In the continuing search for a congressional budget compromise, House Democrats have touted their plan for reducing the deficit as more protective of the interests of low-to moderate- income Americans than the Senate plan endorsed by the president. This is true, but to a lesser extent than is generally realized. Far from being spared substantial sacrifices in this latest round of fiscal austerity, the poor are being asked to bear a significant burden, even in the House plan.
Our conclusions emerge from a study in which, for each plan, we estimated the proportion of the proposed outlay reductions that could affect households in different income groups. We found that each plan spreads the burden of budget cuts in roughly equal proportions acrosall households -- $10 billion to $12 billion in 1986 for each fifth of the income spectrum. The House plan takes slightly more from upper-income households than does the Senate plan, but even the House plan takes slightly more than a fifth of its cuts from the poorest fifth of all households. Overall, there is little to choose between the two plans on distributional grounds.
This similarity in the additional effects of the two plans emerges despite substantial differences between them in the specific programs slated for reduction or elimination. The Senate plan cuts more deeply into transfer programs such as Social Security and Medicare, which Census data show tend to affect lower income groups more than upper income groups. However, the Senate-proposed benefit freeze for military and civilian retirement programs hits harder in the middle and upper parts of the income distribution. Many other domestic programs receive harsher treatment in the Senate plan. Some, such as grants and loans to promote local economic development, confer benefits on specific local population . Others, such as agriculture price supports, the Export-Import Bank and Amtrak, confer benefits on particular producers or consumers. Available studies and the judgments of experts indicate that many of these programs affect middle-and upper-income groups more than lower-income groups.
Programs the Senate would cut more deeply thus tend to be ones that provide benefits to specific groups and that affect people's pocketbooks directly. The rough equality of dollar sacrifice across the income distribution is achieved in the Senate plan by taking as much from programs affecting upper-income groups as from programs affecting lower-income groups. The House, in contrast, achieves near equality of dollar sacrifice through deeper cuts in national defense and other programs that confer broad public benefits on the nation as a whole and that we assume affect all households equally.
Equal dollar sacrifices may not, however, represent equal burdens for households with different incomes. The cuts proposed under either plan are much larger as a share of household income for lower-income groups than for upper-income groups. Viewed this way, equal dollar sacrifices across income groups actually imply larger burdens for the lowest income groups.
Which plan is more fair? Fairness is in the eye of the beholder, but the House plan does put a little more of the burden of deficit reduction on upper-income groups, who have gained the most and suffered the least from the tax and spending cuts enacted in recent years. Both current proposals spread the burden of deficit reduction more evenly across the income distribution than those past actions did, but both continue to call for substantial sacrifices from lower-income groups. This is an inevitable consequence of choosing to reduce the deficit entirely through spending restraint.
Finally, fairness is not the only issue hat matters in discussing deficit reduction. Elimination of a wasteful program that happens to benefit the poor may still be good public policy, and a budget plan that promotes strong economic growth may be preferred to one that achieves greater income equality with lower growth. Nevertheless, fairness has loomed large in the congressional debate, and these findings can provide a useful empirical grounding for that debate.omists at The Urban Institute.