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October 23, 2007 Fixing the AMT: Senate Dems split on following PAYGO Rules
Note: Federal Government agencies are currently operating under a continuing resolution (H.J. Res. 52) allowing Federal programs, projects, and activities to continue operating at FY 2007 spending levels through November 16. This Week:
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FIXING THE AMT: SENATE DEMS SPLIT ON FOLLOWING PAYGO RULES Key Democratic Senators are split on the issue of whether to follow the Senate's pay-as-you-go (PAYGO) budgetary rules and provide offsets to “pay for” Alternative Minimum Tax (AMT) relief. National Journal's Congress Daily AM reported that last Wednesday, the Senate Finance Committee held a closed door meeting on Alternative Minimum Tax (AMT) relief where Senate Finance Committee Chairman Max Baucus (D-MT) proposed waiving the PAYGO budget rules for a 2007 AMT patch. Budget Committee Chairman Kent Conrad (D-ND), who also sits on the Finance Committee, strongly opposes the Baucus move to waive PAYGO. In an October 18 speech on the Senate Floor, Chairman Conrad called the notion of waiving the Senate's PAYGO rules “breathtaking.” According to Conrad, some Finance Committee members went even further, proposing a total repeal of the AMT and extension of the 2001 and 2003 tax cuts—without any offsets, adding $4 trillion of public debt over 10 years. Conrad called this “wildly irresponsible.” Democrats underscored the reinstatement of PAYGO rules at the beginning of the 110th Congress. This brewing intra-party skirmish over whether to adhere to PAYGO, is an issue with enormous policy implications for a broad range of tax and entitlement measures. WBR will keep you apprised as this issue unfolds. House Ways & Means Chairman Rangel has indicated his intention to pay for an AMT patch. (Rangel Release) [Context on the Alternative Minimum Tax (AMT): In 1969, after Congress learned that 155 taxpayers with incomes above $200,000 had paid no 1966 Federal tax, lawmakers enacted what later became known as the “Alternative Minimum Tax” in order to ensure that everyone pays a minimum amount of tax, regardless of how many tax preferences or deductions they may technically be entitled to. In general, the AMT operates by requiring people to recalculate their taxes under alternative rules that: (1) include certain forms of income exempt from regular tax; and (2) disallow certain exemptions, deductions, and preferences. While the AMT was first enacted to ensure that upper income individuals pay a “fair share” of the tax burden, upper-middle and middle-income taxpayers are increasingly finding themselves subject to the AMT for two reasons. First, while the regular income tax is indexed for inflation, the AMT is not. Second , recent income tax rate reductions have narrowed the differences between regular and AMT tax liabilities. According to CBO, until 2000, less than 1 percent of taxpayers paid AMT in any year. In 2001, 2003, and 2006, Congress enacted temporary increases in the AMT exemption amounts in order to mitigate the AMT's increasing impact on middle-income taxpayers. However, if AMT relief is not extended beyond 2006, the Congressional Research Service estimates that for tax year 2007, 24 million taxpayers would be subject to the AMT. Options to address the growth of the AMT include: (1) extending the increased exemption level; (2) indexing the AMT for inflation; or (3) repealing the AMT. However, all of these potential “fixes” for the AMT face the major hurdle of identifying offsetting revenue raisers. Congress is once again operating under PAYGO rules that require revenue raisers to offset the costs of any tax changes that would lose revenue (as all of the AMT “fixes” would). Even a one-year AMT fix—usually referred to as a “patch” due to its short-term effect—would cost $55-$60 billion.] SCHIP VETO OVERRIDE ATTEMPT FAILS; WHAT'S NEXT? Last Thursday, October 18, the House failed to override the president's SCHIP veto by a vote of 273-156, falling 13 votes short of the two-thirds requirement. [Context: The two-thirds required to override a veto is two-thirds of the total number of Representatives who are present and voting, not two-thirds of the entire chamber.] Having sustained the President's veto, Congress and the Administration now face difficult negotiations. After the vote, Senate Majority Leader Harry Reid (D-NV) released a statement warning against any compromise that would “abandon any of the uninsured children we would have covered with the bipartisan legislation already passed by Congress.” The president announced that HHS Secretary Mike Leavitt, OMB Director Jim Nussle, and National Economic Council Director Allan Hubbard would represent the administration in negotiations with Congress. In a conference call, Secretary Leavitt reiterated the Administration's desire to cap SCHIP eligibility at 200 percent above federal poverty level. (Leavitt-Nussle-Hubbard Press Statement). [Context: The President's proposal to cap SCHIP assistance at 200% of the Federal Poverty Level is much stricter than current law. Under current law, States may—with Administration approval—provide SCHIP coverage to children in families