December 10, 2007

Capsule Summary--This Week:

Continuing Resolution expires this Friday.

On Tuesday, the House will attempt to move an omnibus appropriations bill that splits the $23 billion difference between Congress' 2008 discretionary funding levels and the President's requested levels. However, on Saturday, the White House issued a statement by OMB Director Jim Nussle reiterating the Administration veto threat.

On war funding, it remains unclear how the impasse on the President's $196 billion 2008 war funding request can be resolved, given Democratic opposition to funding without a timetable, and the strong opposition of the President and Senate Republicans to funding with any strings attached.

House Democrats will try again to move an AMT patch with offsetting revenue raisers. Senate Republicans continue to strongly oppose enacting revenue raisers to pay for the cost of the patch, and Senate Finance Committee Chairman Max Baucus (D-MT) has adopted that position.

The President is expected to veto revised legislation to extend and expand the coverage of State Children's Health Insurance (SCHIP). A House vote to override is expected to fail, and Congress is instead likely to pass a one-year extension of the program, with sufficient funds to cover increasing health care costs--but not to increase enrollment.

Senate continues debate on the Farm Bill this week. With 40 amendments allowed, and no germaneness restrictions, completing action this session is a tall order.

Senate negotiations continue on the House-passed energy bill which establishes tax incentives for hybrids and alternative fuels and pays for it by rolling back oil and gas industry tax preferences.

House and Senate are expected to pass the FY 2008 Defense authorization conference report this week. The measure does not include a withdrawal timetable or other restrictions.

Senate Finance and House Ways & Means negotiators meet this week in search of agreement on a measure to postpone a scheduled 10 percent cut in Medicare physician payments.

Looking Ahead: House and Senate will reconvene for the second session on Tuesday, January 15. The President will deliver the State of the Union Address on January 22, 2008.

House-Passed Energy Bill Faces Delay in Senate

Last week the House passed a sweeping energy bill (HR 6) including provisions that would establish $22 billion in tax incentives for hybrid vehicles and production of alternative fuels, and pay for the incentives by rolling back $13 billion in tax breaks for oil and gas companies. The bill would also increase fuel economy standards to 35 miles per gallon by 2020, and require utilities to generate 15% of their electricity from renewable sources. The Administration has threatened to veto the bill and Senate Republicans oppose the rollback in oil and gas tax preferences, as well as the renewable electricity mandate.

Appropriations: Impasse on Spending Levels and War Funding

Congress and the President are mired in the most contentious budget battle since 1995. Two months into the fiscal year, only 1 of the 12 FY 2008 appropriations bills (Defense non-war spending) has been enacted. The Federal Government is currently operating under a continuing resolution (included in HR 3222) allowing programs to operate at FY 2007 spending levels through December 14. Two fundamental issues divide Congress and the Administration: spending levels and funding for the war in Iraq.

1. Logjam on Spending Levels: President Bush has threatened to veto 7 of the 12 FY 2008 Appropriations Bills due to spending levels that exceed his requests by $23 billion; and has issued 2 additional veto threats on policy grounds [summarized below].

If congressional Republicans continue to support the President's no-negotiation stance on spending levels, this session could end with a reprise of last February's 2007 funding resolution that generally continued funding at the prior year's levels, with some programs getting hikes, and others being cut.

House Democratic leaders are reportedly planning to include in this week's omnibus appropriations bill, war funding for Afghanistan but not Iraq due to strong opposition among House war opponents. The Senate may then amend the bill to include funding for both military operations--following which the House would have to vote on the Senate amendment.

1. 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

2. Commerce-Justice-Science/HR 3093: 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

3. 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

4. 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

5. 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

6. Labor-HHS-Education/HR 3043: On November 13, the President vetoed the Conference Report, which would have appropriated $9.8 billion more than the President's request. On November 15, the House failed to override the President's veto 277-141, two votes short of the necessary two-thirds. Conference Report Summary

7. Transportation-HUD/HR 3074: Conference 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 to veto the conference bill. Conference Report Summary

The President has also threatened to veto the Financial Services and State-Foreign Ops appropriations bills on policy grounds:

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

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; 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 (even if U.S. funds are not used for abortions). House Summary Senate Summary

The President has called for offsets to pay for the Mil Con-VA Bill/HR 2642: While the conference report is $4 billion over the President's request, the White House has not threatened a veto but is instead calling for offsets in other spending bills. Conference Report Summary

Senate Passes AMT Patch Without Offsets

House Democrats will make another attempt this week to bring to the Floor an AMT patch with offsetting revenue raisers, including $24 billion from new limits on the ability of hedge fund managers to defer offshore compensation, and $25 billion from delaying new interest expense allocation rules that benefit multinational corporations. (Rangel Release)

Last Thursday, December 6, the Senate voted 88-5 to pass an AMT patch, but without offsets to pay for the patch and without tax extenders. (H.R. 3996) The offsets and extenders included in the House bill were dropped by a Baucus amendment, after a cloture motion on the House bill failed by a vote of 46-48.

