February 26, 2008

Budget Process Step-by-Step

Feb 13: President signed HR 5140, the Economic Stimulus Bill (PL 110-185)

This week's scheduled Senate Appropriations Committee budget hearings

This week's scheduled House Appropriations Committee budget hearings

Feb. 27: House Budget Committee hearings on President's FY 2009 Defense Budget (10am) and President's HHS Budget (2pm)

Late February/Early March: Authorizing committees transmit "views and estimates" on the President's budget proposals to the House and Senate Budget Committees (all of which will be posted on WBR's "Budget Docs" page)

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

Views and Estimates

As the first step in the congressional budget process, the authorizing committees of the House and Senate are required to submit to their respective Budget Committees, "views and estimates" with respect to the FY 2009 Budget. In this way, the authorizing committees have input into the upcoming Budget Committee deliberations on a Fiscal Year 2009 Budget Resolution. Views and Estimates will be posted on the Budget Docs page of www.WashingtonBudgetReport.com as soon as they become available.

On February 14th the House Ways & Means Committee approved its "views and estimates" letter focusing, in particular, on: concerns about the Medicare Advantage program and the Medicare prescription drug program; the backlog of Social Security disability claims; the growing burden of the Alternative Minimum Tax (AMT); and extending and improving Trade Adjustment Assistance. Also noteworthy is the Committee's statement that "while it will be difficult for the Committee to find offsets within its jurisdiction, the Committee intends to finance legislation in the above areas, in compliance with the House's new paygo rule."

Medicare Funding Warning Response Act

The percentage of total Medicare outlays 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 was required to submit to Congress, within 15 days after release of his FY 2009 Budget, 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). HHS Secretary Leavitt released the President's proposal on February 15, 2008.

Yesterday, House Majority Leader Steny Hoyer introduced the legislation, as required by the MMA, but his office issued a statement making clear that "the act of introducing this legislation does not imply that Hoyer supports the bill."

Administration Medicare Transmittal Letter
Summary of Administration Medicare Legislation
Administration Legislation
Hoyer Statement

More on the President's FY 2009 Budget

The February 4th issue of WBR explained why the President's 2009 Budget has unrealistically projected a balanced budget by FY 2012:
(1) it uses temporary Social Security surpluses to "mask" the ongoing or "structural deficit" in government operations;
(2) it includes only partial war funding for FY 2009 and nothing thereafter ($70 billion, as opposed to $193 billion requested for FY 2008);
(3) it assumes that nondefense funding would be frozen, receiving no inflation adjustments for the next five years--in effect causing a significant and unrealistic reduction in government services;
(4) it would provide "Alternative Minimum Tax" (AMT) relief for tax year 2008 only;
(5) it 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; and
(6) it gets an artificial boost from using rosy economic projections.

Following are highlights from the Democratic and Republican staff analyses of the President's FY 2009 Budget:

House Budget Committee / Democratic Staff Analysis:

--"The Administration now shows that the 2008 deficit will be $410 billion (the second largest in history), followed by a deficit of 2009 currently estimated to be $407 billion (the third largest in history) but likely to grow once the full costs of Administration policies are included."

--"Today's budget calls for tax cuts with a total cost of $3 trillion over ten years, largely targeted to those who need help the least. To help finance these tax cuts, the budget again proposes cuts to critical services and investments, including: Medicare cuts of $556 billion over ten years; $47 billion in net legislated Medicaid cuts over ten years; Centers for Disease Control cut by $433 million for 2009; LIHEAP cut by $570 million for 2009 despite the fact that home heating costs are soaring and the program is only able to serve 16 percent of eligible families at its current level; Community Oriented Policing Services (COPS) eliminated for 2009; Social Services Block Grant (SSBG) cut by $500 million for 2009 and completely eliminated in 2010, at a time when nearly half of states are facing budget shortfalls; the Environmental Protection Agency cut by $330 million for 2009; $5.2 billion in new fees on veterans over the next ten years."

--"Current estimates suggest that the debt will rise by a total of nearly $4 trillion during this Administration....The government's net interest payments on this debt will total $260 billion in 2009...making net interest one of the fastest-growing parts of the budget....[I]nterest payments on the debt increasingly are paid to foreign investors."

