WEEKLY REPORT: MAY 5, 2008 For the latest economic and other stats, visit RealTimeNumbers.com. BUDGET PROCESS: Step-by-Step Last month, the House of Representatives and the Senate adopted their respective versions of the FY 2008 Budget Resolution. The House measure, H Con Res 312, passed 212-207; and the Senate resolution, S Con Res 70, passed 51-44.
The House-Senate conference is continuing this week. (The Budget
Resolution is an internal congressional framework requiring concurrence
of the House and Senate, but is not a law and does not
require the President's signature.) SENATE APPROPRIATIONS hearing schedule for Week of May 5 April 15: Deadline for adoption of the Conference Report on the FY 2009 Budget Resolution. (Congress often misses the deadline; last year's Budget Resolution conference report was adopted May 17, 2007.) Week of May 5: Senate Appropriations to Mark-Up War Supplemental Week of May 5: Possible action on Farm Bill Conference Report (HR 2419) May 7: House to begin consideration of housing legislation May 15: Budget Act permits House of Representatives to begin Floor consideration of FY '09 appropriations bills even if an June 10: Deadline for House Appropriations Committee to report last of the 12 regular appropriations bills June 30: Deadline for House to complete action on annual appropriations bills FY 2008 WAR SUPPLEMENTAL Last fall Congress provided only partial funding--$70 billion--for FY'08 military operations in Iraq and Afghanistan. For the remainder of FY'08, the Administration has requested $108 billion in emergency spending ($102.5 billion of which is for the Defense Department). As "must pass" legislation, the FY '08 War Supplemental could also be the vehicle for numerous other items, although .President Bush has promised to veto any measure sent to him that exceeds his $108 billion request or "ties the hands of our commanders or impose[s] artificial timelines for withdrawal." President's speech. Among the items that could be included in the FY '08 War Supplemental: 1. Partial war funding for FY 2009 (referred to as "bridge funding"): In his Fe bruary Budget request to Congress, the President requested partial war funding of $70 billion to cover the first part of FY 2009. Last week, the White House released details of the $70 billion request for FY '09. It is likely that Democratic congressional leaders will opt to include this FY 2009 bridge funding in the FY 2008 Supplemental, because it would put off full-year '09 funding decisions until after the presidential election. 2. Additional economic stimulus measures, such as an extension of unemployment insurance benefits, additional funding for LIHEAP (low income home energy assistance), and Food Stamps. (Last month, the House Ways & Means Committee passed HR 5749, a free-standing bill to provide an extra 13 weeks of unemployment benefits.) 3. Bipartisan legislation to prevent cuts in Medicaid reimbursements to the States. Last month the House overwhelmingly passed H.R. 5613, a bill to extend a moratorium on several Medicaid regulations aimed at cutting Federal Medicaid reimbursements to the States. Services that would be impacted by the reductions include Medicaid targeted case management services, rehabilitation services, reimbursement for interns and residents at teaching hospitals, payments to public hospitals, and funds to bus Medicaid-eligible children to school or treat them at school. Given the broad bipartisan support for HR 5613 (which passed the House 349-62), the Medicaid bill may be included in the war supplemental. The bill complies with the House pay-as-you-go (PAYGO) requirement by offsetting Federal costs with increased Medicaid eligibility verification. See the CBO Report on H.R. 5613 for additional detail on the bill and its budgetary impact. HOUSE FINANCIAL SERVICES COMMITTEE ACTS ON MORTGAGE RELIEF Last week the House Financial Services Committee approved HR 5830, a bill to slow the pace of foreclosures by expanding FHA's mortgage insurance program. The bill would authorize $300 billion in new Federal loan guarantees, as well as encourage lenders to accept write-downs on bad loans, and then refinance at current market value. The voluntary program would provide participating lenders with loan guarantees on the new loans. Ten Republicans on the Committee joined Democrats in passing the bill 46-21. CBO Cost Estimate for HR 5830: The bill is subject to subsequent appropriations action and would have to be funded within Appropriations Committee allocations, consistent with the (yet-to-be-adopted) Budget Resolution. Because the legislation is "subject to appropriations" the bill is not considered to have a "direct spending" cost and therefore does not fall within the purview of the House PAYGO Rule. House leaders' objective is to pass a comprehensive housing package, including HR 5830, by the July 4th recess. Other measures that could be included in the broader package include: --HR 5818, which will be considered