WEEKLY REPORT: JUNE 2, 2008
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BUDGET PROCESS: Step-by-Step Note on Appropriations Bills: The Budget Act would normally preclude action on FY 2009 appropriations bills until the FY 2009 Budget Resolution Conference Report is adopted. However, the Budget Act includes a "safety valve" that permits appropriations to move forward beginning May 15, in the event that a Budget Resolution has not been adopted. Week of June 2: June 4: Senate Appropriations Defense Subcommittee hearing, 10am SD-192 June 10: Budget Act deadline for House Appropriations Committee to report last of the 12 regular appropriations bills. (However, there is no sanction for missing the deadline.) June 30: Deadline for House to complete action on annual
appropriations bills. (Technically, the House cannot leave for the July
4th Recess until completing all appropriations bills, but this
restriction is routinely waived.) House to Consider Senate Amendments to '08 Supplemental; Veto Looms Before adjourning for the Memorial Day recess, the Senate passed amendments to HR 2642, the FY '08 War Supplemental. (The House had passed the bill the prior week.) When Congress reconvenes the week of June 2, a top priority will be crafting a bill the Senate, House, and Administration can agree on. 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. Following is a summary of issues that need to be resolved: War Funding.--The President has requested $108 billion for the remainder of FY 2008 and $70 billion for the first part of FY 2009. The House attempted to pass a total of $162.5 billion, but the measure failed due to opposition from war opponents, and opposition from Republicans who objected to the procedure that bypassed the Appropriations Committee. However, the Senate amended the bill with war funding of $168.9 billion. [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.] New GI Bill.--The provision would provide expanded veterans' education benefits that would ensure sufficient funds for a 4-year state university education. The House would pay for the provision through a new millionaires' surtax (applied to individual taxpayers earning over $500,000 and joint filers earning over $1 million.) The Senate also passed the provision, although eliminated the surtax included in the bill. House Blue Dogs will likely try to add back the offset. The Administration strongly opposes the surtax, and also opposes the new program as too expensive. The Administration is also concerned that it "could harm retention rates within the armed forces." Nondefense Domestic Funding.--Overall, the Senate bill includes about $10 billion in additional discretionary spending not requested by the President, which would almost certainly trigger a veto threat from the White House. Among other items, the spending includes $1 billion for the Low Income Home Energy Assistance Program (LIHEAP); $490 million for state and local law enforcement grants, $275 million to beef up FDA enforcement, and $451 million for emergency highway repairs. Congressional Quarterly reports that Chairman Obey (D-WI) of the House Appropriations Committee is aiming for a smaller domestic spending package in order to avoid a veto. Extended Unemployment Insurance Benefits.--The House and Senate bills include extension of unemployment insurance benefits beyond the usual 6 months. The Administration views the proposed extension as unnecessary with an unemployment rate of 5.0% and expresses concern that "it would reduce the incentive for workers to find new employment." Delaying Medicaid Regs.--The
Administration strongly opposes the delay in implementing Medicaid
regulations that flow from the 2006 Budget Reconciliation bill, arguing
the delay "would turn back progress that has already been made to stop
waste, fraud and abuse."
Statement of Administration Policy: Senate Bill Congress to Vote Again on Farm Bill Due to Clerical Error Prior to the Memorial Day Recess, congressional clerks inadvertently excluded international food aid provisions from the 5-year "Farm Bill" sent to the President. The President subsequently vetoed the bill that was transmitted to him. Consequently, when Congress voted to override the veto of HR 2419, they enacted into law only 14 of the 15 titles of the the Farm Bill--excluded the missing title. PL 110-234. In order to correct this error, on May 22, 2008 the House re-passed the Farm Bill Conference Report--including the missing title--as HR 6124. The Senate is expected to take up and pass the bill this week. However, note that the new legislative vehicle is not a conference report, and is therefore open to amendments on any subject, should any Senators be looking for an opportunity to offer amendments. Farm Bill Conference Report
The House of Representatives voted prior to the recess to approve 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 263-160. JCT Revenue Estimate (summarizes the bill) During consideration, Republicans objected 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 ($24 billion over 10 years). Another offset would delay rules that give multinational corporations more flexibility in how they allocate interest expenses ($30 billion over 10 years). President Bush has threatened to veto the bill due to the revenue raisers. 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 spending programs do not require offsets. 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 requiring PAYGO offsets. (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 The bill does not include an AMT patch, which will be handled in a separate bill. (Failure to extend Alternative Minimum Tax Relief through 2008 would result in the AMT boosting taxes for an additional 21 million taxpayers.) 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 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.
