November 13, 2007

President Vetoes Labor-HHS-Education Approps
President Signs Defense Approps Including CR Extension
Administration Threatens to Veto AMT Patch
Farm Bill: Progress Stalls Over Amendments
Conference Comm. Approves Transportation-HUD Report

Budget Process Step-By-Step™

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:

Tuesday 11/13: President vetoed Labor-HHS-Education Appropriations (HR 3043); and signed Defense Appropriations (including an extension of the continuing resolution through December 14) (HR 3222)

Senate seeks progress on the Farm Bill (HR 2419) after last week's efforts to limit the bill to relevant amendments failed.

House will consider a $50 billion war funding bill , known as a “bridge fund”-- to cover Iraq and Afghanistan operations until the President's full FY 2008 war funding request is considered next year.

Votes could also occur on a number of conference reports: the FY 2008 Defense Authorization (HR 1585); Transportation-HUD Appropriations (HR 3074); and the Head Start reauthorization (HR 1429).

Negotiations are continuing on reauthorization of the State Children's Health Insurance Program (SCHIP) which passed by a wide margin, but lacks the 2/3 support in the House necessary for a veto override. Funding for the program is temporarily continued under the December 14 CR.

Last Week:

Friday 11/9: House passed AMT patch (H.R. 3996) by a vote of 216-193.

Tuesday 11/6: House voted to override the President's veto of Water Resources Development Act of 2007 (H.R. 1495) – President Bush's first override.

Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee. (Bernanke Testimony)

President Vetoes Labor-HHS-Education

November 13, 2007.--Today, the President vetoed the FY 2008 Labor-HHS-Education Appropriations Bill (H.R. 3043). The bill would have appropriated $150.7 billion, an increase of $6.2 billion over FY 2007 and $9.8 billion more than President's request. (Conference Report Summary) Last week's Statement of Administration Policy objected to the bill's “excessive level of spending.”

Responding to the veto, House Appropriations Chairman David Obey (D-WI) released a statement today saying “the same President who is asking us to spend another $200 billion on the misguided war in Iraq. . .is now pretending to protect the deficit by refusing to provide a $6 billion increase to crucial domestic investments in education, healthcare, medical research and worker protections. . . .This is a bi-partisan bill supported by over 50 Republicans. There has been virtually no criticism of its contents.”

The veto was expected; the President has repeatedly objected to Congress' plan to spend $22 billion more on overall discretionary appropriations than he requested.

Democrats are likely to attempt a veto override, but the bill lacks a 2/3 majority, having passed the House (269-142) and the Senate (56-37).

Last week, congressional Democrats, hoping to use the Mil Con-VA bill (H.R. 2642) as leverage, added that measure to the Labor-HHS Conference Report. However, Senate Republicans raised a procedural objection to the maneuver and Democrats lacked the 60 votes necessary to waive the point of order. The two measures were therefore de-linked and the Labor-HHS Conference report passed as a stand-alone measure (56-37 in the Senate and 274-141 in the House.)

[Context: The new ethics and lobbying law, P.L. 110-81, amended Senate Rule 28 to allow Senators to “surgically strike” from conference reports items that were outside the scope of conference, i.e., not in either the House-passed or Senate-passed bills. If the new Rule 28 point of order is raised, the provisions outside the scope of conference are automatically stricken from the conference report, unless 60 Senators vote to waive the point of order.]

President Signs Defense Approps Including CR Extension

November 13, 2007-- Today, the President signed the FY 2008 Defense Appropriations Bill (H.R. 3222), which includes an extension of the Continuing Resolution to December 14, 2007, but does not include war funding which will be considered in a separate measure.

War Funding-- Funding for ongoing operations in Iraq and Afghanistan will be considered next week in a separate measure, expected to provide $50 billion in “bridge funding” and calling for a phased withdrawal from Iraq , as well as limiting the mission to force protection, counterterrorism, and training Iraqi soldiers. Negotiating the precise language in the House will be difficult; the measure is likely to face a filibuster in the Senate; and even if the bill emerges from Congress, it faces a certain veto. House Appropriations Chairman Obey has said since early this fall, that the President's broader request for a total of nearly $200 billion in FY 2008 war funding will not be considered until next year.

Meanwhile, on Tuesday, November 13, Congressional Democrats unveiled a new Joint Economic Committee (JEC) report that details total projected war costs. (Democratic Release) The report suggests that war costs may reach $3.5 trillion by 2017 because of “hidden” costs from deficit spending, long-term veterans' healthcare and other economic effects, including inflated oil prices. Representative Jim Saxton and Senator Sam Brownback, ranking members of the JEC, called the report “defective” and argued it should be withdrawn. (Saxton-Brownback Release)

Base (non-war) Defense Bill-- The bill signed by the President includes $459 billion in discretionary spending, which is $39.7 billion above FY 2007 levels, but $3.5 billion less than the President's request. The bill provides less than the President's request for the controversial Littoral Combat Ship, the Army's Future Combat Systems, the “Reliable Replacement Warhead” program; and missile defense.

The measure provides $918 million more for defense health programs than the President's request; supports increasing military personnel levels; provides $11.6 billion for mine resistant vehicles; adds nearly a billion dollars to better equip National Guard and Reserve forces; and provides additional support for military families.