above the Federal Poverty Level ($20,650 for a family of four in 2007); in fact, 19 States currently cover children in families earning more than 200% above the FPL (ranging from West VA at 220% to New Jersey at 350% of FPL). The rationale for the flexibility of current law is that in New Jersey , for example, a family of four with two working parents earning 300% of the poverty level ($61,950) is unlikely to find affordable health insurance. Consequently, supporters of the bill, both Democratic and Republican, argue that the President's proposed reauthorization would reduce the number of low-income children currently covered by SCHIP. The congressional SCHIP bill would reauthorize the program and increase Federal funding by $35 billion over 5 years-- ($30 billion more than the President's request). The bill largely resembles the Senate version, including a 61 cent per pack tax increase on cigarettes to pay for the cost of the reauthorization/expansion. (CBO Cost Estimate) SCHIP was established in 1997 and provides health coverage to children in families whose incomes are low, but somewhat higher than Medicaid's very tight income eligibility limits. The program operates similar to Medicaid with Federal reimbursements for a percentage of State expenditures to provide health coverage for eligible children.] Annenberg Political Fund Fact Check on SCHIP Bill APPROPRIATIONS UPDATE: CONGRESS PREPARING FOR CONFERENCES Congressional Democrats and the President are currently locked in a face-off over appropriations levels, with Congress' Budget Resolution calling for $22 billion more in non-defense discretionary spending than the President's FY 2008 Budget request. The President has threatened to veto 9 of 12 appropriations bills. Despite the veto threats, Congress will likely send Labor-HHS-Education and other bills to the President at their current spending levels. Following the threatened vetoes, negotiations will likely begin on an omnibus appropriations package—negotiations that could well last into December. Status of pending appropriations: Agriculture/HR 3161: House bill $982 million over President's request; Senate-reported bill $874 million over President's request; White House threatened a veto on July 31. House Summary Senate Summary [Conference Issues: House bill includes provision allowing individuals and pharmacies to import prescription drugs from Canada and other countries.] Commerce-Justice-Science/HR 3093: Last Tuesday, October 16, the Senate passed the Commerce-Justice-Science Appropriations (H.R. 3093) by a vote of 75-19. The bill would provide $55.4 billion, which is $4.2 billion more than the president's request. The House bill is $2.31 billion over President's request. White House has threatened to veto the House and Senate bills. House Summary Senate Summary [Conference Issues: Senate bill provides additional $350 million for Commerce and nearly $400 million more for Justice. On the Floor, a Biden amendment provided an additional $110 million for the Community Oriented Policing Services (COPS) program. (Biden Release) Senate also passed a Mikulski Floor amendment to include an additional $1 billion to reimburse NASA for costs from the Columbia crash that led to program cuts. (Mikulski Release)] Defense/HR 3222: House bill $3.29 billion under President's request; Senate-reported base bill (excluding emergency border security) $3.58 billion under President's request. No veto threat. Like MilCon-VA, Congressional Democrats are likely to hold off on sending the Defense bill to the President, instead using it as vehicle to negotiate other bills' passage. House Summary Senate Summary [Conference Issues: House bill includes language restricting torture and permanent bases in Iraq, provides $2.8 billion more for transport ship and Stryker vehicles, and would appropriate additional $270 million for satellites and GPS programs. Senate bill includes nearly $3.8 billion in emergency spending for border security, and provides additional $500 million for military health care programs.] Energy-Water/HR 2641: House bill $1.13 billion over President's request; Senate-reported bill $800 million over President's request; White House threatened a veto on June 13. House Summary Senate Summary [Conference Issues: Senate bill provides additional $760 million for National Nuclear Security Administration. House bill provides $200 million more for renewable energy programs.] Financial Services/HR 2829: House bill $244 million under President's request; Senate-reported bill $122 million over President's request; White House threatened a veto on June 26 because of provisions that would “weaken current [trade] restrictions against Cuba .” House Summary Senate Summary Homeland Security/HR 2638: House bill $2.06 billion over President's request; Senate bill $5.25 billion over President's request; White House has threatened to veto the House and Senate bills. House Summary Senate Summary [Conference Issues: House bill provides over $200 million more for FEMA. Senate added $3 billion of emergency funding for border security.] Interior-Environment/HR 2643: House bill $1.95 billion over President's request; Senate-reported bill $1.498 billion over President's request; White House threatened