Michael Meeropol: The Reasoning Behind The Trump Administration's Budget Cuts

Jun 2, 2017

Much of the discussion of the Trump Administration’s proposed budget has focused on the extremity of the cuts to the civilian side of the discretionary budget.   By some calculations, if the budget were adopted, the discretionary budget would be cut almost in half, making the Federal Government almost completely unable to function.  

[A good part of the federal government’s spending is automatic.   That includes all entitlements including the big ones, Medicare, Social Security and Medicaid – the programs candidate Donald Trump promised not to touch.   What the CBO calls “mandatory spending” is 2.4 trillion out of a 3.9 trillion dollar budget.   These programs are not subject to the annual appropriation process and require specific changes to reduce spending there.   The “discretionary” budget is subject to an annual appropriate process.   It includes both defense and non-defense expenditures.  The Trump Administration has proposed increases in defense spending which places all of the burden on cutting spending in the discretionary budget.   For some interesting CBO charts, see https://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/52xxx/52408-Land-Budget_Overall.png.   Economist Dean Baker has looked at the proposed cuts in non-defense discretionary spending and notes:  “If we pull out Social Security, Medicare and Medicaid, and the military, the rest of the government is projected to shrink from 6.3 percent of GDP at present to 3.6 percent of GDP by 2027. This 3.6 percent of GDP includes the cost of education programs, infrastructure, the Justice Department, research and development, national parks, the Environmental Protection Agency, the Food and Drug Administration, TANF, foreign aid, and all the other things we think of as the federal government.   It doesn't seem plausible that we can downsize the federal government by more than 40 percent relative to current levels and still expect it to function.”  For the entire article, see “Trump Versus Ryan: The Race to Eliminate the Federal Government” Truthout, May 29, 2017 available at http://cepr.net/publications/op-eds-columns/trump-versus-ryan-the-race-to-eliminate-the-federal-government]

But I want to focus on the proposed cuts to some of the mandatory spending programs – particularly food stamps (or SNAP as it is officially called) and Medicaid.    I think it is important to seriously consider the arguments that Trump Administration spokespeople – most importantly, OMB chairman Mick Mulvaney – make when they defend the budget proposals.   Mulvaney argued that the cuts in programs that are specifically targeted to assist poor people is part of a strategy to really help them.    According to this argument, real assistance to the poor occurs not by giving more money to programs they utilize but to give them the ability to “get off” these programs and lead good productive lives.  Here’s a direct quote from Mulvaney:

“We're no longer going to measure compassion by the number of programs or the number of people on those programs, but by the number of people we help get off of those programs,”

[The quote is reported in an article by Damian Paletta “It’s not just programs for the poor. Trump’s budget calls for vast changes to government.”  The Washington Post Wonkblog May 23, 2017   https://www.washingtonpost.com/news/wonk/wp/2017/05/23/its-not-just-programs-for-the-poor-trumps-budget-calls-for-vast-changes-to-government/?utm_term=.fc702a216ff3]

I do not for a minute believe this cover story.  This argument is routinely made by those who in their heart of hearts blame the poor for their own troubles but know that it doesn’t “sound good” to blame the victims.   So they talk out of both sides of their mouths.  On the one hand, they claim that programs that help the poor actually destroy their incentives and do more harm than good.   On the other hand, they cater to the demonization of the poor for their “bad character” (and this is always connected to racism – the “undeserving poor” is always “the other” whether it be the drunken Irish in the 19th century, the “criminal Italian” in the early 20th century, or the black “welfare queen” of the Reagan era.  [On the “criminal Italian” see the very appropriate OP ED in the June 2, 2017 New York Times “When America Barred Italians” by Helene Stapinski (p. A25)]).   By emphasizing the “bad character” of the recipients of federal anti-poverty spending these manipulators appeal to the resentments of working class taxpayers who have been brainwashed into believing that much too much of their hard earned money goes to support those “lazy people” on welfare.   So out of one side of their mouths they assuage the guilt of well off liberals who believe they should feel “compassion” for “those people” but are not happy paying so much in taxes while out of the other side they encourage the resentments (and racism let’s be honest) of many people who don’t feel compassion but merely contempt for the “losers” in society.

In reality, the REAL point of a budget such as Trump’s is to reduce spending sufficiently to justify deeper tax cuts to make rich people richer.   Yet, despite the transparent falsity of the motivations of those who wrote Trump’s budget, I want to seriously consider the arguments that claim that such budget cutting is the truly compassionate way to fight poverty.  (Those who believe that the poor deserve nothing because they don’t deserve it usually don’t make that case publicly.)   The reason I want to take Mulvaney’s argument seriously even though I think it’s a smokescreen, is because there are intellectuals and well-meaning people who are convinced that what Mulvaney said makes sense – that just giving people money creates a lifetime of dependency and deprives those people of the dignity of working for themselves and their families – deprives them of the opportunities to be productive members of society.

