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WEEKLY REPORT: APRIL 28, 2008 BUDGET PROCESS: Step-by-Step
Last month, 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 House-Senate conference is continuing this week. (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.)
SENATE APPROPRIATIONS hearing schedule for Week of April 28
April 15: Deadline for adoption of the Conference Report on the FY 2009 Budget Resolution. (Congress often misses the deadline; last year's Budget Resolution conference report was adopted May 17, 2007.) April 28: Senate resumes consideration of H.R. 2881, the FAA reauthorization bill, that would raise the tax on general aviation to fund modernization of the air traffic control system. Also on Monday, Senate Agriculture Chairman Tom Harkin (D-IA) is aiming to present a tentative agreement to conferees on the farm bill (HR 2419).
May 15: Budget Act permits House of Representatives to begin Floor consideration of FY '09 appropriations bills even if an April 30: House Financial Services Committee continues markup of housing bill (HR 5830). See below for details. May 6: Tentative Senate Banking, Housing, and Urban Affairs Committee markup on housing legislation. June 10: Deadline for House Appropriations Committee to report last of the 12 regular appropriations bills
June 30: Deadline for House to complete action on annual appropriations bills DEMS CONSIDER STRATEGIES FOR '08 WAR SUPPLEMENTAL, SECOND STIMULUS BILL Last fall Congress provided 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. As "must pass" emergency legislation, the FY '08 Supplemental--which Democratic Leaders aim to complete by Memorial Day--could also be the vehicle for numerous non-defense items. Among the more likely non-defense items to be considered are additional economic stimulus measures, such as an extension of unemployment insurance benefits, as well as funding for low-income energy assistance and Food Stamps. (Last week, the House Ways & Means Committee passed HR 5749, a free-standing bill to provide an extra 13 weeks of unemployment benefits.) Alternatively, these non-defense items may be considered as a second economic stimulus bill. According to Congressional Quarterly, House Speaker Nancy Pelosi (D-CA) said on Friday that "the strain of the economic downturn on middle- and low-income families demands, in my view, consideration of a second stimulus package. And we have begun some conversations with the administration and the Republicans on that." However, President Bush has promised to veto any measure sent to him that exceeds his $108 billion request or "ties the hands of our commanders or impose[s] artificial timelines for withdrawal." President's speech. Another option Democrats are considering is additional war funding--perhaps $70 billion--as a "bridge" to fund the military through early 2009, which would put off full-year '09 funding decisions until after the presidential election. Last year's consideration of the war supplemental consumed more than 3 months, with Congress and the President fighting over withdrawal timelines and domestic add-ons to the President's supplemental request. The President vetoed HR 1591 during last year's consideration of supplemental and other emergency funding. See WBR's Archives [keyword: supplemental] for complete details on last year's Supplemental Appropriations legislation. Despite the President's veto threat, major DOD issues likely to be debated during consideration of the supplemental will include Senator Jim Webb's (D-VA) amendment to mandate rest time for troops equal to their deployments, and his amendment to increase education benefits for veterans similar to the WWII-era GI Bill. Another likely amendment to be considered is a proposal by Senator Ben Nelson (D-Neb) to require than any further aid for Iraq's reconstruction be given in the form of loans rather than grants, in light of Iraq's recovering oil revenues. HOUSE FINANCIAL SERVICES COMMITTEE ACTS ON HOUSING, DEBT RELIEF MEASURES Measures to address the housing crisis and credit crunch could also be attached to the supplemental, though the measures are more likely to move as a stand-alone housing package. Pending legislation includes measures aimed at encouraging home purchases through tax incentives; expansion of the FHA's insurance programs to assist struggling borrowers with refinancing mortgages; and reforms of the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac: HR 5720, which passed the House Ways and Means Committee on April 9, would provide a zero-interest, 15-year loan for first-time homebuyers. The Ways & Means bill wold also temporarily increase the volume cap for the low-income housing tax credit. HR 3221, which passed the Senate 84-12 on April 10, would provide tax incentives to encourage the purchase of homes now in foreclosure and to provide relief to homebuilders. To stimulate the purchase of homes in foreclosure, Individuals buying homes in the foreclosure