on the House Floor this week, would authorize the Department of Housing and Urban Development (HUD) to make $15 billion in loans to States for housing authorities and nonprofits to purchase, renovate, and sell foreclosed housing. --HR 5720, which passed the House Ways and Means Committee on April 9, would provide a zero-interest, 15-year loan for first-time homebuyers. The Ways & Means bill wold also temporarily increase the volume cap for the low-income housing tax credit. --HR 3221, which passed the Senate 84-12 on April 10, would provide tax incentives to encourage the purchase of homes now in foreclosure and provide relief to homebuilders. To stimulate the purchase of homes in foreclosure, Individuals buying homes in the foreclosure process would receive a $7000 tax credit over two years. The bill would authorize an additional $10 billion in mortgage revenue bonds to refinance subprime loans. Tthe bill would also attempt to shore up the ailing homebuilding industry by allowing companies to apply current losses to past profits and claim refunds (called a net operating loss carryback). JCT Revenue Estimate --HR 5579, which would facilitate debt restructuring on the part of holders of residential mortgage loans. --A housing package might also include provisions contained in HR 1427, a bill to reform FHA, Fannie Mae, and Freddie Mac, that passed the House last year. PAYMENTS TO HIGH-INCOME FARMERS AT CENTER OF FARM BILL DEBATE Update: The House passed its version of the Farm Bill (H.R. 2419) on July 27, 2007. The Senate completed its version of the Farm Bill on December 14, 2007. House and Senate Farm Bill negotiators are aiming to resolve a few remaining issues this week, key among which is whether to include provisions intended to keep high-income farmers from receiving Federal subsidies. President Bush has threatened to veto the bill unless Congress includes a provision that prevents anyone making more than $200,000 per year from receiving crop subsidies. Congressional Quarterly reports that under the current congressional proposal agriculture related income could not exceed $950,000 and non-farm income could not exceed $750,000. Another key issue is the annual limit on total crop subsidies farmers can receive. The Administration wants that limit reduced from the current $360,000 per year. CRS: Comparison of the House and Senate Farm Bills Context: The "Farm Bill," renewed every 5 to 6 years, governs the key aspects of Federal farm policy. Many provisions of the most recent Farm Bill, enacted in 2002, have expired but continue to operate under stop-gap measures. The 2002 bill covered a wide range of programs. Those with the greatest budget impact are (1) Food Stamps; (2) Commodity Support programs (government subsidies to producers of certain farm commodities--primarily corn, cotton, wheat, rice, and soybeans--intended to stabilize farm income); (3) Agricultural Conservation programs (payments and incentives addressing environmental concerns, soil erosion and water supplies);and (4) Export Programs. The starting point, or "baseline" for consideration of the Farm Bill projects what farm spending would be if there was a simple extension of current policies (i.e., policies set forth in the 2002 Farm Bill). The following table (source: CRS) shows Farm Bill actual spending over FY'03-'07, and the CBO (March 2007) baseline for the next 5 years:
The baseline spending levels reflect an increase in Food Stamps (which will grow automatically as the number of eligible beneficiaries increases and the price of food increases) and a reduction in commodity support due to the relatively high prices in current commodity markets. BUDGET NEGOTIATORS SEE POSSIBLE BUDGET DEAL As reported last week, a recent concession by the fiscally conservative "Blue Dog" Democrats may open the way for completion of the FY '09 Budget Resolution. Blue Dogs had been insisting on using the filibuster-proof Budget Reconciliation process to ensure that a 2008 AMT patch would be "paid for" as required by House and Senate PAYGO rules. As reported in National Journal's Congress Daily, the Blue Dogs have agreed to settle for a new point of order in the Senate against any measure (like the AMT bill) that would increase the deficit by $10 billion or more. In effect, however, this new point of order would not pose any impediment to the Senate passing an AMT patch without offsets. The new point of order would be easily waived in the Senate, with an AMT patch at stake--particularly in an election year. The other major outstanding issue in the budget negotiations is the total level for FY'09 Appropriations. The House Budget Resolution calls for approximately $25 billion more than the President in FY 2009 non-defense discretionary spending, and the Senate calls for about $22 billion more than the President's Budget. The difference is expected to be resolved this week. Non-Defense Discretionary Spending Levels Already Face Veto Threats In order to show