WEEKLY REPORT: MAY 19, 2008
For the latest economic and other stats, visit RealTimeNumbers.com. BUDGET PROCESS: Step-by-Step HOUSE APPROPRIATIONS schedule for Week of May 19 May 20: Formal Budget Resolution Conference Meeting to ratify the tentative agreement; Senate Banking Committee may meet on housing-mortgage relief legislation May 20 or 21: Senate to begin Floor action on FY '08 Supplemental Appropriations; House to take up Tax Extenders Bill May 21: House Floor Action on Budget Resolution Conference Report May 22: Senate Floor Action on Budget Resolution Conference Report May 24 - June 1: Memorial Day Recess (Senate reconvenes June 2; House reconvenes June 3) 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 War Funding Fails in House; Senate Acts This Week on Supplemental HOUSE ACTION LAST WEEK: The House Democratic Leadership split the FY '08 Supplemental into three amendments during last week's Floor action, a strategic decision that allowed
Members to oppose additional war funding, while still supporting a
withdrawal timeline and the non-war funding provisions: OMB Statement: The President will veto the House provisions SENATE ACTION: Last Thursday, the Senate Appropriations Committee marked up its own FY '08 Supplemental package, in three separate amendments, similar to the House: (1) a war funding amendment providing $168.9 billion; (2) a war policy amendment; and (3) a non-war funding amendment including supplemental funds for the State Department; a new "GI Bill"; additional hurricane Katrina relief; an extension of unemployment insurance for individuals who exhaust their regular benefits; provisions to extend a moratorium on several Medicaid regulations aimed at cutting Federal Medicaid reimbursements to the States; additional funds for low-income home energy assistance (LIHEAP); temporary worker provisions; and other provisions. Unlike the House package, the Senate
Committee package exceeds the President's supplemental request by $10
billion. During Senate Floor action, the Senate is expected to take up
the non-war funding amendment first. OUTLOOK: It is unclear whether Senate Republicans will opt to filibuster the non-war and war policy amendments or will let the amendments pass with Democratic votes and wait for the President to veto the package. Senators are likely to strip out the "millionaires' tax" included in the House bill to offset the costs of the new GI Bill. President Bush has promised to veto any measure sent to him that exceeds his funding requests or "ties the hands of our commanders or impose[s] artificial timelines for withdrawal." President's speech. BACKGROUND: 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). The
Administration has also requested $70 billion in "bridge funding" for the Defense Department for the first part of FY '09. Both amounts are being rolled into the pending FY '08 Supplemental
Appropriations Bill, as well as nearly $6 billion for Gulf Coast levee
reconstruction.
Congress Passes $307 Billion Farm Bill by Veto-Proof Margin Ignoring a presidential veto threat, Congress last week passed the conference report on the Farm Bill (HR 2419). The measure reauthorizes the nation's farm and nutrition programs for 5 years. The House passed the conference report 318-106 on May 14, and on May 15 the Senate passed it by a vote of 81-15. The conference report's $307 billion 5-year price tag covers $209 billion for nutrition programs (mostly Food Stamps); $35 billion for commodity programs (price supports); and $25 billion for conservation programs (soil, water, etc.). Prior to passage, Agriculture Secretary Ed Schafer had reiterated the Administration's veto threat, arguing the farm subsidies remain too generous for high income farmers. Secretary Schafer's veto threat Highlights of the Conference Report follow (based on a House Agriculture Committee Fact Sheet): The Food, Conservation, and Energy Act of 2008 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. CRS: Comparison of the House and Senate Farm Bills
The House Ways and Means Committee last week passed HR 6049, a $54 billion tax extenders and energy incentives bill. Over 10 years, the bill spends about $27 billion on provisions to extend dozens of expired (and expiring) tax provisions. The bill also includes nearly $17 billion in energy tax incentives and about $10 billion in additional tax relief. The bill passed 25-12, with committee Democrats joined by Republicans Sam Johnson (TX), Pat Tiberi (OH), and Jon Porter (NV). Floor action is expected this week. JCT Revenue Estimate (summarizes the bill) During committee action, the Republican "no" votes reflected opposition to revenue-raisers in the bill intended to offset the costs as required by the House PAYGO (pay-as-you-go) rule. One offset in the bill would prevent executives and some hedge fund managers from deferring compensation by using offshore arrangements. Another offset would delay rules that give multinational corporations more flexibility in how they allocate interest expenses. The bill does not include the repeal of a deduction for domestic oil and gas, which had been included in previous bills. Many Republicans argue that extension of current tax laws should not require offsets. They point out that under current congressional budget rules, extension of expiring entitlement programs do not require offsets. The bill does not include extension of AMT (Alternative Minimum Tax) relief, which will be handled in a separate bill. Among the Items extended by the bill are: --the R&E tax credit (usually referred to as the research and development credit) Among the energy tax incentives are: --$10 billion over 10 years for clean energy production incentives Senate Action: Senator Baucus introduced a draft "tax extenders" bill, S. 2886, on April 17th. Among the items being considered for the Senate extenders package are: a variety of tax credits to spur the development and utilization of alternative energy sources; the R&D tax credit; tax free distributions from IRAs; the election to deduct state and local sales taxes in lieu of income taxes; and the deductions for qualified tuition expenses. For a complete list of items under consideration, see the CRS Summary of S. 2886. On the issue of offsets, 41 Republican Senators (the number needed to successfully filibuster legislation) have signed a letter opposing the use of any offsets for extenders or AMT relief , arguing that extension of existing provisions should not
be viewed as "new" taxes. (The letter was signed by the party
leadership, Senator John McCain (R-AZ), and all Finance Committee
Republicans except for Maine Senator Olympia Snowe.) Text of the Senate Letter
Last Friday, Senate Banking Committee Chairman Chris Dodd (D-CT) issued the following statement on efforts to develop a bipartisan housing and mortgage relief package: "Senator Shelby and I are very close to reaching an agreement on this important piece of legislation, and are working with each other and other members of the Committee to resolve the few differences that remain.... This bill contains two major initiatives to reform the GSEs and to help prevent foreclosures....I am optimistic we will have a bipartisan bill to present to the rest of our colleagues.” The Committee may meet on Tuesday. Recent House Action.--On May 8th, the House passed sweeping housing legislation (HR 3221) aimed at reducing foreclosures and stimulating the housing market. The House approved the legislation in three separate votes: 1. By a vote of 266-154, the House approved an expansion of the Federal Housing Administration's authority to assist borrowers, a modernization of the FHA, and an overhaul of Fannie Mae and Freddie Mac. The legislation would authorize $300 billion in new FHA loan guarantees, as well as encourage lenders to accept write-downs on bad loans, and then refinance at current market value. Participating lenders would receive FHA loan guarantees on the new loans, and homeowners would have to share with the government any future appreciation of the home's value. The White House has threatened a veto over the FHA loan guarantee expansion,
calling it a "taxpayer bailout" that would "jeopardize FHA's financial
solvency." House Minority Leader John Boehner (R-OH) also opposed the
bill saying Democrats "are forcing responsible homeowners and taxpayers
to pick up a $300 billion tab to bail out scam artists, speculators, and
reckless borrowers." However, the Boehner statement is misleading
because the cost to the government of a loan guarantee is not the amount of the loan; it is the amount of projected liability from
bad loans. The nonpartisan CBO estimated the cost at $2.7 billion over
FY 2008-13, based on a projection of 500,000 borrowers refinancing
under the new program. 2. By a vote of 322-94, the House approved a refundable tax credit of up to $7500 for first-time homebuyers in order to stimulate the housing market. ("Refundable" means that taxpayers would receive a check from the IRS for the full amount of the credit even if it is larger than their tax liability.) Also included is an additional standard deduction for state and local property taxes. This piece of the housing package would also authorize an additional $10 billion in tax-exempt bonds that would be used to refinance subprime loans, finance construction of low-income rental housing, and increase the number of low-income housing tax credits. 3. By a vote of 256-120, the House voted to prevent any provision of Federal law from pre-empting state laws dealing with residential foreclosures. The House also passed HR 5818, that 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. The Bush Administration has threatened to veto the bill, saying it would "constitute a costly bailout for lenders and speculators and would delay the economic recovery it purports to advance." Statement of Administration Policy on HR 5818
Senate and House Budget Resolution conferees have reportedly reached agreement on the FY 2009 Budget Resolution. Details are not yet available, but the House and Senate conferees have reportedly agreed to split the difference on discretionary appropriations limits for FY 2009, generating a level more than $20 billion above the President's request. On the other key conference issue, the House dropped their insistence on a Budget Reconciliation bill requiring revenue offsets to pay for a one-year AMT (Alternative Minimum Tax) patch. The fiscally conservative House "Blue Dog" Democrats 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. However, 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 will be easily waived in the Senate, with an AMT patch at stake--particularly in an election year.) Background In March, 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 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. 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, House and Senate Democrats called for discretionary spending in 2009 more than $20 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 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. 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 assumed a more realistic permanent extension of the 2009 estate tax rates (45% and $3.5 million exemption). (However, the Senate approach would result in revenue losses in 2011 and beyond, and would therefore have to include offsetting revenue increases under the congressional PAYGO rules.) 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 spring, 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 included 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: Issues and Options in Infrastructure Investment CBO Report: Policy Options for the Housing and Financial Markets 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 * * * * * * * * * * * * * * * * * * |