Policy Position Paper

What's What with the Federal Budget

There has been much talk recently about the President’s proposed federal budget-- the controversial tax cuts for the wealthy, the unclear way in which it promises to cut the deficit, and potentially damaging changes in the rules that govern the budget process.

While the federal budget seems like a dry, complicated issue, it is vitally important to understand this current budget and its impact, particularly on the “least of these among us.” Below are answers to frequently asked questions about the Fiscal Year (FY) ‘05 budget proposal.

  1. Why does the ELCA oppose the President’s budget?
  2. What are the implications of the President’s tax cut policies?
  3. Who will be most hurt by this budget?
  4. What are the current proposed budget rule changes and why is it important to know about them?
  5. What will be the impact of the President’s budget on the domestic discretionary programs?
  6. What is the deficit and why does it matter?
  7. What does the President propose to do about the deficit?
  8. What is a “budget rule”?
  9. What is an entitlement program?
  10. What is a discretionary program?
  11. What are reconciliation instructions?
  12. Further Information

Additional Information and Resources


1. Why does the ELCA oppose the President’s budget?

A President’s budget is about priorities, and is a reflection of our values as a society. A budget that disproportionately hurts the neediest among us while making inequitable tax cuts permanent does not address the needs of our society and is unsound fiscal policy.

The President’s proposed budget would:

  •  make tax cuts permanent for the wealthiest Americans

  • make broad cuts to important domestic discretionary programs

  • increase the already enormous federal deficit 

This budget would cut overall funding for domestic discretionary programs (what is a discretionary program?) outside homeland security by $141 billion over the next five years, significantly reducing funding for many vital services like child care, low-income housing, and job training.[1] 

ELCA Policy Base

The Evangelical Lutheran Church in America opposes the Administration’s proposed FY ’05 federal budget.  The ELCA supports a sound and balanced budget that includes an equitable deficit reduction plan.

The “Sufficient, Sustainable Livelihood for All” social statement (adopted by more than two-thirds majority vote – 872 – 124 in 1999) states:

  • Government is intended to serve God’s purposes by limiting or countering narrow economic interests and promoting the common good.

  •  “God has created a world of sufficiency for all…the problem is not the lack of resources, but how they are shared, distributed, and made accessible within society.”

  • “Economic life is intended to be a means through which God’s purposes for humankind and creation are to be served. When this does not occur, as a church we cannot remain silent because of who and whose we are.”

  • “Paying taxes is an appropriate expression of our stewardship in society..."

  • “Sufficiency means adequate access to income and other resources that enable people to meet their basic needs, including nutrition, clothing, housing…”

  • “Poverty is a problem of the whole human community, not only of those who are poor or vulnerable.” 

The “Sufficient, Sustainable Livelihood for All” social statement calls for:

  • “Citizen vigilance and action that challenges governments and other sectors when they become captive to narrow economic interests that do not represent the good of all;”

  • “Correction of regressive tax systems, so that people are taxed progressively in relation to their ability to pay;”

  • “Scrutiny to ensure that new ways of providing low-income people with assistance and services (such as through the private sector) do not sacrifice the most vulnerable for the sake of economic efficiency and profit;”

  • “Adequate, consistent public funding for the various low-income services non-profit organizations provide for the common good of all;”

  • “Public policies that ensure adequate social security, unemployment insurance, and health care coverage;”


2. What are the implications of the President’s tax cut policies?

  • The President’s budget proposes to make tax cuts permanent, especially those for the most well-off.  These tax cuts are inequitable, overwhelmingly benefiting the very wealthy.

  • The White House estimates the cost of these tax cuts is nearly $1 trillion over 10 years.

  • The federal government is spending about $500 billion a year more than it is raising in taxes, and continued tax cuts will further exacerbate this revenue shortfall. 

Tax cuts aren’t necessarily always bad, as long as they are part of a balanced budget package. Tax cuts can serve a variety of purposes, such as stimulating the economy. However, in the current environment of dramatically increased war-related spending and a sluggish economic recovery, tax cuts have only served to further increase the deficit without a stimulus effect.


3. Who will be hurt by this budget?

The President’s proposed budget disproportionately hurts those most in need of assistance: 

  • The more than 43 million Americans without healthcare

  • The 8.4 million unemployed Americans

  • The more than 35 million Americans who live in poverty

  • The 250,000 low income families who could lose the Section 8 housing vouchers that enable them to pay rent in 2005, with up to 800,000 families losing vouchers in 2009.

  • The 365,000 low income children who currently receive child care but would not be served in 2009.[2]

The neediest in our society will bear the brunt of the president’s proposed cuts, while the wealthiest members of our society will receive a continuous windfall.  All those in between will feel the effects as well.  As the deficit continues to grow, it will slow economic growth, reducing the average family’s income by an estimated $1,800 by 2014.[3]  This is not to mention the enormous and unfair burden it will place on future generations.


4. What are the current proposed budget rule changes and why are they important?

The president’s FY ’05 budget contains several proposed changes to the congressional rules governing the process by which federal budget policy is enacted. These rules could have dramatic consequences for spending and tax policy over the next 5 years.

In prior years, little attention was paid to funding projections in the out years (fiscal years after the upcoming budget year), since Congress only appropriates funds for one year at a time. However, it is common for Administrations to release 10 year tables using data that shows the projected impact of the proposed budget for ten years out. The current Administration has chosen not to follow that practice with this budget.[4]  It therefore misrepresents the costs and economic impact of the budget. It is a subterfuge to the detriment of the average American and the poorest among us.

5 Year Spending Caps                                                                                                       This budget proposes to lock in for each year through 2009 a tight binding cap on funding for discretionary programs. This cap would tie the hands of future policymakers. If approved, these rule changes will require Congress to make extreme cuts to critical domestic discretionary programs. 

Pay-As-You-Go                                                                                                                                                         The President has also proposed reinstating the pay-as-you-go (Pay-Go) budget rule.  Under the Pay-Go process (created by the Budget Enforcement Act of 1990 in an attempt to reduce the deficit), legislation that increased entitlement spending (what is an entitlement program?) or decreased revenues (tax cuts) must be offset so that the deficit is not increased. The 1990 Pay-Go rule applied to both taxes and entitlements. 

The President’s proposal differs dangerously from the 1990 rule.  The President proposes to reinstate Pay-Go only on entitlement spending.  It would impose no constraints on new tax cuts.  Essentially, this means that any increased spending for entitlement programs would have to be paid for by cutting other entitlement programs, but an increase in tax cuts would not have to be paid for at all. 

For example: if Congress felt there was a need to increase spending on Medicaid/Medicare, this would only be possible if they simultaneously cut funding for Food Stamps, or some other entitlement program.  However, if Congress enacted tax cut benefits for the wealthy, they would not have to offset this cost.  Without pay-as-you-go restraint on the tax side, the additional tax cuts the Administration calls for in its new budget, along with its proposal to make the tax cuts permanent, would add substantially to the deficit. 


5. What will be the impact of the President’s budget on the domestic discretionary programs?


The proposed budget cuts would affect nearly every part of government — including environmental programs, education and job training, veterans programs, health, and transportation. 

The most devastating effects of the FY ’05 discretionary (non-entitlement) funding cuts would occur after 2005, except in 3 areas:

  • Defense
  • International affairs
  • General science, Space and Technology.[5]

The President’s budget effectuates significant cuts in domestic discretionary spending over the next 5 years by use of the caps described above (proposed budget rule changes).  The cuts generally would start in years after 2005 and grow deeper with each passing year. By 2009, the overall funding for domestic discretionary programs outside homeland security would be $45.4 billion – or 10.4 percent – below the level needed to keep up with inflation. [6]

Among the programs or program areas that would be cut are the following:

  • Education for the Disadvantaged:  By 2009, Title I funding (funding for school districts to improve educational outcomes for low-income and other disadvantaged children) would fall $660 million below the 2004 level adjusted for inflation. By 2009, the part of the budget that includes elementary and secondary education, as well as job training and other social service programs, would be cut by 7 percent, or $6.2 billion.

  • Environment:  In 2005, funding for the Clean Water Act State Revolving Fund, which loans money to states to pay for sewage treatment plants, would be cut 37 percent below the 2004 level adjusted for inflation.  The budget calls for even deeper cuts in this area by 2009.  Programs which fund environmental protection and natural resources management would be cut 20 percent, or $6.8 billion.

  • Veterans Health Benefits:  Funding for veteran’s health services in 2009 would fall 17 percent — or $5.7 billion — below the 2004 level, adjusted for inflation.

  • Housing AssistanceFunding for the housing voucher program, the nation’s principal low-income housing assistance program would be cut sharply. This budget could cut the number of families assisted by 250,000 in 2005, and 600,000 — or 30% of all assisted families — by 2009.   Most of these families live below the poverty line. These cuts are deeper, and the policy changes more sweeping and threatening to the low-income families and elderly and disabled people whom the program serves, than any proposal advanced by any prior Administration during the voucher program’s 30-year history.

  • Health: By 2009, discretionary health programs would be cut by 11 percent, or $5.6 billion. This includes funding for the National Institutes of Health, the Centers for Disease Control and Prevention, the Food and Drug Administration, and community health centers.

  • Child Care: Proposed funding levels for child care programs would cause the number of children from low and moderate income working families who receive child care assistance to be reduced by approximately 365,000 by 2009.[7]

  • Head Start and WIC:  Head Start funding would fall 7 percent below baseline levels in 2009, resulting in an estimated 62,000 children turned away from Head Start programs.  In the Supplemental Nutrition Program for Women, Infants and Children, funding cuts would result in 450,000 fewer low-income pregnant women, infants and young children served through WIC by 2009. [8]


    6. What is the deficit and why does it matter?

    The federal deficit is the amount by which total government spending is more than government income during a specified period. 

    As the result of a weak economy, tax cuts, spending increases, and lack of concern for fiscal discipline, the United States has gone from a projected surplus of $5.6 trillion to a projected deficit of about $5.1 trillion over the next ten years, which would be the largest deficit ever in our nation’s history.

    Experts at the Brookings Institution believe the nation’s fiscal situation is out of control, and fear this could do serious damage to the economy in coming decades. Large, persistent deficits are harmful in several ways, as they:

    • weaken the economy
    • lower family incomes
    • sap our national strength and make us more dependent on the rest of the world
    • pass on large and unnecessary fiscal burdens to future generations


    7. What does the President propose to do about the deficit?


    The President’s budget claims to cut the deficit in half in five years.  This claim is not credible, and the proposed budget will actually increase the deficit. 

    The savings that would be achieved from the proposed cuts in domestic discretionary programs pale in comparison to the cost of the Administration’s tax cuts. In fact, the savings over the next five years from all of the domestic discretionary cuts combined would be substantially less than the cost of the tax cuts just for the one percent of households with the highest incomes.


    8. What is a “budget rule”?

    “Budget rules” are the rules and procedures that govern the federal budget process. These rules were established in 1974 to encourage Congress to set priorities for the entire federal budget at the beginning of the year and to fit the subsequent tax and spending actions within these parameters. While the rules were successful in establishing a new system of budget decision-making, they have also made federal policymaking more complex. These budget rules have changed the focus of debate from policy considerations to budget questions, often making it difficult to implement desirable policy reforms.


    9. What is an entitlement program?

    An entitlement program creates a legal obligation of the federal government to a person or entity that meets legislatively defined criteria.   These benefits are usually financial, but can also be in the form of government-provided goods or services. Entitlement programs are established by law and continue unchanged and automatically funded unless Congress passes new laws. By contrast, discretionary programs must receive an appropriation every year, or they cease functioning (what is a discretionary program?).

