March 26, 2007 Senate to Consider ’07 War Supplemental BUDGET PROCESS: STEP-BY-STEP™
SENATE CONSIDERING ’07 WAR SUPPLEMENTAL, IRAQ DEADLINE THIS WEEK Following last Friday’s narrow House passage H.R. 1591, the FY 2007 war supplemental, the Senate began debate today, Monday, on its own FY 2007 supplemental spending bill. The White House has promised a veto if the House-passed bill reaches the President’s desk due to language setting an August 2008 deadline for ending U.S. troop presence in Iraq (earlier if progress towards, and achievement of, political and military benchmarks are not met by July 1, 2007 and October 1, 2007). The Senate Appropriations Committee bill differs somewhat in its Iraq language, but has likewise drawn a veto threat. As described by the Committee, “the Senate bill would direct the President, within 120 days of enactment, to begin to redeploy the troops from Iraq, with a goal of having only a limited number of troops remaining in the country on March 31, 2008.” Senate Republican Leader Mitch McConnell (R-KY) has stated that Senate Republicans would strongly oppose the Senate-reported supplemental bill, but whether Senate Republicans will filibuster the bill or permit a vote (followed by promised veto) remains unclear.
2008 BUDGET: COMPARISON OF SENATE-PASSED, HOUSE-REPORTED, PRESIDENT’S REQUEST The Senate passed its version of the FY’08 Budget Resolution (S.Con.Res. 21) last Friday, March 23rd. The full House is scheduled to take up consideration of the House Budget Committee-reported plan this Wednesday and Thursday. The House and Senate will conference the Budget Resolution following the Easter/Passover recess and likely bring the compromise version to the Floor the week of April 16. Following is a comparison of the Senate-passed, House-reported and President’s Request. At the end of this report, is a link to an exclusive WBR Budget Backgrounder that displays all amendments adopted during consideration of the Senate-passed Budget Resolution, categorized by:
Defense Spending The Senate and House, would fully fund the President’s defense requests for fiscal years 2008 through 2012. However, all three budgets provide $145 billion for Iraq and Afghanistan war funding for FY 2008, but only $50 billion for FY 2009, and nothing thereafter. Some analysts argue that all three budgets are unrealistic in this respect. Non-Defense Discretionary Spending A key function of Budget Resolutions is to provide the Appropriations Committees with a total sum of money to subdivide among all of the government’s discretionary (i.e. non-entitlement) programs. For FY 2008, the President proposes $432 billion for non-defense discretionary appropriations; the Senate proposes $448 billion; and the House proposes $451 billion. Context: If you are surprised that total non-defense discretionary spending consumes less than 18% of our $3 trillion Federal Budget, the reasons are: entitlements, debt, and defense. Entitlement spending, including Social Security, Medicare, and Medicaid consume over half the budget and are continuing to grow rapidly. Interest payments on our rapidly rising Federal debt consume nearly nine percent of the Federal budget. And defense spending—including war costs—has more than doubled since 2000. Most of the government’s programs that typically come to mind—homeland security; law enforcement; education; highways and bridges; airports; housing; health centers; environmental, food and drug regulation; health and scientific research—are all contained in the 18% slice of the budget pie called non-defense discretionary spending. For an overview of Federal spending, visit our website: www.GovBudget.com. Entitlement Reform / Long-Term Fiscal Crisis As frequently noted in WBR, there is widespread bipartisan agreement that our nation faces a fiscal crisis with the impending retirement of the baby boom generation and the resulting explosion of Medicare, Medicaid and Social Security outlays. (Medicare and Medicaid costs are also exploding due to the rapid rise in health care costs.) The President proposes Medicare reforms that would cut projected expenditures by $66 billion over five years and $252 billion over 10 years. These proposals include imposing higher Part B (outpatient) and Part D (prescription drug) premiums on upper income beneficiaries, as well as slowing inflation adjustments for Medicare payments to health care providers. The Senate rejects these proposed reforms, arguing that they simply shift costs without addressing the overall increase in health care costs. Instead, the Senate plan includes a non-binding assumption that Congress will take modest actions to reduce Medicare overpayments. Neither the Senate nor the House plans propose significant Medicare reforms. An amendment by Senator John Ensign (R-NV) reflecting the President’s Medicare premium proposal was defeated in the Senate 44-52. On Social Security, the President’s Budget once again proposes to allow younger workers to divert up to one-third of their Social Security payroll contributions to individual accounts. Since Social Security is a “pay-as-you-go program,” with current workers’ payroll taxes paying for current retiree benefits, the proposed diversion of payroll taxes would worsen the fiscal solvency of the program. This effect is not apparent, however, in the President’s Budget because the diversion of Social Security revenues would not begin until 2013—beyond the President’s 5-year budget plan. The House and Senate reject the President’s Social Security proposal, but offer no alternative plan