a veto on June 25. House Summary Senate Summary [Conference Issues: House bill appropriates $300 million more for the EPA, mostly in the form of state assistance grants.] Labor-HHS-Education/HR 3043: House bill $10.83 billion over President's request; Senate-reported bill $8.28 billion over President's request; White House has threatened veto the House and Senate bills. Senate leaders hope to vote on the bill by Tuesday, October 23. House Summary Senate Summary [Conference Issues: The House bill includes additional $500 million for low-income home energy assistance (LIHEAP) and $500 million more for grants to low income schools. The Senate would provide an additional $250 million for NIH.] Legislative Branch/HR 2771: House bill $3.1 billion; Senate-reported bill $2.8 billion; President requested $4.33 billion (combined), White House has not threatened a veto. [Context: The House and Senate do not consider the spending of the other chamber until conference.] House Summary Senate Summary MilCon-VA/HR 2642: House bill $4 billion over President's request; Senate bill $4 billion over President's request; White House has not threatened a veto but insists on offsets in other spending bills. House Summary Senate Summary [Conference Issues: The House bill would provide $196 million more than the Senate for medical programs; the Senate bill would provide $177 million more than the House for base construction and closings. The Senate bill also includes $100 million in emergency funds for security at 2008 political conventions.] State-Foreign Ops/HR 2764: House bill $700 million under President's request; Senate bill $720 million under President's request; White House has threatened to veto the House and Senate bills. [Context: Despite coming in under the President's request, both bills face veto threats because of language that would overturn a policy barring U.S. funding for any international organization that performs abortions overseas.] House Summary Senate Summary [Conference Issues: House bill provides $600 million more than the Senate for the Millennium Challenge Corporation, which provides competitive grants to nations engaged in democratic reforms.] Transportation-HUD/HR 3074: House bill $2.77 billion over President's request; Senate bill $3.1 billion over President's request; White House has threatened to veto the House and Senate bills. House Summary Senate Summary [Conference Issues: The House would provide $228 million more than the Senate for Community Development Block Grants. The Senate bill includes an additional $1 billion for bridge repair and maintenance.] SENATE AGRICULTURE COMMITTEE SET TO MARK-UP FARM BILL The Senate is expected to markup a bipartisan Farm Bill this Wednesday, October 24. The revised bill follows months of negotiations by Agriculture Chairman Tom Harkin (D-IA), Finance Chairman Max Baucus (D-MT), Budget Chairman Kent Conrad (D-ND) and Agriculture Ranking Member Saxby Chambliss (R-GA), who supported Conrad's efforts to maintain current subsidies. [Context: The "Farm Bill," renewed every 5 to 6 years, governs the key aspects of Federal farm policy. Many provisions of the current Farm Bill, enacted in 2002, will expire this year. The 2002 bill covers a wide range of programs. Those with the greatest budget impact are (1) Food Stamps; (2) Commodity Support programs (government subsidies to producers of certain farm commodities--primarily corn, cotton, wheat, rice, and soybeans--intended to stabilize farm income); (3) Agricultural Conservation programs (payments and incentives addressing environmental concerns, soil erosion and water supplies);and (4) Export promotion programs.] The revised bill resembles many features in Chairman Harkin's original draft, including a provision that would tie counter-cyclical farmer relief payments to crop revenues instead of national revenues. The new program, expected to save $3 billion over 5 years, would allow farmers to opt for the crop revenue-based subsidies or continue with the existing system. (Harkin Statement) The draft farm bill would add $2.8 billion for renewable energy and $4.5 billion for conservation programs. Additional funding for the bill, including $1.5 billion for rural energy credits, has been partly provided by an agricultural tax package passed in the Senate Finance Committee on October 4. The agriculture tax package (Heartland, Habitat, Harvest, and Horticulture Act of 2007) includes $5.1 billion for the disaster relief fund, $7.5 billion for conservation provisions and another $2 billion for energy tax credits and incentives, totaling to nearly $16 billion. The package provides several different funding sources, including tariff revenues and codifying the “economic substance doctrine,” poorly defined rules relating to business tax shelters. Finance Chairman Max Baucus (D-MT) said that the amendment on the economic substance doctrine would clarify the rules and better define the penalties for corporations, which he believes will provide $10 billion in offsets. NEW BUDGET DOCS GAO: Beginning Farmers: Additional Steps Needed to Demonstrate the Effectiveness of USDA Assistance |
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | |
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