I think it goes well beyond mere service provision. If you look at the historical precedents, the actual level of social services and the justification for those services are two different things. Following the Civil War, the US developed a rather generous - by the standards of the times - network of social services, especially in the North - but the justification for these services was helping those who fought the Civil War. Those services were a form of political patronage in exchange for voting republican (see Theda Skocpol, _Social Policy in the United States_). This is a sharp contrast to Europe, where social welfare was introduced a bit later and the justification was to improve working conditions.
Religion-based and publicly funded social service delivery system developed in the Netherlands - mainly to take advantage of the existing institutions and to avoid the duplication of efforts. However, in Italy and to lesser degree in Germany, the choice of religion-based service agencies was a part of the fascist strategy to defeat the Left, which also operated a network of social-service agencies and self-help groups.
The communist strategy in Eastern Europe was to dismantle the network of religion-based charity services and replace it with state-funded and delivered network.
In Scandinavia (Norway and Sweden) private service delivery agencies actively sought integration into a state financed and run social welfare services.
So the bottom line is that during the last century social welfare services has been a major battlefield for ideological influences between fascist and social democratic forces (see for example the chapter "Institutional Roots of Volunteering" in Paul Dekker and Loek Halman, _The values of volunteering_ which I co-authored; and also "Social origins of civil society: an overview_ http://www.jhu.edu/~ccss/pubs/cnpwork/index.html). However, the effects of that battle were visible mainly in the venue of delivery and the ideological justification rather than in the actual level of service. To illustrate this point - the religion-based (or "pillarized") social safety network in the Netherlands was far more generous and comprehensive than the state-delivered system in Eastern Europe.
Of course, Bush is clearly pursuing the fascist strategy of favoring religion-based agencies in social service delivery - but that does not necessarily mean a dramatic reduction of the level of services. But then again, US-sers tend to love fascism, and it was mainly the "liberal elites" that formed the "thin blue line" protecting this country from outright authoritarianism. Now that this "thin blue line" is for the most part gone, so we are for a really bumpy ride.
Wojtek