The 32 "extenders" dropped from the bill included extension of the R&D tax credit and deductibility of State and local sales taxes. In addition, the House bill also included $4 billion to expand the child credit and increase the standard deduction. (JCT explanation of provisions)

The President had threatened to veto the House bill over the revenue raisers, as well as 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)

PAYGO Offsets: The AMT/extenders legislation presents a major problem for Democrats who trumpeted the importance of reestablishing PAYGO rules last January. House Democrats remain committed to passing the AMT patch with offsets, refusing to waive PAYGO rules. (Blue Dog Statement) Last month's House vote, however, exposed divisions in the party, with some Democrats siding with the Republicans. Congressional Republicans have renewed calls for patching the AMT without offsets. (Boehner Release)

[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.]

SCHIP to be extended, but not expanded

With Congress and the President at an impasse on legislation to expand State Children's Health Insurance (SCHIP) funding, Congress is instead likely to pass a one-year extension of the program, with sufficient funds to cover increasing health care costs for current recipients--but not to increase enrollment.

On November 1, the Senate passed a revised SCHIP bill (H.R. 3963) by a vote of 64-30 which the President is expected to veto this week. (CBO Cost Estimate) The revised bill has not attracted the votes needed to reach a 2/3 veto-proof majority in the House.

[Context: 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) in order to boost covered children from 6 million to 10 million. 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.]

Farm Bill Debate Resumes in Senate

Debate will resume on the Farm Bill this week after the Senate leadership reached a compromise on the number of amendments to be debated. Last month, the Senate began debate on the multiyear Farm Bill (HR 2419), which quickly descended into a procedural quagmire over an attempt to limit amendments to "relevant" items, to which Republicans objected.

The compromise allows for 40 amendments, split evenly between Democrats and Republicans, with no restriction on subject matter of the amendments.

The White House has issued a Statement of Administration Policy threatening to veto the bill, criticizing the legislation for using budgetary "gimmicks" to comply with Senate PAYGO rules.

Delaying the Farm Bill to next session would pose new challenges for farm advocates because rising commodity prices will lower the "baseline," i.e., the budgetary starting point for assembling new farm legislation. (In short, waiting until next year could boost the amount of offsets needed to pay for the farm bill.)

[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.]

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

Recent Budget-Related Docs

CRS: The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11: "The Administration has requested an additional $195 billion for war-related activities for DOD, State/AID and Department of Veterans' Affairs (VA) Medical in FY2008 in regular and emergency requests including amendments submitted on July 31, 2007 for Mine Resistant Ambush Protected (MRAP) vehicles and the additional funds requested October 22, 2007. Of that $195 billion, Iraq would receive about $158 billion and Afghanistan about $37 billion according to CRS estimates. If Congress provides these funds, CRS estimates that Iraq would receive $607 billion and Afghanistan about $164 billion since the 9/11 attacks."

CRS: FY2008 SCHIP Allotments: "The President vetoed legislation (H.R. 976) and is expected to veto more recently passed legislation (H.R. 3963) that would provide new federal funding for the State Children's Health Insurance Program (SCHIP) in FY2008 through FY2012. In lieu of SCHIP reauthorization, continuing resolutions (P.L. 110-92 and P.L. 110-116) contain temporary FY2008 appropriations for SCHIP allotments. These extensions appropriated to SCHIP the same amount for FY2008 that was appropriated for FY2007 ($5 billion), with the current-law formula used to allot these funds among the states and territories. The most recently enacted continuing resolution makes the FY2008 allotments available only through December 14, 2007. The FY2008 allotments can be available past December 14 only if new legislation is enacted. Based on states' projections, if the current FY2008 allotments were available through the end of FY2008, 21 states would exhaust all available federal SCHIP funds during the fiscal year, with the first states experiencing shortfalls in March 2008. This report provides projections of those states' shortfalls, as well as projections of states' FY2008 allotments as would occur under the H.R. 976 and H.R. 3963, which is identical to H.R. 976 in terms of the appropriations and formulas for SCHIP allotments." Excerpted from CRS Report No. RS22739.

CBO: The Impact of Unauthorized Immigrants on the Budgets of State and Local Governments

CBO: Monthly Budget Review

GAO: Rental Housing: Information on Low-Income Veterans' Housing Conditions and Participation in HUD's Programs