March 5, 2007 WAR SUPPLEMENTAL House appropriators had tentatively scheduled mark-up of the $103 billion FY'07 War Supplemental for this Wednesday, March 7, but that may be delayed. (The President requested $99.6 billion for the Global War on Terror, largely Iraq and Afghanistan, plus $3.4 billion for additional Hurricane Katrina relief.) The Senate is aiming to mark-up the bill March 20. See a break-down of the President's Supplemental request at the end of this report. Placing conditions on deployment of troops: Complicating efforts to mark-up a bill is the ongoing debate within the House Democratic Caucus over whether to rein in the President's "surge" in Iraq by placing certain conditions on deployment of troops. House Defense Appropriations Subcommittee Chairman John Murtha (D-PA) indicated yesterday on NBC's Meet the Press that he is considering language that would require that troops be home for one year in between tours of duty and be properly equipped and trained prior to deployment. The President would have to certify that those standards have been met or issue waivers. Other appropriators have discussed provisions requiring authorization prior to military action in Iran. Democrats have also discussed providing additional funding for operations to counter the Taliban in Afghanistan. House GOP to oppose conditions: House Republican Leader John Boehner (R-OH) said in a March 2nd press release that House Republicans would oppose any conditions that "hamstring our military commanders" or micro-manage American troop movements. The practical effect of this is that Democratic leaders will have to enforce party discipline to pass a Supplemental that includes any conditions. Supplemental fight potentially more difficult in the Senate: Even if House Democratic leaders can hold their votes, Senate Democratic leaders may face the much tougher challenge of getting 60 votes to shut down a potential Senate Republican filibuster of a Supplemental that imposes conditions on troop deployment. Emergency SCHIP funding: House Appropriations Chairman David Obey (D-WI) said the Supplemental will also include at least $750 million in emergency funding for the State Children's Health Insurance Program (SCHIP) because some states are projecting funding shortfalls for the current fiscal year. (The issue was pressed with HHS Secretary Leavitt during the recent meeting of the National Governors Association.) Drought aid for farmers has been promised by Speaker Pelosi as an add-on to the Supplemental. In addition, appropriators may provide additional funding for Walter Reed Army Medical Center and treatment of brain injuries and post-traumatic stress disorder (PTSD) in light of the recent Washington Post revelations about substandard outpatient care. CBO SHOWS PRESIDENT'S BUDGET FALLING SHORT IN 2012 The nonpartisan Congressional Budget Office (CBO) in its March 2 preliminary analysis of the President's Budget projected the President's budget proposals falling short of balance in 2012. The preliminary analysis of the President's proposals projected a $9 billion deficit, rather than the $61 billion surplus projected by the President's Office of Management and Budget (OMB). CBO's projections are different from OMB's because the CBO uses more conservative economic assumptions and different technical estimating practices. In particular, CBO's revenue projections are more conservative--projecting $155 billion less in fiscal year 2012 alone. Excluding the Social Security surplus, which many view as "masking" ongoing structural deficits, CBO projects the President's budget plan generating a deficit of $262 billion in 2012. Context - Why CBO's Analysis Matters : The fact that CBO shows the President's proposals falling slightly short of balance in 2012, rather than a modest surplus, is not significant from a macroeconomic point of view. However, the non-Social Security deficit of $262 billion in 2012 is significant because it reveals an ongoing structural deficit. Even more significant is that CBO's projections cover the next 10 years . OMB, by contrast, projected the President's policies for only 5 years. Over the 10-year period, CBO projects the President's policies yielding deficits of $830 billion (including Social Security surpluses), and more than $3 trillion (excluding Social Security surpluses). A principal factor in the considerable 10-year deficits is the President's proposed extension of the 2001 and 2003 tax cuts, which CBO projects at $1.8 trillion in lost revenues over 2008-2017. These provisions include reductions in individual income tax rates, marriage penalty relief, an increase in the child tax credit, reductions in tax rates on capital gains and dividends, and repeal of the estate tax. The 10-year CBO projections of do not include the costs of fixing the Alternative Minimum Tax (the President proposes only a 1-year fix for 2007); Members of Congress across the political spectrum view an AMT fix as a necessity. The President's plan also does not include any funding for Iraq, Afghanistan or the War on Terror beyond mid-2009. The President's proposed Medicare cuts over the 10-year period would amount to $232 billion and Medicaid cuts would amount to $49 billion according to CBO. CBO projects that the President's budget plan would reduce nondefense discretionary spending by 6 percent over the next 5 years (2008-12) in inflation-adjusted terms. (Congress typically adjusts for inflation in order to ascertain what it would cost to continue government services and activities at current levels.) FY'08 BUDGET RESOLUTION The House Budget Committee is scheduled to mark-up an FY'08 Budget Resolution next week, March 12, with the Senate aiming for the middle of next week, March 14 and 15. The budget plans put forward by House Budget Chairman Spratt and Senate Budget Chairman Conrad can be expected to: (1) aim for a balanced budget in 2012; (2) provide more non-defense discretionary spending than the President's plan, focusing in particular on the priority areas receiving funding increases under the recent FY'07 funding resolution (see Budget Backgrounder on H.J.Res. 20) ; (3) reduce or eliminate the President's proposed cuts in Medicare and Medicaid; and (4) fully fund the President's FY 2008 defense request, possibly including a boost or re-targeting of funding to military and veterans health care. Democrats will likely seek to offset the higher discretionary spending and smaller entitlement cuts by raising revenues. This is complicated by CBO's more conservative revenue forecast. Possible approaches may include "closing loopholes" and assuming more revenues through efforts to "close the tax gap." Democrats may extend certain components of the 2001 and 2003 tax cuts, but watch for an estate tax proposal that sets a new threshold rather than permanently repealing the tax as the President has proposed. (Since current law calls for the estate tax to return to 2001 levels at the end of 2010, such a proposal could be characterized as a "tax cut.") Democrats are also likely to extend AMT relief at least through 2008. Senate Budget Chairman Kent Conrad (D-ND) has indicated he may include in the Budget Resolution language establishing a bipartisan "working group" to address the nation's long-term fiscal problems, specifically entitlement and tax reform. FY'08 BUDGET PROCESS: STEP-BY-STEP™
Quote of the Week: "The Commission has become increasingly concerned with the trend of higher Medicare spending without a commensurate increase in value to the program. (An increase in value would be, for example, beneficiaries receiving higher quality services...) That trend, combined with the retirement of the baby boomers and Medicare's new prescription drug benefit, will, if unchecked, result in the Medicare program absorbing unprecedented shares of the GDP and of federal spending." --The nonpartisan Medicare Payment Advisory Commission (MedPAC). Worth Reading:
DETAILS: The President's FY'07 Supplemental Request
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | |