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April 10, 2007: Senate Reconvenes BUDGET PROCESS: STEP-BY-STEP™ March 29: Senate passed H.R. 1591 the FY 2007 War Supplemental (w/ Senate Amendment) 51-47. House passed H.Con.Res. 99, FY 2008 Budget Resolution 216-210. March 30: On March 30, the Senate Budget Committee released a CRS report saying the Army could finance its operations “through the end of May” with funding already appropriated and through June or July by using its authority to transfer funds among accounts. CRS Report April 3: President reiterated veto threat against House- and Senate-passed war supplementals: “…if either the House or Senate version of this bill comes to my desk, I will veto it.” President's April 3 Veto Threat April 10: Senate reconvenes; House in recess for an additional week. House and Senate staffs continue “pre-conferencing” War Supplemental and Budget Resolution. April 11: Senate Finance Committee hearing with CBO Director Peter Orszag on Medicare's managed care program, “Medicare Advantage,” which may be a target for budgetary savings needed to finance the scheduled rollback of physician fees, SCHIP expansion, and other unfunded initiatives set forth in the Budget Resolution. In addition, a Senate Appropriations Financial Services Subcommittee hearing with OMB Director Portman. April 16: House-Senate Conferences on FY 2007 War Supplemental and FY 2008 Budget Resolution. Context: Chairman Spratt is aiming for completing action on a Budget Resolution conference report by May 1. Timing on the supplemental conference is less clear. Appropriators could have a quick conference leading to a veto and then negotiations, or (less likely) negotiations with the White House could take place within the context of conferencing the House and Senate bills. April 27: House Appropriations Committee deadline for submission of FY 2008 earmark requests. Early May: Following adoption of a Budget Resolution Conference Report, House and Senate Appropriations Committees make critical discretionary spending allocations (known as 302(b) allocations) among their 12 subcommittees. This is a key step in setting Federal spending priorities. THE WAR SUPPLEMENTAL WBR's Exclusive Table Comparing President's Request, House-passed, and Senate-passed Bills The war of words continues on H.R. 1591, the war supplemental. In his Saturday radio address, the President stated: “For our troops, the clock is ticking. If the Democrats continue to insist on making a political statement, they should send me their bill as soon as possible. I will veto it and then Congress can go to work on a good bill that gives our troops the funds they need, without strings and further delay.” Responding to the President on ABC's This Week Senate Armed Services Chairman Carl Levin (D-MI) said after a veto, “We're not going to cut off funding for the troops….What we're going to do is continue to press this President to put some pressure on the Iraqi leaders to reach a political settlement….After the first bill there's a number of options. Either we can keep the benchmarks part of the bill without saying that the troops must begin to come back within four months. If that doesn't work and the President vetoes because of that, and he will, then that part of it is removed….and what we will leave would be benchmarks, for instance, which would require the President to certify to the American people if the Iraqis are meeting the benchmarks for political settlement, which they, the Iraqi leaders have set for themselves.” Major war supplemental conference issues include: (1) Whether to send the House Iraq language or the Senate language to the President (the House language mandates withdrawal by September 1, while the Senate language establishes a nonbinding goal of March 2008 but mandates that a withdrawal begin within 120 days); (2) whether to include the $1.5 billion added by the Senate for mine-resistant vehicles; (3) the size of the small business tax relief package that accompanies the minimum wage; (4) the amount of Defense Operations and Maintenance funding; (5) the amount of LIHEAP (Low Income Home Energy Assistance) emergency funding; (6) the amount of farm disaster funds; and (7) the amount of Katrina assistance. On April 4, the Joint Committee on Taxation released a revenue estimate showing that the $12.5 billion in small business tax relief in the Senate bill would be fully offset by other revenue-raising provisions—showing a net gain in revenue of more than a billion dollars over 10 years. UPCOMING HOUSE-SENATE CONFERENCE ON FY 2008 BUDGET RESOLUTION Context: The Budget Resolution is an internal procedural