a balanced budget by 2012, the President's FY 2009 Budget assumes declining non-defense discretionary spending over the next 5 years, i.e., no inflation adjustments and an actual dollar reduction from year-to-year. According to CBO's March 2008 Analysis of the President's Budget, nondefense discretionary budget authority would decline from $464 billion in FY 2008 to $460 billion in FY 2009. (By the year 2013, the President's Budget calls for nondefense discretionary spending to be $68 billion below the "current services baseline," which projects current government programs continuing into the future with inflation-adjustments.) As noted above, In contrast to these deep cuts in nondefense spending, Democrats are calling for discretionary spending in 2009 of between $22 and $25 billion above the President's request. This sets the stage for another intense conflict between congressional appropriators and the White House. On March 3, before Budget Chairmen John Spratt (D-SC) and Conrad (D-ND) had even released their respective Budget Resolutions, OMB Director Jim Nussle had already issued a blanket veto threat: "I want to reiterate that appropriations bills that exceed the President's reasonable and responsible spending levels will be met with a veto." In addition to threatening vetoes over spending levels, Nussle added that the President "will veto any appropriations bill that does not reduce the number and cost of earmarks in half from its FY 2008 level." Nussle also added a veto threat against "any attempt to increase taxes," making the prospective use of the "reserve funds" (listed below) highly unlikely. "Reserve Funds" In order to project a balanced budget by 2012, while still showing support for specific policy priorities, the House- and Senate-passed Budget Resolutions again include numerous "reserve funds." WBR Backgrounder: What is a Reserve Fund? A typical Budget Resolution reserve fund provides that spending ceilings and committee allocations will be adjusted to allow for congressional consideration of specified new initiatives, but only if the new spending (or the new tax relief) is fully offset (by unspecified tax increases or spending cuts). In short, reserve funds do not provide any funding; they are a promise to provide funding if, and only if, taxes are raised or spending is reduced to pay for the specified initiative. (Therefore, the Administration's threat to veto any revenue raisers casts doubt on the viability of reserve funds that would allow new spending, paid for by new revenues.) The House-passed Budget Resolution includes reserve funds for: SCHIP expansion (vetoed last year by the President); expanded veterans' benefits; infrastructure investment; renewable energy; middle-income tax relief; AMT (Alternative Minimum Tax) reform; higher education; affordable housing; Medicare improvements; health care; Medicaid; Trade Adjustment Assistance; county payments; water rights settlements; national parks; and child support enforcement. The Senate-reported Budget Resolution, included reserve funds for: SCHIP expansion; tax relief; tax incentives for manufacturing; affordable housing; trade-related programs; relief for families; flood insurance; initiatives authorized by the new Farm Bill (currently in conference); Secure Rural Schools; improving education; infrastructure investments; investments in energy and the environment; veterans benefits; Medicare improvements; health care improvement; FDA product regulation; Medicaid's transitional medical assistance program; and judicial pay. During the Senate's vote-a-rama, the Senate added dozens of additional reserve funds which are summarized in the Congressional Record digest for March 13, 2008. Tax Increases, or Not? Similar to last year's debate on the Budget Resolution, much of the debate during House and Senate Floor action focused on whether the budget plans increase taxes. Context: Under current law, many of the 2001 and 2003 tax cuts expire at the end of 2010 (due to the Senate's "Byrd Rule" that prevented making the tax cuts permanent when they were originally enacted). Tax cuts scheduled to expire include: reduced tax rates on ordinary income, dividends, and capital gains; an expanded child tax credit; phase-out of the estate tax; and tax relief for married couples (expanded standard deduction and 15% tax bracket). (Expiration of the estate tax phase-out would cause the pre-2001 estate tax levels to spring back in 2011.) In general, Democrats assert that letting the tax cuts expire in 2010 would not constitute a tax increase because it would not change current law. Republicans counter that in 2011, if tax rates automatically return to pre-2001 levels, the effect would be equivalent to a tax increase. This debate will continue throughout consideration of the conference report and into the fall presidential and congressional election campaigns. Senate Democrats, while rejecting permanent extension of all 2001 and 2003 tax cuts, would extend some of them. During Floor consideration, the Senate adopted, by a vote of 99-1, an amendment offered by Finance Committee Chairman Max Baucus (D-MT) that assumes extension of middle income tax relief beyond the current expiration date of 2010 (marriage penalty relief, the child tax credit, and the 10 percent bracket). However, no one is actually anticipating legislative action until the next Congress. (Also, bear in mind that the current Senate and House PAYGO rules require that such extensions be fully offset by other tax increases or spending cuts.) The Estate Tax Under current law, estate taxes in 2009 are to be rolled back to a 45% tax rate and a $3.5 million exemption ($7 million for joint estates), with a full repeal of estate taxes the following year (2010). However, because the Bush tax cuts expire in 2010, the pre-2001 estate tax is scheduled to "spring back" in 2011. The President's Budget would permanently repeal the estate tax. The House-passed Budget Resolution assumes the pre-2001 Estate Tax will spring back in 2011. The Senate-passed Budget Resolution assumes a more realistic permanent extension of the 2009 estate tax rates (45% and $3.5 million exemption). The House-Senate conference will need to resolve this difference between the House and Senate Resolutions. Backgrounder: Estate and Gift Taxes -- Myths and Facts Balanced Budget Projections are Illusory Each of the three budget plans -- the President's Budget, the House Resolution, and the Senate Resolution -- project a balanced budget or budget surplus by 2012. None of the projections are realistic for the following reasons: (1) All three budgets continue to use Social Security surpluses to mask ongoing structural deficits - a reckless practice since the Social Security surpluses will disappear by 2017; (2) All three budgets fail to include Iraq and Afghanistan war funding beyond mid-2009 - which is highly unrealistic even assuming that a withdrawal from Iraq begins next year; and (3) All three budgets assume only a one-year "patch" for the Alternative Minimum Tax, despite widespread agreement that AMT relief is likely to be provided in each of the next 5 years. In addition, the President's Budget proposes sharply declining spending for nondefense discretionary programs which would necessitate unrealistic, draconian cuts. Earmarks: A Continuing Distraction During Floor debate in March observers heard a lot of rhetoric regarding appropriations earmarks. Although efforts to impose an earmarks moratorium via the Budget Resolution failed, this "hot-button issue" is not going away, and is certain to be debated repeatedly as the November elections approach. Earlier this month, a Senate Republican task force proposed that all earmarks be included in bill text rather than report language (purportedly to improve transparency), as well as requiring that earmarks stripped from bills reduce the overall spending in the bill rather than simply releasing funds for allocation by the administering agency. The Task Force includes Senators Thad Cochran of Mississippi, Tom Coburn of Oklahoma, Michael Crapo of Idaho, and Johnny Isakson of Georgia. Four points should be kept in mind regarding earmarks: (1) The lofty rhetoric against earmarks, on Capitol Hill and at the White House, is essentially a red herring intended to distract voters' attention away from the last 7 years, during which time the Federal debt has increased from $5.6 trillion to nearly $9.4 trillion; (2) earmarks in FY 2008 totaled about one-half of one percent of the Federal Budget; (3) The level of earmarks approved by Congress for FY 2008 was $12-$17 billion, depending on who is doing the counting*; and (4) while everyone would agree that wasteful earmarks should be eliminated, some earmarks, such as Senator Pete Domenici's (R-NM) earmark to begin NIH's human genome project, have been invaluable. *The higher figure is from Citizens Against Government Waste 2008 "Pig Book."
CBO: Wyden-Bennet Universal Health Coverage Bill Would Self-Finance by 2014 CBO: Cost Estimate--Protecting the Medicaid Safety Net Act -- HR 5613 -- Administration Veto Threat CBO: Sources of the Growth and Decline in Individual Income Tax Revenues Since 1994 CBO Report: Policy Options for the Housing and Financial Markets CRS: The Cost of Iraq and Afghanistan GAO: The Nation's Long-Term Fiscal Outlook (Update) GAO: Making Tough Budget Choices to Create a Better Future America's Priorities: How the U.S. Government Raises and Spends $3 Trillion Per Year, by Charles S. Konigsberg, Editor-in-Chief and Publisher, Washington Budget Report. * * * * * * * * * * * * * * * * * RealTimeNumbers.com - The Economy. Government Spending & Taxes. Health Care. Immigration. Energy. Housing. Trade. Other Issues in the Spotlight. Up-to-Date. Accurate. Nonpartisan. Free. It's all here...all the time...at your fingertips. To advertise in this space, call 703-351-5048 or advertise@washingtonbudgetreport.com * * * * * * * * * * * * * * * * * * |