(Chairman Murtha's Summary of the Defense Conference Report)

Continuing Resolution.-- The December 14 continuing resolution, in addition to extending nondefense appropriations at FY 2007 funding levels, includes additional funding for Katrina recovery ($3 billion), FEMA disaster relief ($2.9 billion), Veterans medical care ($2.9 billion), census bureau ($1 billion), and wildfire response ($500 million). Highlights of CR

The House passed the Defense Appropriations bill last Thursday by a vote of 400-15, and the Senate passed the measure by voice vote.

President Threatens to Veto House AMT Patch

Last Friday, November 9, the House passed H.R. 3996 by a vote of 216-193 . The tax package includes a one-year Alternative Minimum Tax (AMT) “patch,” as well as numerous “extenders” of expiring tax provisions. The House passed the bill without any Republican support. Eight Democrats joined the Minority in voting against the bill, which Republicans object to for its PAYGO offsets (see below). On Thursday, the President threatened to veto the bill for “increasing taxes” and including provisions that would repeal the IRS's authorization to use private debt collectors.

The Treasury Department projects that the number of taxpayers subject to the AMT in 2007 will jump from 4 million to 25 million without enactment of a one-year patch. (Treasury Statement)

The AMT patch would cost $51 billion and the extenders $21 billion. The bill also includes $4 billion to expand the child credit and increase the standard deduction .

The 32 “ extenders” include extension of the R&D tax credit, and deductibility of State and local sales taxes. (Bill Summary)

PAYGO Offsets. The bill has generated controversy over its PAYGO offsets, in particular, $24 billion from taxing certain deferred compensation; $26 billion from taxing so-called “carried interest” as ordinary income (instead of allowing investment fund managers to pay capital gains rates on investment management services); and $25 billion from delaying a tax cut for multinational corporations. (JCT explanation of provisions)

Congress must act on AMT quickly due to deadlines for printing 2007 tax forms. On October 31, leaders from the congressional tax writing committees sent a letter to the IRS promising “imminent changes” to the AMT and encouraging the IRS to prepare 2007 tax forms with the assumption that the AMT patch is approved. The House will consider H.R. 3996 this week.

[Context -- Ongoing controversy over PAYGO: House and Senate Democratic leaders have committed to enforcing PAYGO rules that require revenue increases to offset the costs of the AMT patch and extenders. (Pelosi Statement) Friday's vote, however, exposed a few divisions in the party, with some Democrats siding with the Republicans. Congressional Republicans have called for patching the AMT without offsets. (House Republican Release) In the Senate, Finance Committee Chairman Max Baucus (D-MT) supports patching the AMT and providing extenders, but has remained relatively quiet on the issue of offsets. (Baucus Statement) Ranking Member Chuck Grassley (R-IA) made a statement calling for a package without offsets.]

[Context on AMT: The AMT was enacted in 1969 to preclude very wealthy individuals from escaping all tax liability due to tax loopholes. It operates as an alternative calculation of income tax liability which cancels out various deductions, exclusions, and tax preferences. Taxpayers are required to pay the higher of AMT tax liability and regular income tax liability. However, 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. ]

Farm Bill: Progress Stalls Over Amendments

Last week the Senate began debate on the multiyear Farm Bill (HR 2419), quickly moving into a procedural quagmire. The Democratic leadership sought agreement to limit amendments to “relevant” items (a standard somewhat looser than germaneness), but Republicans balked at the request. In response, Senate Majority Leader Harry Reid (D-NV) used a procedure known as “filling the amendment tree,” to block all amendments in order to limit action to provisions that could garner unanimous consent.

At the same time, the White House issued a Statement of Administration Policy threatening to veto the bill, criticizing the legislation for using budgetary “gimmicks” to comply with Senate PAYGO rules.

Senate Agriculture Committee Summary
CBO Cost Estimate
CRS Report: Crop Insurance and Disaster Assistance: 2007 Farm Bill Issues

[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, expired 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.]

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: Conferees expected to meet this week to approve an agreement. House bill $2.31 billion over President's request; Senate bill $4.2 billion over President's request; White House has threatened to veto the House and Senate bills. House Summary Senate Summary

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.]

Legislative Branch/HR 2771: House bill $3.1 billion; Senate-reported bill $2.8 billion. [ Context: The House and Senate do not consider the spending of the other chamber until conference.] House Summary Senate Summary

Mil Con-VA/HR 2642: Last week's effort to include Mil Con-VA in the Labor-HHS Conference Report failed in the Senate. Conference report is $4 billion over President's request; White House has not threatened a veto but insists on offsets in other spending bills. Conference Report Summary

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. One of four bills House and Senate staff are pre-conferencing. [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: Last Thursday, November 8, a conference committee approved the Transportation-HUD Appropriations (H.R. 3074) Conference Report. The $50.9 billion report is $3 billion above the President's request and includes an additional $195 million in emergency funds for rebuilding the I-35W bridge in Minneapolis. The Administration has threatened a veto. Conference Report Summary

New Budget Docs

CBO: Monthly Budget Review

CBO: The Long-Term Outlook For Health Care Spending

GAO: Social Security: Issues Regarding the Coverage of Public Employees