    Examples of federal entitlement programs include:

    ·        Social Security

    ·        Medicare and Medicaid

    ·        Food Stamps

    ·        Most Veterans' Administration programs

    ·        Federal employee and military retirement plans

    ·        Unemployment compensation

    ·        School Lunch Programs

    ·        Child Welfare

    ·        Farm Programs and agricultural price supports



    10. What is a discretionary program?

    A discretionary program is a program whose funding is determined annually by Congress.  A discretionary program is not guaranteed to continue, but rather is funded on a year by year basis, the level depending on how much non-entitlement money is available each year.  

    Examples of federal discretionary programs include:

    • Space Exploration
    • Environmental Protection Programs
    • Highway Construction
    • Section 8 housing rent subsidies for low income individuals and families
    • Early Childhood and Education Programs
    • WIC (The Special Supplemental Nutrition Program for Women, Infants, and Children)
    • Defense
    • Federal Bureau of Investigation
    • Community and Regional Development Programs                                                           


    11.      What are reconciliation instructions?

    Reconciliation is an optional part of the budget process.  A budget resolution may sometimes

    include "reconciliation" instructions, designed to ensure that income and spending levels comply with the resolution.

    Every year the House and Senate Budget Committees are responsible for developing a budget resolution that defines how much they want to spend in the upcoming budget year.  The Budget Committees may decide to reduce the deficit by reconciling current income and spending levels with their budget resolution.  They accomplish this by instructing various Congressional committees to modify entitlement programs under their jurisdiction to bring spending and revenue into conformity with the budget resolution.  For example, the tax committees may be instructed to amend tax laws to increase revenue. Authorizing committees (committees that design and approve programs; i.e. the Agricultural Committee authorizes the Federal Food Programs) may be asked to find “savings,” which they might do by cutting services or limiting participation in certain entitlement programs.

    Reconciliation instructions dictate to the Committees to which they apply a deadline by which the change in legislation is to be reported or submitted, and the dollar changes to be achieved, but do not generally specify how these changes are to be made or the programs to be affected.  The reconciliation process applies only to entitlement programs, but may not be used to make changes in Social Security law. The reconciliation process usually takes a number of months.



    12. Further Information

    If you would like to find more information, research or studies relating to the President’s current budget proposal, try the following resources:

    Center on Budget and Policy Priorities

    CBPP conducts research and analysis to inform public debates over proposed budget and tax policies and to help ensure that the needs of low-income families and individuals are considered in these debates. A number of in-depth and current analyses of the President’s budget can be found on their website: www.cbpp.org


    The Brookings Institution

    The Brookings Institution recently released a new study, Restoring Fiscal Sanity: How to Balance the Budget, which offers a thorough analysis of the country’s fiscal situation and suggests specific steps that could be taken to restore balance.



    Coalition on Human Needs

    Coalition on Human Needs recently released an in-depth analysis of the President’s budget proposal: Slamming the Door Shut on Opportunity for All Americans.  The report can be found on their website.



    Bread for the World

    For more information on the Federal Budget Process, see Bread for the World’s easy-to-follow guide.



    For further information contact: Kay_Bengston@elca.org; phone: (202) 626-7942


    [2] The President’s Fiscal Year 2005 Budget, Coalition on Human Needs,  March 2004.

    [3] Restoring Fiscal Sanity: How to Balance the Budget; The Brookings Institution. March 2004.

    [4] http://www.ombwatch.org/article/articleview/2032/1/86/

    [5] Administration's Budget Would Cut Heavily Into Many Areas Of Domestic Discretionary Spending After 2005; Center on Budget and Policy Priorities:  http://www.cbpp.org/2-27-04bud2.htm

    [6] Administration's Proposed Discretionary Spending Caps Represent Unsound and Inequitable Policy ; Center on Budget and Policy Priorities: http://www.cbpp.org/3-1-04bud.htm

    [7] President’s Budget Contains Larger Cuts to Discretionary Programs Than Have Been Reported;  Center on Budget and Policy Priorities; http://www.cbpp.org/2-5-04bud.pdf

    [8]All except Child Care statistics taken from: Administration's Budget Would Cut Heavily Into Many Areas Of Domestic Discretionary Spending After 2005; Center on Budget and Policy Priorities; http://www.cbpp.org/2-27-04bud2.pdf



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