to address long-term solvency. Expiring Tax Cuts Much of the Senate budget debate last week, and much of the House debate this week will be about the 2001 and 2003 tax cuts which expire in 2010. The President’s Budget proposes to make permanent the reduction in tax rates at a cost of $1.8 trillion over the next 10 years. (Approximately $1 trillion in revenue losses would be from extending lower tax rates, the child tax credit, and marriage penalty relief; about $500 billion from permanently repealing the estate tax; and over $200 billion from reduced tax rates on dividends and capital gains.) Much of the partisan debate has been about what constitutes a “tax increase.” Republicans argue that not extending the tax cuts is a tax increase. Democrats counter they are simply retaining current law (under which the tax cuts will expire). Neither the Senate nor the House Budget Committees proposed to extend the tax cuts. However, during last week’s Senate Floor debate, the Senate passed 97-1 an amendment by Senate Finance Committee Chairman Max Baucus to use the projected surplus in 2012 to extend certain “middle class” tax cuts (marriage penalty, child credit, adoption tax credit, and the 10% bracket), and extend the estate tax at 2009 levels ($3.5 million exemption and 45% rate). However, when this legislation comes to the Senate Floor, it will be subject to the Budget Resolution’s new PAYGO point of order since the revenue losses and spending increases will not be offset. As a practical matter, the legislation will therefore require 60 votes for passage (unless no one raises the PAYGO point of order). The Senate defeated an estate tax amendment 48-51 by Senators Jon Kyl and John Thune to set the exemption at $5 million per estate with a rate of no more than 35%; and defeated 46-52 an amendment by Sen. Lindsay Graham to extend the current 35, 33, 28, and 25 percent tax brackets so that the rates do not return to 39.6, 36, 31 and 28 percent after 2010. The Senate also defeated 44-55 a DeMint / Kyl amendment calling for the permanent repeal of the estate tax. Alternative Minimum Tax Another front-burner tax issue this year is the growing impact of the Alternative Minimum Tax on upper-middle-income taxpayers. The President’s plan proposes a “patch” for 2007 to forestall this impact, but nothing beyond this year. The Senate plan proposes a patch for 2007 and 2008. The House plan recommends AMT relief, but provides no way to pay for it. The Senate defeated 44-53 a Grassley amendment calling for the full repeal of the AMT. State Children’s Health Insurance Program (SCHIP) A front-burner spending issue this year is reauthorization of the State Children’s Health Insurance Program. SCHIP is a Federal grant program that provides health coverage to children in families whose incomes are low, but somewhat higher than Medicaid’s tight income eligibility limits. Funds are provided to States based on population. The Senate and House plans both criticize the President’s plan for not expanding the program to cover all eligible children, however neither the Senate nor the House plans fully fund the coverage they support (although a Baucus amendment provides partial funding). Instead they include “reserve funds” that make additional funding contingent on identifying offsetting spending cuts or tax increases later in the budget process. The Senate also adopted a non-binding amendment by Sen. Gordon Smith (R-OR) stating that “among the policy changes that could be considered to achieve offsets to the cost of reauthorizing the State Children's Health Insurance Program and expanding coverage for children is an increase in the tobacco products user fee rate with all revenue generated by such increase dedicated to such reauthorization and expansion.'' Deficits When the President released his Budget, it was touted as achieving a surplus of $61 billion in 2012. When the Congressional Budget Office (CBO) re-estimated the President’s proposals using their own economic projections and technical assumptions for programs, the President’s budget shows a $31 billion deficit in 2012. The Senate Budget Committee reported a budget plan with an estimated $132 billion surplus in 2012, however the surplus was soaked up by the Baucus amendment (discussed above). The House plan that will be debated this week projects a $153 billion surplus in 2012. Budget Enforcement The Senate plan includes numerous procedural enforcement mechanisms to prevent the grim fiscal outlook (due to the impending explosion of entitlement spending) from further worsening. As reported by the Senate Budget Committee, the resolution would: prohibit consideration of new tax cuts or entitlement expansions unless fully offset by tax increases or spending cuts; prohibit consideration of legislation that would worsen deficits in any of the 4 upcoming decades; prohibit the filibuster-proof Budget Reconciliation process from being used to expedite legislation that would increase deficits; establish discretionary spending caps for FY 2007 and 2008; and prohibit legislation that would worsen Social Security’s long-term solvency. Waiver of any of these restrictions would require a 60-vote supermajority in the Senate. The Senate also defeated 46-52 a Sessions amendment to exempt extension of the 2001 and 2003 tax cuts from the PAYGO requirements. Additional enforcement mechanisms were added by Floor amendments as summarized in the link below. BUDGET BACKGROUNDER: AMENDMENTS ADOPTED TO THE SENATE BUDGET RESOLUTION
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | |