and shore
up programs serving families hit by recession.
• Begin addressing long-term deficit problems. Finally
enacting comprehensive health reform is critical.
Primer on the Federal Budget Process
The President sends his budget request to Congress
by the first week in February. Congress considers the
President’s proposal and then begins crafting its own
Congress finalizes its budget resolution, which is like a
blueprint for the year.
Congress begins consideration of individual
appropriations, entitlement, and tax bills.
Congress finalizes appropriations and other bills, as
the President begins formulating his budget request for
the following year.
A. Supporting Economic Recovery
Tracking Job Losses
State Budget Deficits Continue and Resulting
Budget Decisions Could Cost 900,000 Jobs
Obama Budget Includes More Economic
Focus on short-term recovery and job creation.
1. Temporarily extend:
• Making Work Pay tax credit extension
• Unemployment Insurance and COBRA benefits
• Fiscal relief for the states (FMAP) to avert
Medicaid and other budget cuts.
• TANF Emergency Fund
2. $100 billion for other jobs initiatives.
Prospects for “Jobs” Bill
• Extended unemployment benefits and COBRA
assistance are expiring.
• Republican opposition to fiscal relief.
• Tax cuts of varying value being added that dilute jobs
bill and divert resources away from effective “bang
for the buck” stimulus.
• House has already passed jobs bill.
• Difficulty to get 60 Senate votes to break filibuster.
• Latest developments.
B. Addressing Long-Term Deficits
Steps to improve fiscal balance.
• Comprehensive health reform.
• Letting high-income tax cuts expire.
• Increase government efficiency and accountability.
• Discretionary freeze.
• Deficit reduction commission.
1. Prospects for Health Reform
• Covers at least 31 million uninsured, reduces
deficits by $132 billion over 10 years and
thereafter, and takes steps to slow rate of
growth in health care costs.
• Effect of the Massachusetts election.
• Senate bill + “reconciliation” bill.
• Key issues that needs to be addressed to ensure
House passage include affordability, Medicaid
What Will Health Reform Mean for States Like
• Large gains in coverage in state with large numbers of
• Ending insurer discrimination against people who are sick or
have special health care needs. Eliminating annual and
lifetime limits. Set minimum benefit standards.
• New state responsibilities for implementation depending on
structure of bill which will be critical to success of health
• Enrollment and outreach for those eligible for Medicaid
expansion and new subsidies are critical.
2. Administration Proposal on the Expiring
Bush Tax Cuts
• Cuts to the top two marginal income tax rates
would expire for families with incomes above
A portion of the current 33% bracket would be absorbed into the 28% bracket
Increase in Revenues if Tax Cuts for Highest
Who Is Subject to the Estate Tax?
3. Discretionary Funding Levels
• Non-security discretionary freeze
• Consistent with the need to fund crucial
investments and to ensure that the economic
recovery is sustained.
• Allows for increase investment in high-priority
• Part of a budget that sets priorities and takes steps
to bring deficits under control.
Reallocating Discretionary Spending Across
• Domestic spending freeze allows high-priority investment
• Increased funding for high-priority discretionary areas.
• Education, including Head Start, child care
• Clean energy
• Research and development
• Reduced funding for lower-priority programs.
• NASA’s program to return astronauts to the moon
• Redundant projects of the Army Corp of Engineers
Deficit Reduction Commission
• Bipartisan commission set up by executive order.
• Deficit reduction commission must, however, take
• More deficit reduction will eventually be needed.
• Commission’s role will be to propose and build
bipartisan support for steps to reduce the deficit.
• Balanced approach: both revenues and spending
must be on the table.
• No overall entitlement problem (i.e. don’t just cut
Medicare, Medicaid and Social Security).
Investment in Families
• Reforms to promote work, productivity, and savings.
• Strengthens tax credits and programs to help low- and
middle-income families with child care costs.
• Strengthens the EITC, and continues other refundable tax
credits that help low-income working families.
• Strengthens financial assistance so more students can afford
• Helps low- and middle-income families save for retirement.
Deficit Projections under the Obama Budget
Deficits as Percentage of Economy under
IV. Alternative Approaches
• Example is the Ryan “Roadmap”.
– Huge tax cuts for high-income.
– Undermines employer-sponsored health insurance without
– Ending Medicare for everyone now under age 55 who is
not yet eligible.
– Eliminate Medicaid and CHIP except for long-term care for
seniors and people with disabilities. But long-term care
funding would be capped.
– Privatize Social Security.
– Substantially worsens fiscal outlook.