Last week, after lengthy negotiations, House and Senate Republican leaders finally agreed to a set of compromises in the fiscal year 2006 (FY06) budget resolution that allowed both chambers to narrowly pass the legislation. Negotiated behind closed doors, the final budget resolution is a dishonest and irresponsible agreement that will weaken both the federal government and the U.S. economy -- and negatively impact most Americans. Most striking is that it provides another tax break for the wealthy and cuts programs to needy and middle-income Americans while still increasing the deficit. The resolution, setting spending levels and tax-cut thresholds for the next five years, passed late in the day on April 28 by narrow margins: 214-211 in the House and 52-47 in the Senate. The resolution would cut both annually appropriated programs and entitlement spending over the next five years, allow for two-thirds of a total $106 billion in additional tax cuts (primarily for the wealthiest Americans) to be "fast-tracked" in the reconciliation process, and would actually increase deficits contrary to Republicans' claims. The main roadblock to reaching an agreement on the budget resolution was resistance from a small group of moderate Senate Republicans, led by Sen. Gordon Smith (R-OR), over cuts to the Medicaid program. A member of the Senate Finance Committee, Smith led the effort to add an amendment to the Senate's FY06 budget resolution in March to prevent $14 billion in Medicaid cuts. Smith's amendment also called for the establishment of a commission to study Medicaid to better target savings proposals. To achieve agreement in the final budget, a deal was reached with Smith, who was considered the linchpin in the fight against reducing Medicaid spending, on the maximum level ($10 billion) and provisions (no cuts in the first year) for enacting Medicaid cuts. Under the Medicaid budget agreement, a commission will be created to determine the policy changes needed to produce required program savings. Senate Budget Committee Chairman Judd Gregg (R-NH) said the advisory committee would report its suggestions to Congress by Sept. 1. Key Aspects of the Budget Resolution Large Cuts in Domestic Discretionary Spending The budget resolution sets the total level of funding for discretionary programs in 2006 at $893 billion, which equals the $843 billion proposed in the president's budget plus $50 billion for supplemental funding for the wars in Iraq and Afghanistan. (The president's budget included no funds for Iraq and Afghanistan in 2006 or subsequent years, but it is widely acknowledged the president will continue to request supplemental funding.) It will be difficult to adequately fund programs at current levels under the $893 billion cap. Funding for domestic discretionary programs (those outside of defense and international aid) will total $373 billion in 2006, representing a cut of $23 billion (5.9 percent) below 2005 funding levels after adjusting for inflation. Over five years, the cuts in domestic discretionary funding total $212 billion. These cuts will have substantial effects on programs across the federal budget, from education, job training, and child care, to after-school, veterans, environmental and natural resource programs. Reconciliation Instructions to Cut Mandatory Programs For the first time since 1997, the budget resolution contains reconciliation instructions requiring legislation that will achieve reductions in mandatory spending and further tax cuts, as well as an increase in the debt ceiling. Congress is supposed to use the reconciliation process to reduce deficits. The process expedites consideration of legislation requiring sensitive political decisions on raising taxes or cutting mandatory programs. However, this budget resolution hijacks the process, and in a bastardization of its original intent, partially funds continued unpaid-for tax cuts mostly for the rich by cutting social programs that primarily benefit lower-income Americans. The result, ironically, is increased deficits. Although it is not a procedural requirement, the resolution calls for three separate reconciliation bills -- one for tax cuts, one for spending cuts, and one to increase the debt ceiling -- all of which are to be finished by September. This is done in a not-so-subtle attempt to hide the juxtaposition of reducing spending primarily on low-income entitlement programs to help pay for tax cuts primarily benefiting the wealthy. The tax reconciliation bill allows for $70 billion in tax cuts over the next five years. While it is up to the tax-writing committees to determine which tax cuts will be included in the $70 billion, the bill is likely to include extension of expiring provisions from the 2001 and 2003 tax cuts, most notably the reduced rate on capital gains and dividends. (The Urban Institute-Brookings Institution Tax Policy Center estimates that more than half of the benefits of this tax cut go to households with incomes over $1 million per year and nearly 80 percent of the benefits go to the 3 percent of households with annual income over $200,000 per year.) The spending reconciliation bill requires $34.7 billion to be cut across eight authorizing committees. The largest program reductions will most likely come from Medicaid ($10 billion), the Pension Benefit Guaranty Corporation ($6.6 billion), student loan programs ($4.7 billion) and programs under the agriculture committees ($3 billion). (The budget resolution can provide guidelines to committees, but cannot require cuts in specific programs. Hence, the identified cuts are likely to occur, but the committees could choose other areas for cuts, such as Medicare.) Below is a breakdown of the cuts to be achieved through reconciliation bills in the House and Senate. Still More Deficit-Financed Tax Cuts The budget resolution calls for $106 billion in tax cuts over the next five years, which more than negates any deficit reduction achieved by reducing mandatory spending. This amount is sufficient to extend all of the expiring provisions of the 2001/2003 tax cuts through 2010 including reduction of rates on capital gains and dividends, marriage penalty relief, expansion of the 10 percent income tax bracket, expansion of the child tax credit, research and development tax credits, and other associated provisions. As discussed above, $70 billion of the total tax cut amount would be included in a reconciliation bill that will be considered under expedited procedures, is difficult to amend, and cannot be filibustered. The inclusion of deficit-exploding tax cuts in reconciliation is the most disturbing, irresponsible, and arrogant aspect of the budget resolution and is opposite of the original intent of the process, which was to allow political cover for members of Congress to vote to increase taxes in the name of deficit reduction. In its current use, it is being used to ram through another round of unending tax cuts mostly benefiting the most well-off even while federal revenues are at their lowest levels since the 1950s. These additional deficit-financed tax cuts will continue to push revenues to historically low levels and institutionalize structural deficits for decades to come. But Wait, There's More... In addition to drastically poor budgeting practices and misguided priorities, the budget resolution also contains three provisions that could diminish the ability of Congress to maintain authority over the federal budget and protect the public interest. The provisions endorse the establishment of results commissions, mark the first step in turning the Unfunded Mandates Reform Act into an insurmountable obstacle for new protections of the public interest, and restrict the ability of future congresses to respond to changing national spending priorities. The first provision is a "sense of the Congress" measure in support of proposals in the president's budget to establish commissions to review the effectiveness of government programs. Referred to as "results commissions," in the budget, they would have "the express purpose of providing Congress with recommendations to realign or eliminate government agencies and programs that are wasteful, duplicative, inefficient, outdated, irrelevant, or have failed to accomplish their intended purpose." (Budget Resolution conference report, pages 66-67). The second provision was reportedly inserted into the budget resolution by Sen. Lamar Alexander (R-TN) and would turn a relatively harmless procedural mechanism in the Unfunded Mandates Reform Act into a roadblock to protecting the public interest. (Read more about these provisions and their harmful effects.) The third provision in the budget resolution is a requirement that any legislation increasing direct spending by $5 billion over any of the ten-year periods between 2016 and 2055 be approved by three-fifths of senators. This budget enforcement rule will make it extremely difficult for future Congresses to respond to evolving needs. Congress Can Do Better The budget resolution approved last week will damage not only specific programs and investments millions of Americans rely on to build and support their communities, but also the overall fiscal and economic health of the nation. As the baby-boom generation approaches retirement, Congress and the American people will need to invest substantially more in our society -- not less, as this budget does. By continuing to prioritize tax cuts that undermine the revenue base of the government, Congress is creating a structural deficit that will cripple the country's ability to invest in infrastructure, health care, transportation, and other quality of life services and systems that all of us depend on. It would have been far better if Congress had done nothing at all.