Republican Tax Cuts Will Lead to Benefit Cuts to Critical Programs, Just as they have in the Past

In 1981, President Reagan signed into law a regressive, deficit-financed tax cut. The resulting deficits, furthered by defense increases and a very deep recession, led to dramatic spending cuts that only partially offset the rising deficits. And then, under President Clinton, a Republican-controlled Congress further addressed the deficits created by Reagan’s tax cuts by cutting spending.

In 2001 and again in 2003, President George W. Bush signed into law regressive, deficit-financed tax cuts. Under President Obama, a Republican-controlled Congress addressed the deficits created by Bush’s tax cuts by cutting spending.

President Trump is now calling for a deficit-financed tax cut. Members of today’s Republican-controlled Congress have already gone on record saying they will address the deficits created by Trump’s tax cuts by cutting spending.

As history has shown, if President Trump succeeds in enacting regressive, deficit-financed tax cuts, Congressional Republicans will use the deficits created by the tax cuts in order to cut spending programs that the middle class and working families rely on.

Historically, Spending Cuts have Followed Deficit-Financed Tax Cuts

Policies passed by Republicans during President George W. Bush’s terms, or exacerbated by neglect, were responsible for many trillions of dollars of additional debt. As soon as Democrats took control of Congress and, later, the White House, however, Congressional Republicans began to once again beat the drum against deficits, as they had done during the previous Democratic presidency. As they had done in the past, instead of talking about the specific policies that made the difference, Republicans spoke vaguely of “government waste,” and focused on “entitlement” programs such as Medicare and Social Security. However, if not for those Republican policies — namely the Bush tax cuts, the unpaid-for wars in Afghanistan and Iraq, and Medicare Part D — the budget would be balanced in 2017. The graph below estimates how various policies contributed to the debt held by the public.

As a result of these Bush-era policies — combined with the Great Recession, which was caused in part by the lax regulatory environment under President Bush — the deficit and debt increased dramatically under President Obama. In 2011, the first year in the Obama-era with a Republican-controlled House of Representatives, Republicans demanded, and eventually won, trillions of dollars in spending cuts. The Budget Control Act of 2011 included a relatively small, but real, cut to Medicare. The Budget Control Act — as well as an earlier spending cut deal that spring — also included enormous “discretionary” spending cuts, which were applied to essential programs including the National Institutes of Health, NASA, the Low Income Home Energy Assistance Program, and Public Housing. Over subsequent years, Republicans continued to cut programs relied on by working families in order to shrink the deficit that had been largely created by their own tax cuts. This included a cut to the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) that was part of the Agricultural Act of 2014.

The same series of events happened earlier, under Presidents Reagan and George H. W. Bush. A recession shortly before the 1980 presidential election increased the deficit. Upon taking office, President Reagan immediately moved to, and succeeded in, enacting enormous tax cuts and large spending cuts, including to the Food Stamp program. However, the spending cuts were far smaller than the tax cuts. Further driving up deficits, another, and far deeper, recession followed almost immediately. Along the way, dramatic increases in defense spending further increased the deficit, which was itself then used to justify slashing domestic spending. Despite subsequent tax increases under Presidents Reagan and Bush — far smaller than the initial tax cut — by the time President Clinton took office in 1993, debt as a percent of the economy had increased more than 80 percent. And despite further tax increases under President Clinton, and a growing economy that further decreased deficits, Republicans once again found renewed fear of deficits.

