Budget Process Step-by-Step

Feb. 4: President transmitted his FY 2009 Budget to Congress this morning; and later in the day the Senate will have a cloture vote on the motion to proceed to consideration of the Economic Stimulus Bill

[Context: Last year, congressional appropriations bills varied considerably from the President's Budget, but the President's total discretionary level became, in effect, a ceiling on appropriations.]

Feb. 5: "Super-Tuesday" presidential primaries

Feb 6: OMB Director Nussle testifies at Senate Budget Committee on the President's FY 2009 Budget request

Feb. 7: OMB Director Nussle testifies at House Budget Committee on the President's FY 2009 Budget request

Feb 15: Congressional leaders are aiming for completion of action on the stimulus package before Congress adjourns for President's Day Recess.

Late Feb./Early March: Authorizing committees transmit "views and estimates" on the President's budget proposals to the House and Senate Budget Committees

March 14: Before Congress adjourns for Easter Recess on March 14, the House and Senate Budget Committees are likely to report their respective versions of the FY 2009 Budget Resolution (with Floor action and conference to follow after the recess).

Stimulus Package Update

House action last week: Last Tuesday, 1/29, the House overwhelmingly passed HR 5140, the economic stimulus package negotiated with the White House, with the following elements:

Rebates and Child Credit: Workers who pay income tax and have adjusted gross income less than $75,000 for individuals and $150,000 for couples, would receive tax rebates of up to $600 (for individuals) and $1200 (for couples); Low-income workers would get checks of $300 for individuals and $600 for couples, regardless of whether they owe any income tax. Everyone eligible for this relief would also receive an additional $300 per child.

Businesses would be permitted to deduct 50 percent of the cost of new investments in 2008 (thereby accelerating the depreciation). Small businesses would be allowed to "expense" (write-off) the entire cost of new investments in 2008 up to a ceiling of $250,000.

Housing Industry Relief: The bill would increase the size of mortgage loans that can be insured by the Federal Housing Administration (FHA), and purchased by Fannie Mae and Freddie Mac. (The Fannie and Freddie provisions would sunset after a year.)

Senate action last week: Last Wednesday, 1/30, the Senate Finance Committee voted 14-7 to report its own--more expensive--economic stimulus package including the following differences from the House-passed bill:

Rebate Checks ($500 for individuals and $1000 for joint filers) would be slightly less than the House bill, but more people would receive them (income caps at $150,000 for individuals and $300,000 for joint filers).

Rebate for Seniors and Disabled Americans: $500 tax rebate to 20 million seniors and disabled Americans (regardless of whether they owe income tax).

Low-Income Disabled Veterans: $500 rebate to low-income disabled veterans (even though disability compensation is not counted as income).

Temporary Extended Unemployment Compensation: An additional 13 weeks of Federally-funded unemployment insurance beyond the 26 weeks of regular unemployment benefits (plus an additional 13 weeks for "high unemployment" states).

Extend the Net Operating Loss (NOL) Carry-Back Period from 2 years to 5 years, allowing businesses (including the housing industry) to apply current losses to previous profitable years, entitling them to a refund.

Extension of renewable energy and energy efficiency tax incentives (one of the many "tax extenders" Congress did not act on last year).

Expand availability of mortgage revenue bonds.

Senate Floor Action This Week: The Senate will vote Monday at 5:30pm on cloture on the (motion to proceed to) the House-passed bill and will then consider--probably in a piecemeal fashion---various Finance Committee provisions as amendments to the House bill. The Senate may also consider amendments to add funds for the Low-Income Home Energy Assistance Program (LIHEAP) and Food Stamps. However, there is, as yet, no unanimous consent agreement on exactly how Floor consideration of the bill will proceed. House Leaders and the Administration continue to prefer the House-passed bill.

JCT Cost Estimate: House-Passed Stimulus Bill

($146 billion in FY 2008 and $15 billion in FY 2009)

($158 billion in FY 2008 and $46 billion in FY 2009)

President's FY 2009 Budget: Devil is in the Details

FY 2009 Budget
Treasury Dept. Blue Book

Unrealistic Balanced Budget Projection: The first section people general look at in the President's Budget is the summary table, which projects a balanced budget by 2012 under the President's proposed policies. However, the balanced budget projection will be viewed by many in Congress as unrealistic for the following reasons:

1. The budget includes temporary Social Security surpluses, which effectively "mask" the ongoing or "structural deficit" in government operations. When the surpluses are properly excluded (as Federal law requires), the FY 2012 deficit would be $203 billion.