Before leaving for the Memorial Day Recess, the Senate Banking, Housing, and Urban Affairs Committee overwhelmingly (19-2) approved bipartisan legislation aimed
at helping borrowers refinance home mortgages and overhauling the
regulation of Fannie Mae and Freddie Mac. The measure now goes to the
full Senate. Earlier last month, on May 8, the House approved housing similar legislation (HR 3221), although the Administration threatened a veto, calling the FHA expansion "ill-advised" and objecting to the bill's cost. Statement of Administration Policy on HR 3221 Following is a brief comparison of the Senate Banking Committee and House-passed measures:
The offsets included in the Senate Banking Committee bill may sufficient to overcome administration concerns. Congressional Quarterly reports that after the committee vote, Ranking Member Shelby said "I don't believe the president will veto this -- I hope not -- there's no taxpayer money involved here." 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."
Senate and House Budget Resolution conferees reached agreement prior to the Memorial Day recess on the FY 2009 Budget Resolution. However, Democratic leaders delayed floor consideration of the Conference Report due to the procedural foul-up with the Farm Bill, discussed above. The House and Senate are expected to vote on the Conference Report the week of June 2. Overview of Conference Report: The House and Senate conferees agreed on a discretionary spending level $21 billion higher than the President's FY 2009 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 agreed to settle for a new point of order in the Senate
against any measure 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 regard to expiration of the tax cuts in 2010, the Conference Report assumes that the "middle class tax cuts" scheduled to expire in 2010 will be extended through 2013 at a revenue cost of $340 billion. This includes marriage penalty relief, the child tax credit, and the 10-percent tax bracket. However, this is not a binding provision; the Conference Report does not call for a Reconciliation bill to implement the tax cuts (which would be premature since the existing provisions do not expire for another two years). The Conference Report also assumes extending the estate tax levels scheduled to go into effect in 2009, i.e., $3.5 million exemption per person and $7 million per couple, indexed for inflation. (Under current law, the estate tax is scheduled to be repealed in 2010, and the pre-2001 exemption level of $1 million springs back in 2011.) However, as with the middle class tax cuts, the Conference Report does not call for a Reconciliation bill to implement the policy. Overview of the Conference Agreement (House Budget Committee) 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, the Conference Report calls for FY 2009 discretionary spending $21 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 Budget Resolution Conference Report includes 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 Conference Report includes reserve funds for: SCHIP expansion (vetoed last year by the President); expanded veterans' benefits; infrastructure investment; renewable energy and energy efficiency; middle-income tax relief; reform of the AMT; higher education; affordable housing; Medicare improvements; health reform; Medicaid reform; 9/11 first responders; trade adjustment assistance (TAA) and unemployment insurance modernization; payments to counties; water rights settlements; the National Park Centennial Fund; child support enforcement; education improvement; infrastructure investments; clean energy; judicial pay and judgeships; immigration and enforcement; science parks; food safety; Medicaid coverage of HIV-infected individuals; and reducing the income threshold for the child tax credit. 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. The Conference Report, while rejecting permanent extension of all 2001 and 2003 tax cuts, 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 Conference Report assumes a permanent extension of the 2009 estate tax rates (45% and $3.5 million exemption). However, this policy 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 The President's Budget and Congress' Budget Resolution both project a balanced budget or budget surplus by 2012. However, neither of the projections are realistic for the following reasons: (1) Both 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) Both 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) Both 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."
"Taking Back Our Fiscal Future" -- Brookings, AEI, Heritage, Urban Institute, Concord Coalition, PPI CBO: Sources of Projected Growth in Medicare and Medicaid CBO: Containing the Cost of Cap-and-Trade CBO: Issues and Options in Infrastructure Investment CBO: Policy Options for the Housing and Financial Markets CBO: Long-Term Effects of Alternative Budget Policies 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 * * * * * * * * * * * * * * * * * * |