(WASHINGTON, March 28, 2012)—Independent Sector’s Guiding Principles for Deficit Reduction and Tax Reform affirm  that – as a matter of justice, fairness and effectiveness – steps taken to address the nation’s fiscal challenges should favor policies that will not exacerbate income inequality or increase poverty, and that efforts to reduce annual deficits should include additional revenue that maintains or increases the progressivity of the tax code, as well as reduced spending in both discretionary and mandatory programs. 

In light of these principles, Independent Sector is concerned that the fiscal year 2013 House budget resolution relies almost exclusively on spending cuts to reduce deficits. According to House Budget Committee estimates, the resolution’s tax provisions would decrease federal revenue by more than $4 trillion over the next 10 years. Of additional concern is that this loss of revenue stems from proposals whose effect would be to make the tax code significantly less progressive by shifting a greater burden to taxpayers at lower income levels. 

We are also deeply disappointed that the impact of the budget resolution’s spending cuts – nearly $5.3 trillion over the next 10 years compared to current policies – would fall disproportionately on low-income families. The Center on Budget and Policy Priorities estimates that roughly 62 percent of these cuts, or $3.3 trillion, would come from programs serving individuals with low incomes and vulnerable populations. These include $2.4 trillion in reductions in Medicaid and health care services, $134 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP), and $463 billion in cuts in other mandatory programs.

Finally, we are troubled by proposed changes to Budget Control Act of 2011 sequestration requirements that would protect defense spending at the expense of non-defense programs. Specifically, the resolution charges six House committees with recommending $261 billion in additional cuts to non-defense discretionary and mandatory programs over 10 years in order to restore roughly half of the $548 billion in reductions to Pentagon spending required under the sequestration agreement.

Additional information, materials, and analysis on the FY 2013 federal budget can be found here.

Below is a brief summary and assessment of key provisions of particular interest to the nonprofit and philanthropic community.

Tax Provisions

The House Budget Resolution calls for a simplified tax code for individuals and businesses that broadens the tax base and lowers rates by:

• Replacing the current six rate individual income tax structure with two rates -- 10 percent and 25 percent
• Reducing the corporate tax rate to 25 percent
• Eliminating many tax deductions and credits for individuals and businesses (the resolution does not specify which tax deductions and credits would be altered)

Spending Provisions

The House Budget Resolution calls for a number of changes to entitlement programs that predominantly serve low-income populations and seniors. The resolution also calls for devolving other low-income programs to states in order to give states greater authority, but does not specify the number or types of programs.  In addition, it would make significant changes to programs supporting national service and the arts.

• Medicaid – Proposes converting Medicaid into a block grant program, indexed for inflation and population growth, and would give states more flexibility to define their Medicaid programs.
• Supplemental Nutrition Assistance Program (SNAP, or food stamps) – Beginning in 2016, proposes converting SNAP to a block grant program, indexed for inflation and size of eligible population, that can be tailored by each state.
• Medicare – Establishes a Medicare Exchange program to replace the current system beginning in 2023.
• Workers currently under the age of 55 would, beginning in 2023, be given a choice of private plans competing alongside the traditional fee-for-service option within the Medicare Exchange.
• Medicare would provide funds to either pay for or offset the premium costs for the health insurance plan chosen by the senior.
• Social Security – Calls for the Administration and Congress to begin working together to provide long-term solutions for the solvency of Social Security.
• Corporation for National and Community Service – Proposes to eliminate the Corporation for National and Community Service.
• National Endowment for the Arts & National Endowment for Humanities – Proposes to eliminate federal funding for these agencies, and suggests raising necessary operating funds from private contributions.

Sequestration

The resolution calls for changing the distribution of spending cuts established by the Budget Control Act to shift cuts from defense spending to non-defense programs.

• The budget resolution includes reconciliation instructions for the following six House committees, directing them to find additional program savings that would total $261 billion in deficit reduction over 10 years: Agriculture; Energy and Commerce; Financial Services; Judiciary; Oversight and Government Reform; and Ways and Means.
• The resolution would restore roughly half of the $548 billion in cuts to defense spending required by the sequestration provisions of the Budget Control Act.

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