2. Budget includes only partial war funding for FY 2009 (and no funding thereafter): One item already causing heartburn on the Hill is the Administration's return to its pre-2008 practice of requesting only partial war funding for next year. Congressional Democrats want a full accounting of how much war funding the Administration projects will be needed for FY 2009 and beyond. This is a hot-button issue for many Democrats and Republicans on the Hill who object to the fact that most of the war funding for Iraq and Afghanistan has come in the form of supplemental requests--which means that the President's February Budgets over the years have grossly under-projected Federal deficits. Another consequence of funding the war with supplemental bills is that the supplemental requests include a far less detailed accounting of how the funds would be spent.

3. The budget assumes that nondefense (and non-homeland security) funding would be frozen, receiving no inflation adjustments for the next five years--in effect causing a significant and unrealistic reduction in government services. Agencies taking the biggest hits in 2009 are Agriculture, Health and Human Services, Interior, Labor, Transportation, Corps of Engineers, and EPA. Proposed program terminations include the commodity supplemental food program, career and technical education state grants, special Olympics, Even Start, Byrd honors scholarships, supplemental education opportunity grants, weatherization assistance, community services block grant, preventive health services block grant, grants for pediatric teaching hospitals, and state criminal alien assistance program.

4. The budget would only provide AMT "Alternative Minimum Tax" relief for tax year 2008--leaving out the revnue losses associated with "fixing" the AMT in subsequent years.

5. The budget includes $178 billion in proposed Medicare cuts over the next 5 years, which will be viewed by many as unrealistic without comprehensive health care reform.

6. The budget again includes the President's Social Security privatization proposals, but would not phase them in until 2013--a budgetary gimmick to avoid adding to deficits over 2009-2012.

7. Finally, the budget numbers get a boost from using economic projections more favorable than blue-chip: 5-year average GDP growth of 2.9% (0.2% above blue-chip); 5-year average inflation of 2.3% (0.1% below blue-chip); and 5-year unemployment rate of 4.8% (0.1% below blue-chip).

Making the Tax Cuts Permanent: The President again proposes making the 2001 and 2003 tax cuts permanent, at a cost of $2 trillion over the next 10 years--raising fiscal policy concerns among Members of Congress concerned about the rapidly rising Federal debt. The debt has increased from $5.7 trillion in 2001 to $9.2 trillion presently--and is accelerating due to health care inflation and retirement of the boomers).

Health Care: The President again proposes a new standard deduction for health insurance.

President's FY 2009 Budget and Medicare

Medicare "Funding Warning" Triggers Administration Proposed Cuts: The percentage of total Medicare spending covered by payroll taxes, premiums and other dedicated funding sources is shrinking, and the amount of general revenues required to keep the program afloat is rapidly increasing.

As a consequence of this trend, the 2003 Medicare prescription drug legislation (known as the Medicare Modernization Act, or MMA) required the Trustees of the Medicare Trust Funds to report each year on the amount of general revenues required to finance Medicare; and if the percentage of general revenues was to exceed 45% of total Medicare outlays for two consecutive years, the Trustees are directed by the MMA to issue a "Medicare funding warning."

The Trustees made such a finding in 2006 and 2007 and issued the finding in their April 2007 Annual Report. Under the MMA, the President is now required to submit to Congress proposed legislation to respond to the warning, with reforms that would eliminate the need to expend general revenues in excess of 45% of Medicare outlays.

In accordance with that requirement, the President has proposed $178 billion in Medicare cuts over the next 5 years, and $556 billion over 10 years. However, it is highly unlikely Congress will act on any of the proposed Medicare reforms, or propose alternative cuts, during the election year.

Many in Congress believe the 45% threshold is arbitrary, although supporters of the provision hope it will force Congress and the Administration to confront the severe fiscal crisis the nation faces unless the rapidly rising costs of Medicare (and Medicaid) are soon addressed.

New Budget Docs

President's FY 2009 Budget

Last Week's House Budget Committee Testimony on the Stimulus Package

America's Priorities: How the U.S. Government Raises and Spends $3 Trillion Per Year, by Charles S. Konigsberg, Editor and Publisher of Washington Budget Report.