The key to the argument as with many economic issues is the idea of incentives.   If someone who is not working is subsidized in their non-working status – by receiving food stamps, by getting their doctor visits paid for by Medicaid, by getting welfare payments through the TANF program – this will give them the incentives not to work – not to try to find work.   Take these crutches away and those who can stand on their own two feet will start to do so.   This was the whole concept behind so-called welfare reform in the 1990s.   The conventional wisdom is that it worked.  The percentage of poor people receiving welfare fell and many of those who left the welfare rolls found employment.

[For declines in caseloads over the first 10 years after reform was adopted, see the testimony of Ron Haskins, Senior Fellow of the Brookings Institution https://www.brookings.edu/wp-content/uploads/2016/06/20060719-1.pdf  “Between 1994 and 2005, the caseload declined about 60 percent. The number of families receiving cash welfare is now [2006] the lowest it has been since 1969, and the percentage of children on welfare is lower than it has been since 1966.”   In considering employment growth, Haskins concluded that “[f]rom 1993 to 2000 the portion of single mothers who were employed grew from 58 percent to nearly 75 percent, an increase of almost 30 percent. Even more pertinent to assessing the effects of welfare reform, employment among never-married mothers, most of whom join the welfare ranks within a year or two of giving birth, grew from 44 percent to 66 percent.”]

Mulvaney’s implicit argument is that by cutting food stamps, Medicaid and other subsidies to idleness, we will incentivize people to get jobs and solve their own poverty problems.  This is the same argument used by economists who argue that extending unemployment compensation payments only ends up reducing the efforts of the unemployed to find jobs.   Both arguments ignore the demand side of the labor market.   If businesses do not see any reason to increase employment because the demand for their products does not justify it, then no matter how hard someone TRIES to find a job, there will be an insufficient number of jobs offered.   The same holds true for programs like food stamps and Medicaid.   If you cannot find a good enough paying job, taking away food stamps or limiting access to Medicaid will not magically create those jobs.   In short, Mulvaney’s quote is based on a bogus premise.

Take food stamps.   The vast majority of adult SNAP recipients already work.   (See, for example,  Center on Budget and Policy Priorities, “The Relationship Between SNAP and Work Among Low-Income Households” (by Dottie Rosenbaum)  January 30, 2013    http://www.cbpp.org/research/the-relationship-between-snap-and-work-among-low-income-households)

How about Medicaid?   63% of non-elderly Medicaid households have at least one full time worker.  

How is it possible that all these hard-working Americans, whose incentives do not seem to have been damaged at all by the government subsidies they are receiving still qualify for Food Stamps and Medicaid?   The answer is of course, that many of these jobs pay too little to raise these workers out of poverty.   The real value of the Federal Minimum Wage was close to $9 in 1968, over $8 in 1979 and despite two recent increases is still at $7.25 in 2011 dollars.   Meanwhile, Median Wages have risen the grand total of 10.7% between 1973 and 2011. That averages at less than three tenths of one percent over those 38 years.

[The concept of “real” wages is an important one.   The minimum wage has risen in what we call current dollars since 1968.   But in purchasing power comparable to today, the Federal Minimum Wage in 1968 was the equivalent of $9 an hour in 2011.  That’s what we mean by the “real” minimum wage --- the minimum wage in more recent purchasing power.   For those who have been in the workforce over 20 years, just think back to the actual dollar value of your paycheck 30 years ago.   It looks a lot lower than it really was because since then, some of the wage or salary increases you have experienced just compensated for higher prices.   So the point I make is that in PURCHASING POWER, the current minimum wage is lower than it was in 1968 and 1979.   In purchasing power, the median wage --- “median” meaning the typical worker – half make more, half make less --- has barely budged since 1973.]

As wages stagnate, more and more working people qualify for food stamps and Medicaid.   Kicking them off these programs will not help them get high paying jobs.  

Oh by the way –what about that great success of welfare reform in the late 1990s?   The percentage of Americans living in poverty in 1996 when the law was passed was 13.7%.   In 2003 after the brief recession of 2001-2002 was over, the rate was 12.7% --- even as welfare rolls had plummeted.   The major effect of welfare reform was to save the government money and to move poor people from welfare to poverty-wage jobs.

If the Trump budget passes, the people who lose SNAP and Medicaid will not become middle class ---- they will sink deeper into poverty to the great shame of our rich and great nation.

[In June of 2016, I delivered a commentary focusing on the work of Robert D. Putnam (Our Kids is the title of his book).   I commended a video of a discussion between him, Arthur Brooks of the American Enterprise Institute and President Barack Obama.   The commentary should be accessible on the WAMC-FM website and the video is here:  http://www.georgetown.edu/news/poverty-summit-2015-with-obama.html\]

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.

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