After Republicans took control of Congress in the 1994 midterm elections, they advocated for enormous cuts to Medicare, “welfare,” and other programs the middle class and working families rely on, along with more tax cuts. Their largest Medicare and SNAP cuts failed, but significant cuts were nonetheless enacted. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (known as “welfare reform”) included a significant reduction in SNAP benefits and eligibility, as well as an allowance for certain work requirements. It also formally ended the Aid for Families with Dependent Children entitlement (traditional welfare), transforming it into a poorly-functional block grant known as Temporary Assistance for Needy Families. Since the enactment of the law, extreme poverty, defined as living at no more than 50 percent of the poverty line, has dramatically increased. For example, in 1995, Aid for Families with Dependent Children lifted 61 percent of children in deep poverty out, by 2010, Temporary Assistance for Needy Families lifted out only 24 percent of children in deep poverty. The Republican Party also succeeded in pushing through sizeable Medicare cuts in the Balanced Budget Act of 1997. This is not to say that there was zero appetite among Democrats, but that the pressure grew enormously through large deficits created significantly by Republican policies, which facilitated disingenuous Republican talking points.

Under Existing Law, Deficit Increases from Legislation, Such as a $1.5 Trillion Tax Cut Bill, Will Lead to Automatic Cuts to Programs

In addition to the historical link between Republican tax cuts and subsequent spending cuts, there is a more direct way for tax cuts to lead to spending cuts, via a law called the Statutory Pay-As-You-Go Act of 2010 (Stat PAYGO). This act requires that, if the cumulative effect of enacted legislation over time leads to deficits, the Office of Management and Budget will issue a sequestration order to automatically cut certain programs across the board. In other words, under existing law, if Congress enacted legislation that increases the deficit, selected programs will automatically be cut to “pay for” the legislation enacted.

By my calculations, a $1.5 trillion tax cut would trigger a 4 percent Medicare cut (this would be on top of the 2% cut Medicare is currently subjected to under the Joint Select Committee sequestration) and completely zero out all non-exempted program in nearly every year over the next decade. This includes critical programs such as the Social Services Block Grant, Animal and Plant Health Inspection, the Affordable Housing Program, and the Prevention and Public Health Fund.

Due to the specific limitations of reconciliation — the filibuster-proof process by which Republicans can enact tax cuts along party lines — Congress cannot exempt its tax cut bill from Stat PAYGO and still retain privilege and thus still be able to bypass the filibuster. After the bill is passed but before the sequestration order is given, Congress could, in a separate non-privileged piece of legislation to remove the effects of the tax cut bill from the Stat PAYGO scorecard. However, it is the case that a vote for a $1.5 trillion tax cut is a vote for eliminating funding for all non-exempt programs and cutting Medicare by 4 percent.

Republicans Have Already Stated that, If Enacted, the Trump Tax Cuts will be Followed by Spending Cuts

As Roll Call has reported, Republican Members of Congress are already contemplating cutting programs such as Medicare, Medicaid, and what they describe as “welfare” after they enact the Trump tax cut plan.

Moreover, Republicans have long promised to balance the budget. Of 52 Republicans in the Senate, 50 are sponsors of a constitutional amendment to balance the budget. However, in order to achieve this goal, programs that middle-class and working Americans rely on would be more than decimated. If Republicans were to pass their tax cut plan and then balance the budget, it would require on average every single program be cut 24 percent. If applied proportionally, that’s a 24 percent cut to Medicare, a 24 percent cut to Social Security, a 24 percent cut to Medicaid — a 24 percent cut to all programs that people rely on.

This is a cruel enough policy on its own, but to be coupled with a tax policy designed to give money to the wealthiest Americans is the opposite of what our country stands for. According to preliminary analysis from the Tax Policy Center, the Republican tax plan as currently conceived would give 80 percent of its gains to the top 1 percent, half of which would go to the top tenth of one percent. In other words, the top tenth of one percent would receive twice as much money as the bottom 99 percent combined. Even if Republicans give up on their goal of balancing the budget, just to pay for the tax plan would devastate poorer Americans and leave the bottom 95 percent worse off. The Center on Budget and Policy Priorities estimated the effects, based on income, if each household were forced to pay the same amount to finance the Republican tax cuts.

Quite simply, this is Robin Hood in reverse. It is a policy where we take from the poor to give to the rich. Regardless of the rhetoric, that will be the end result of these tax cuts. They will lead to Draconian spending cuts, and they will leave tens of millions of American families worse off.