Reconciliation Strikes Back: Complex Budget Rules Could Cause More Cuts
How an arcane budget policy rule could compound cuts across more programs without Congressional action.
Reconciliation Strikes Back: Complex Budget Rules Could Cause More Cuts
How an arcane budget policy rule could compound cuts across more programs without Congressional action.
By Doug Steiger, Child Welfare Wonk Senior Contributor
With budget reconciliation enacted, leaders and policy experts are preparing for cuts of nearly $1T to Medicaid and $186B to the Supplemental Nutrition Assistance Program (SNAP).
They would do well to also prepare for the possibility of across-the-board cuts to even more programs.
Driving Deficits
If you heard anything about the One Big Beautiful Bill Act (P.L. 119-21), it was that the law’s safety net cuts offset its new spending on tax, defense, and immigration enforcement policy.
However, despite significant reductions to programs like Medicaid and SNAP, the cost of tax cuts was so significant that the law is forecast to increase the deficit.
The Congressional Budget Office (CBO) estimated it will lead to an increase of more than $3 trillion over the next ten years.
This matters because it triggers other aspects of budget policy.
Specter of S-PAYGO
Increasing the deficit isn’t merely contested framing between partisans; it brings into play an arcane federal budget rule we have previously flagged, Statutory Pay-As-You-Go (S-PAYGO).
S-PAYGO attempts to manage the deficit by requiring cuts (or “sequestration”) at the end of a Congressional session if the cumulative changes to taxes and mandatory spending have increased the deficit.
It was established in 2010 as part of legislation to increase the debt ceiling, the latest in a series of similar “pay as you go” measures dating back decades, with the idea that the prospect of such cuts would keep policymakers from deficit-increasing bills.1
Given the size of the deficit increase in the reconciliation bill, the sequestration cuts required by S-PAYGO would be on the order of $300 billion.2
Social Security is exempt from these cuts. Medicare is not, though benefit reductions are limited to 4 percent.
Some low-income programs, including Medicaid, SNAP, Title IV-E foster care, and TANF are also exempt.
Importantly, as we noted before, there are several safety net programs serving children and families that are subject to sequestration3, including the:
Social Services Block Grant (SSBG)
Maternal, Infant, and Early Childhood Home Visiting MIECHV) Program; and
Mandatory funding for the Title IV-B Promoting Safe and Stable Families program.
Since the OBBB Act triggered S-PAYGO, Congress would need to act to prevent these across-the-board cuts.
When to Worry
S-PAYGO dates to 2010, but typically has led to a pro forma waiver instead of cuts.
The reconciliation bill did not include a waiver.
Does that mean the Republicans intend to allow the across-the-board cuts to happen? Probably not, though these are not usual times.
While some conservatives would cheer the resulting cuts, it is not certain if the Administration wants them.
President Trump, for example, has regularly warned conservatives not to cut Medicare, though he has been known to change his positions.
What’s likely to happen
Congressional Republicans could move to enact a waiver later in the year, either as part of another comprehensive bill or as a standalone provision, and dare Democrats to object to heading off the Medicare and other cuts.
This would be challenging though; there are fiscal conservatives who would like further spending cuts, and they might not approve of a party-line strategy that requires them to vote for a waiver to engage in this game of chicken with Democrats.
Another option could be the usual approach; including the waiver in negotiated bipartisan legislation.
For example, it could be part of whatever appropriations legislation is eventually enacted to fund the government.
But we have noted that those negotiations appear especially difficult this year.
Alternatively, the White House could employ creative scorekeeping.
As it happens, the final arbiter of the “scorecard” is not CBO but the White House Office of Management and Budget (OMB).
This would be in line with the pathway that brought us here; Senate Republicans opted to use a different spending baseline than the norm for scoring the impact of the tax cuts.4
Under this Administration, OMB has been testing the limits of budget law, such as withholding appropriated funding.
In light of this, it seems plausible that OMB could “score” the deficit impact of the reconciliation bill in such a way as to simply eliminate the need for sequestration.
What Lies Ahead
So, yes, we are currently headed for large “sequestration” cuts later this year.
However, there are solid reasons to think that, as in the past, a waiver will turn off the automatic cuts.
But given all the unprecedented things happening in Washington, this is not the year to simply assume enactment of a waiver, even if all the players think it should happen.
Doug Steiger is a Child Welfare Wonk Senior Contributor and public policy consultant.
He served as a Counselor to the HHS Secretary during the Obama Administration and was a Senate staffer for 12 years.
Waiting on a Waiver: Projected Cuts by State
While an S-PAYGO waiver is typically forthcoming, Doug’s analysis makes clear that there’s a material difference between improbable and impossible.
It’s beneficial to know what the impact could be on funding after the end of this Congress, given the myriad other headwinds this year.
So Child Welfare Wonk has got you covered, whether you’re a:
Hill staffer prepping for complex FY ‘26 funding debates;
Agency leader updating your budget following the OBBB Act;
Funder revising strategy amidst endowment changes and new grantee needs; or
State advocate wondering about how to orient to your next legislative cycle.
This map shows the projected cuts, which range widely, from $5M to over $100M+.
These are the ten states facing the biggest S-PAYGO cuts broken down by program.
