In the wake of George W. Bush’s State of the Union address, the
White House and the Republican-led Congress have moved swiftly to implement
a series of budget measures that will slash funding for health care and education
while allocating vast new sums for the wars in Iraq and Afghanistan and tax
cuts for America’s wealthy elite.
The House of Representatives approved a $39.5 billion five-year budget-cutting
package on Wednesday. More than half of the savings has been carved out of funding
for Medicare and Medicaid, the principal programs that provide minimal health
care coverage to the elderly, poor and disabled.
On Thursday, Congressional sources reported that the White House was preparing
to ask Congress for another $70 billion to pay for the US wars in Iraq and Afghanistan.
This comes on top of $50 billion approved just last December, and brings the
total allocated for these military interventions in little over four years to
more than $420 billion, the vast majority of it spent on the aggression against
Before the year is out, the administration will seek yet another supplemental
appropriation to pay for the military operations in the two countries. It is
anticipated that before the end 2006, the cost of these wars will top the $500
billion mark—ten times the amount estimated by the administration prior
to the invasion of Iraq.
Meanwhile, the Senate continued debate on a $56 billion tax cut that has already
been passed by the House.
Taken as a whole, these legislative initiatives will deepen the social misery
in America while widening the already enormous gulf separating a tiny financial
oligarchy from the masses of working people. They further underscore American
capitalism’s growing dependence upon militarism to offset the decline
in its economic position in the world arena.
The House bill is misnamed the Deficit Reduction Act. In fact, it will do next
to nothing to reduce the US budget deficit, which is expected to rise to $360
billion this year. While draconian in their impact on those who depend on the
programs being slashed, the budget cuts hardly make a dent in this deficit and
account for less than 3 percent of the $14.3 trillion in federal spending projected
over the next five years.
The House leadership and the Bush White House praised the budget package for
taking what one Republican congressman termed a “first step toward long-term
fiscal discipline.” However, it is clear that discipline is being demanded
only from those at the bottom of the social ladder, who will pay for the amassing
of even greater personal fortunes by those at the top.
The tax package that is currently under consideration is centered on the extension
of capital gains and dividend tax cuts, over half of which would go to the top
0.2 percent who have incomes in excess of $1 million a year. Over three-quarters
of the tax cuts benefit only households making more than $100,000 a year—just
14 percent of the population. According to some estimates, the real cost of
this give-away to the super-rich and the most privileged sections of the upper-middle-class
will be closer to $100 billion in lost federal revenues over the next five years.
The biggest spending cuts enacted by Congress include $6.4 billion slashed
from Medicare, the health program for the elderly, and $4.8 billion from Medicaid,
which provides health coverage for the poor and disabled.
The legislation marks a fundamental shift in federal policy, allowing state
governments to impose premiums and co-payments on Medicaid benefits and further
limit eligibility. Its approval came just days after the Congressional Budget
Office (CBO) released a report pointing to the barbaric consequences the budget-cutting
measures will have for millions of Americans.
According to the CBO report, over the next decade the changes in Medicaid will
increase costs on prescription drugs for some 20 million low-income recipients
and force at least 65,000 out of the program altogether—60 percent of
them children. The report estimated that the greatest savings from the legislation
will come from higher co-payments and premiums, causing people to drop out of
the program or not seek needed medical care because they will be unable to afford
“In response to the new premiums,” the report warned, “some
beneficiaries would not apply for Medicaid, would leave the program or would
become ineligible due to nonpayment.” It added, “About 80 percent
of the savings from higher cost-sharing would be due to decreased use of service.”
The areas expected to be targeted with new premiums include mental health services,
intensifying a national crisis that already sends three times as many mentally
ill people in the US to prisons than to mental health facilities.
Additional savings will result from repealing federal standards and allowing
states to deny Medicaid benefits for such things as wheelchairs, crutches, canes,
eyeglasses and hearing aids.
The savings in the Medicare program for the elderly come from a series of changes
including increased premiums, cuts in funding to hospitals and a freeze on funding
for home health agencies. Another punitive provision aimed at elderly nursing
home residents would deny them Medicaid benefits if they had given away money
over the previous five years. This would include money donated to charity or
contributed to the college tuition of a grandchild.
While slashing benefits for the poor and elderly, the legislation was carefully
crafted to protect the interests of the managed health care industry and the
major drug companies. Provisions in the Senate version of the bill that would
have required the big pharmaceutical firms to give larger rebates on drugs bought
by states under Medicaid and cut overpayments to HMOs covering Medicare beneficiaries—which
alone would have saved an estimated $22 billion over 10 years—were stripped
from the legislation. Some in Congress charged that the final language of the
bill was directly dictated by lobbyists for HMOs and drug companies, which are
among the largest campaign contributors to both major parties.
Another socially regressive provision will sharply increase interest rates
on college loans to students and their parents. The interest rate on PLUS loans
to parents will rise from the current 6.1 percent to 8.5 percent next July,
while the rate on federal Stafford Loans used by some 10 million students will
climb from 5.3 percent to 6.8 percent.
This change amounts to a cut in financial aid that will ultimately deprive
a section of working class youth of the right to a higher education. It is projected
to generate as much as $14 billion in revenue over five years, money that will
be used to defray the cost of tax cuts for the rich.
The legislation also includes stiffer work requirements for some 2 million
adult Americans on welfare. The burden, which will require most recipients to
spend 40 hours a week either working or in job training, will fall most heavily
on single mothers. At the same time, the bill includes only $1 billion in new
funding for childcare—$11 billion less than what is needed to allow parents
to manage the extended work requirement, according to an estimate by the Congressional
This measure deepens the attacks initiated under the so-called welfare reform
introduced by the Democratic administration of Bill Clinton in 1996.
The 216-214 vote on the final legislation split largely on party lines, with
13 Republicans joining the Democratic minority in opposing the bill. Its passage
underscored once again the inability of the Democratic Party to offer any alternative
to the reactionary social agenda of the Bush administration.
The Deficit Reduction Act is a holdover from last year. The administration
is already preparing to introduce even deeper cuts in social programs and further
increases in military spending in a fiscal 2007 budget that it will present
to Congress next week. Declaring his support for the bill passed by Congress,
Bush vowed he would “continue to build on the spending restraint we have
The 2007 budget will continue the sharp and protracted growth in US military
spending. The proposed Pentagon budget for the next fiscal year will rise to
$439.3 billion, a 4.8 percent increase over last year. This includes $84.2 billion
to be allocated for new weapons, an 8 percent rise in such purchases over fiscal
2006. This budget is over and above the supplemental funding requests for the
wars in Iraq and Afghanistan and does not include more than $6 billion spent
each year to maintain the US nuclear arsenal.