process would receive a $7000 tax credit over two years. The bill would authorize an additional $10 billion in mortgage revenue bonds to refinance subprime loans. And the legislation would attempt to shore up the ailing homebuilding industry by allowing companies to apply current losses to past profits and claim refunds (called a net operating loss carryback). JCT Revenue Estimate HR 5818, which passed the House Committee on Financial Services last Wednesday, 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. HR 5579, which also passed the House Committee on Financial Services last Wednesday, would facilitate debt restructuring on the part of holders of residential mortgage loans. HR 5830, which the House Committee on Financial Services began to mark-up last Thursday, would expand FHA's mortgage insurance program by encouraging lenders to accept write-downs on bad loans, and then refinance at current market value. Mark-up resumes April 30. (The Bush Administration has announced opposition to the bill.) A housing package might also include provisions contained in HR 1427, a bill to reform FHA, Fannie Mae, and Freddie Mac, that passed the House last year. EXPERTS ACROSS POLITICAL SPECTRUM URGE CANDIDATES TO TALK ABOUT LOOMING FISCAL CRISIS Budget experts from the Democratic-leaning Brookings Institution, and the Republican-leaning Heritage Foundation this month released a paper urging presidential and congressional candidates to address the looming fiscal crisis. The joint effort also included participants from the American Enterprise Institute, the Concord Coalition, the New America Foundation, the Progressive Policy Institute, and the Urban Institute. Highlights follow: "When the next president and Congress take office in January 2009, they will face one crucial question that has been largely absent from the current election campaign: how to narrow significantly the enormous gap between projected federal spending and revenues.... "(P)rojected increases in spending for Medicare, Medicaid, and Social Security will soon create unsustainable deficits unless current policies are changed. Furthermore the automatic growth in these programs is preempting the policy discussion we should be having about our national priorities and how they should be funded... "We are particularly worried that automatic growth in programs directed primarily at seniors will crowd out growth-enhancing investments in the skills and well-being of the young... "The year 2008 is not just an election year; it also marks the beginning of a demographic transformation as the first of nearly 80 million baby boomers reach the age at which they can draw Social Security benefits. Social Security, Medicare, and Medicaid--whose benefits in large measure are focused on the elderly--already comprise 42 percent of the federal budget even before the baby boomers begin to retire. "We believe that these three programs (Medicare, Medicaid, and Social Security) must be subjected to serious periodic review and decision. Their estimated future costs must be shown clearly and budgeted in advance. If they run significantly over budget, a triggering mechanism should force the president and Congress to deal with the shortfall..." Full text of "Taking Back Our Fiscal Future" CONCESSION ON AMT BILL IMPROVES PROSPECTS FOR '09 BUDGET RESOLUTION A recent concession by the fiscally conservative "Blue Dog" Democrats may open the way for completion of the FY '09 Budget Resolution. Blue Dogs 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. Last year, Democrats yielded to a Senate Republican filibuster of AMT legislation that included revenue raisers and agreed to pass the measure without offsets. Using Budget Reconciliation this year, according to the Blue Dogs, might have allowed Democrats to circumvent a similar filibuster. However, Senate Democratic budget negotiators have been skeptical about their ability to secure passage of a Budget Resolution Conference Report that includes Reconciliation instructions, because they would lose the support of Senators Olympia Snowe (R-ME) and Susan Collins (R-ME), who supported the Senate-passed the Budget Resolution. The two moderate Republican Senators, would be unlikely to vote for a conference report that includes Reconciliation instructions (the argument being that Reconciliation circumvents the rights of the minority party to filibuster). The votes of the two Maine Senators are essential to passage of the Conference Report because Senator Evan Bayh (D-IN) opposes passage (due to his opposition to total discretionary spending levels). As reported by Congressional Quarterly, Rep. Allen Boyd of Florida, a leader of the Blue Dogs, said last week: "We're not wedded to reconciliation. We are wedded to pay-go compliance and fiscal responsibility." The concession would allow a repeat of last year when the House initially included offsets in the AMT bill, but eventually conceded to the Senate which passed a bill without offsets. Historical Note: Congress has failed to pass a Budget Resolution in 4 recent election years: 1998, 2002, 2004, and 2006. See WBR's Budget Resolutions page for a historical record. 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.) In contrast to these deep cuts in nondefense spending, the House Budget Resolution calls for approximately $25 billion more than the President in FY 2009 non-defense discretionary spending, and the Senate calls for about $22 billion more than the President's Budget. 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. FY '09 War Funding for Iraq and Afghanistan The Administration's FY 2009 Budget includes only partial, short-term war funding ($70 billion for FY 2009 and nothing thereafter) -- one reason why their balanced budget projections for 2012 and 2013 are illusory (since the Administration is anticipating a substantial and continuing troop presence beyond 2009). The Administration's practice of under-funding war requests in the February Budget, and then seeking enormous supplemental appropriations, has caused significant friction with Congress--on both sides of the aisle. The effect of the Administration's practice is to radically underestimate projected deficits in the President's February Budget. (The House and Senate Budget Resolutions use the President's requested level.) "Reserve Funds" In order to project a balanced budget by 2012, while still showing support for specific policy priorities, the House- and Senate-passed Budget Resolutions again include 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 House-passed Budget Resolution includes reserve funds for: SCHIP expansion (vetoed last year by the President); expanded veterans' benefits; infrastructure investment; renewable energy; middle-income tax relief; AMT (Alternative Minimum Tax) reform; higher education; affordable housing; Medicare improvements; health care; Medicaid; Trade Adjustment Assistance; county payments; water rights settlements; national parks; and child support enforcement. The Senate Budget Resolution, as reported by the Budget Committee, includes reserve funds for: SCHIP expansion; tax relief; tax incentives for manufacturing; affordable housing; trade-related programs; relief for families; flood insurance; initiatives authorized by the new Farm Bill (currently in conference); Secure Rural Schools; improving education; infrastructure investments; investments in energy and the environment; veterans benefits; Medicare improvements; health care improvement; FDA product regulation; Medicaid's transitional medical assistance program; and judicial pay. During the Senate's vote-a-rama, the Senate added dozens of additional reserve funds which are summarized in the Congressional Record digest for March 13, 2008. Tax Increases, or Not? Similar to last year's debate on the Budget Resolution, much of the debate during House and Senate Floor action last month 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. This debate will continue throughout consideration of the conference report and into the fall presidential and congressional election campaigns. Senate Democrats, while rejecting permanent extension of all 2001 and 2003 tax cuts, would extend some of them. During Floor consideration, the Senate adopted, by a vote of 99-1, an amendment offered by Finance Committee Chairman Max Baucus (D-MT) that 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 House-passed Budget Resolution assumes the pre-2001 Estate Tax will spring back in 2011. The Senate-passed Budget Resolution assumes a more realistic permanent extension of the 2009 estate tax rates (45% and $3.5 million exemption). The House-Senate conference will need to resolve this difference between the House and Senate Resolutions. Backgrounder: Estate and Gift Taxes -- Myths and Facts Balanced Budget Projections are Illusory Each of the three budget plans -- the President's Budget, the House Resolution, and the Senate Resolution -- project a balanced budget or budget surplus by 2012. None of the projections are realistic for the following reasons: (1) All three 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) All three 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) All three 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 last month's Floor debate 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 month, 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 includes 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 fiscal irresponsibility of 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." RECENT BUDGET DOCS JCT: Overview of the Federal Tax System as in Effect for 2008 CBO: Testimony on a Cap-and-Trade Program CBO Report: Policy Options for the Housing and Financial Markets CRS: The Cost of Iraq and Afghanistan 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 and Publisher of Washington Budget Report. * * * * * * * * * * * * * * * * *
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