House Budget Committee / Republican Staff Analysis:

--"The budget targets funding increases on the President's priorities-namely the Department of Defense, Homeland Security, and International Affairs. Within the 4.9-percent growth in overall discretionary spending over 2008 are a 7.5-percent increase in Defense spending, a 10.7-percent increase in Homeland Security, and a 16.5-percent boost for International Affairs. The non-security discretionary level grows at a much smaller rate of 0.3 percent, continuing the President's practice of holding non-security spending growth well below inflation."

--"The President reiterates his 2008 request for emergency supplemental appropriations for the global war on terrorism....Congress provided less than half of the President's recommendation for the war [for the current fiscal year], and $108.1 billion of his request for 2008 remains outstanding."

--"The administration proposes reforms in entitlement programs that will moderate mandatory spending growth and achieve savings, from currently projected spending, totaling $16 billion in fiscal years 2009, $208 billion for fiscal years 2009-13, and $619 billion for 2009-18. The 5-year savings result primarily from the President's Medicare proposals...."

--"A top administration priority is making permanent the broad tax relief provided in 2001-generally scheduled to expire after 31 December 2010-and most of the growth package enacted in 2003. These policies include lower marginal tax rates compared with those in place through 2000; the 10-percent tax bracket; a doubling of the child tax credit; marriage penalty relief; repeal of the estate tax; a lower capital gains rate and other investment incentives; and higher expensing for small businesses."

[Context: When opponents of extending the tax cuts assert a disproportionate benefit for the "wealthy," they are generally referring to the reduction of the top brackets from 36% and 39.6% down to 31% and 35%; repeal of the estate tax; and lower rates for capital gains and dividend income.]

Senate Budget Committee Democratic Staff Analysis:

--Under the President's Budget, the Federal debt will increase to $10.4 trillion in FY 2009 and $13.3 trillion in 2013. By comparison, in 2001 the debt was $5.8 trillion.

[Context: These are "total debt" figures, i.e., debt owed to the public plus debt owed to Social Security and other government trust funds.]

--The entitlement cuts proposed by the President's Budget would be "wiped out" by the cost of extending the Bush tax cuts. Over the next 10 years, the proposed Medicare and Medicaid cuts would save $603 billion, while the cost of extending the tax cuts would be $2.2 trillion.

--President's Budget would make deep cuts in "key priorities": COPS (eliminated), weatherization assistance (eliminated), homeland security first responder grants (cut by 78%), EPA clean water grants (cut by 21%), LIHEAP (cut by 17%).

Senate Budget Committee Republican Staff Analysis:

--"The Budget includes $178 billion in reductions in Medicare in FY 2009-2013, compared to the $66 billion in the FY 2008 Budget....Proposed Medicare changes reduce the 75-year unfunded liability of Medicare by more than $10 trillion. The majority of these reductions, almost $113 billion over 5 years, freeze provider payments for 3 years followed by 2 years of lower than inflation updates." In addition, the Budget would leave in place currently scheduled reductions in physician payments.

--In addition, the Budget calls for reduced Medicare support for academic medical centers, and reduced Medicare payments to hospitals serving a disproportionate share of low-income beneficiaries.

--The President's Budget includes policies that save $17 billion in Medicaid over 5 years. These include eliminating Medicaid payments "duplicative of TANF block grant funds"; allow States discretion to enroll "certain special populations" into managed care programs; and set all administrative reimbursements to States at 50%, including Targeted Case Management services.

--The Budget would increase 5-year spending for SCHIP (as compared to declining spending under current law) by $18.7 billion. "This policy will allow for an average monthly total of 5.6 million children to be enrolled by SCHIP."

[Context: The SCHIP bill vetoed by the President last year would have increased coverage to 9 million low-income children.]

--The Budget would freeze NIH spending and reduce CDC spending by 7 percent.

Recent Budget Docs

CRS: Earmarks Executive Order: Legal Issues, February 13, 2008

CBO: The Deductibility of State and Local Taxes

CBO: Update of CBO's Economic Forecast

CBO: Policy Options for Reducing CO2 Emissions

CBO: Analysis of the Growth in Funding for Operations in Iraq, Afghanistan, and Elsewhere in the War on Terrorism

CBO: Technological Change and the Growth of Health Care Spending

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.

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