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1994.02.25 : Analysis of Balanced Budget Amendment

FOR IMMEDIATE RELEASE              Contact:  HHS Press Office
Friday, Feb. 25, 1994                        (202) 690-6343

        HHS STUDY SHOWS BALANCED BUDGET AMENDMENT EFFECTS
                   ON LOWER INCOME AMERICANS

     The Balanced Budget Amendment would force severe cuts in
social programs and reduce the income of millions of American
families and individuals, according to a new analysis by the
Department of Health and Human Services.

     The HHS study, using a simulation model developed by the Urban
Institute, approximates the impact of the proposed amendment on
lower income Americans, using two alternative assumptions about
implementation of the amendment.   The study shows that, under
either set of assumptions, the amendment would increase the number
of children in poverty by more than a million, an increase of more
than 10 percent.

     "We do not need to inflict pain on this scale to achieve
fiscal balance, and we should reject any measure that would tie our
hands and force actions of this kind," said HHS Secretary Donna E.
Shalala.  "Those of us in government need to make the hard choices
to achieve fiscal balance.  We should not run from responsibility
and hand off the consequences to those who are least able to
protect themselves."

     Shalala noted that "while no one can know the exact and
precise impact of this amendment, it is imperative that we make the
best possible estimate of the effects on our least fortunate
citizens.  And we can state without reserve that the impact will be
unnecessarily harsh."

     The study assessed two approaches for achieving the $200
billion reduction in spending that would be required by the year
2000 under the amendment.  One is a 12 percent across-the-board cut
of all federal outlays; the second is a 20.4 percent cut of all
outlays except Social Security and the Defense Department.  Both
scenarios are based on Treasury Department estimates of the likely
scale of cuts needed under the amendment.

The major findings of the study are:    

o    If the Balanced Budget Amendment forced an across-the-board
     cut of 12 percent in federal programs, it would reduce the
     income of some 33.3 million families and single individuals by
     $500 or more a year; the average loss of income would be
     $1,440.  

o    The 12 percent reduction would increase the poverty rolls by
     about 3.5 million individuals.  This would increase the number
     of poor elderly persons by 1.5 million and the number of poor
     children by 1.2 million.  

o    If the Balanced Budget Amendment exempted Social Security and 
     Defense programs, a cut of 20.4 percent could be required. 
     This would reduce the income of approximately 17.4 million
     families and individuals by $500 or more a year; the average
     loss in income would be $1,910.  

o    The 20.4 percent reduction would increase the poverty rolls by
     about 3.7 million individuals.  This would increase the number
     of poor elderly by 300,000 and the number of poor children by 
     1.7 million.

o    The 20.4 percent cut affects more families with children, and 
     the reductions in their income are greater; such families lose 
     about one-third more than they would under the 12 percent cut;
     poor families with children are made significantly poorer.

     Secretary Shalala noted that a 12 percent cut would be the
same as asking some low-income families and individuals to live
without about one-and-a-half month's worth of benefits.  If the
Social Security program is protected, heavier cuts would fall on
such persons who are the poorest Americans, and they would have to
forego more than two months of benefits.  

     "A reduction of this sort to our most vulnerable citizens is
unacceptable -- it is unconscionable," she said.  "Forty percent of
the poor are children.  Just at the moment when we have committed
ourselves to improving their lives, we would instead force them and
additional children into even greater poverty.  We cannot afford to
sacrifice our next generation."

     In addition to income effects in the report, the secretary has
also highlighted other potential effects of the Balanced Budget
Amendment if Social Security and the Defense programs were held
harmless and all other programs were cut by 20.4 percent: 

o    280,000 children out of a total of 750,000 would have to be
     cut from the Head Start program.

o    29,000 drug treatment slots serving as many as 74,000 persons 
     would be lost.

o    60 million fewer meals would be served to the elderly.

NOTE: Copies of the HHS study, "Potential Income Effects of the
Balanced Budget Amendment on Low and Moderate Income Individuals
and Families," are available from the HHS Press Office.