mechanism of the Congress—guiding subsequent action on spending and revenue bills—and does not go to the President for signature. Major conference issues will include: (1) Whether to adjust revenues to allow for an AMT fix for any years beyond FY 2007; (2) whether to accept the Senate's Baucus amendment that adjusts the Budget Resolution to make room for extension of certain tax cuts including marriage penalty relief, the child credit, adoption tax credit, and the 10% bracket; (3) whether to let the estate tax bounce back to 2001 levels after 2010, or whether to accept the Baucus provision to extend the 2009 estate tax rate (45%) and exemption level ($3.5 million); (4) whether to set the non-defense discretionary total for FY 2008 at the Senate's $448 billion level, or the House's $454 billion level; (5) whether to accept the Senate's Baucus amendment that provides $15 billion in additional funding for SCHIP, the State Children's Health Insurance program, or require that any funding for expansion of SCHIP coverage must be fully offset; (6) whether to include the House's “Budget Reconciliation” instruction that would place student loan reforms on a filibuster-proof fast-track; and (7) which of the Senate Resolution's new points of order to retain. Tax Increases or Not? Democrats and Republicans have been locked in a rhetorical battle about whether or not the House- and Senate-passed Budget Resolutions raise taxes. Last week WBR released a revenue chart comparing the House-passed, Senate-passed, and President's budgets with the nonpartisan Congressional Budget Office revenue baseline, which projects what revenues will be if no changes are made to current law.
This ongoing debate is really about what the appropriate “baseline,” or starting point, for revenues should be. Should the starting point be current law, or should CBO assume the extension of current tax rates? Advocates of the latter approach point to baseline rules that assume continuation of expiring entitlement programs. Others argue that entitlements, are inherently designed to provide a permanent government guarantee or safety net, as opposed to tax cuts which tend to be temporary measures to stimulate a recessionary economy. Even if extension of expiring tax cuts is used as a starting point, a recent analysis by the Bureau of National Affairs' Daily Tax Report (April 9, 2007) found that allowing the cuts to expire does not support a description of the House-passed budget plan as including “the largest tax increase in history.” The BNA analysis found that the largest tax increase was in 1942 when taxes were hiked by 5.04 percent of GDP (Gross Domestic Product) to fund the war. Next in line are the 1968 Johnson tax increase of 1.09 percent; the 1982 Reagan tax increase of 0.98 percent; and the 1993 Clinton tax increase of 0.63 percent. The BNA analysis estimates the increased revenues in the House-passed Budget Resolution (as compared to a baseline that assumes extension of the tax cuts) as increasing taxes by 0.50 percent – behind the 1942, 1968, 1982, and 1993 tax hikes. BNA estimates such an increase as “about the same size” as President George H.W. Bush's 1990 tax increase and President Jimmy Carter's 1980 tax increase. BUDGET MYTHS AND FACTS Fact: In fact, current law provides that the tax cuts expire in 2010. The 2001 tax cuts were originally given an expiration date of 2010 due to the Senate's Byrd Rule. The Byrd Rule prohibits the use of filibuster-proof Budget Reconciliation procedures to expedite legislation that would cause a deficit increase in the “outyears,” that is, the years beyond the 10-year budget window. The rationale for the Byrd Rule is simple: that the extraordinary procedural protections of Budget Reconciliation, which severely limits a Senator's right to debate and amend a bill, should not be available for measures that would cause a huge spike in outyear deficits. Myth: The aging of the population is the primary factor affecting the rapid growth of entitlement programs (Medicare, Medicaid and Social Security). Fact: No so, according to the Congressional Budget Office which states in a March 8, 2007 letter that rising health care costs, not the aging of the population, is the primary factor affecting the growth of entitlement programs. Under an intermediate scenario, Medicare and Medicaid outlays will grow from 4.5 percent of GDP today to 9 percent by 2030. (GDP, Gross Domestic Product, is a measure of our economy's output.) WORTH READING OMB Launched an Earmark Database on April 4 with details on 13,496 earmarks totaling more than $19 billion for Fiscal Year 2005 appropriations. OMB is calling on Congress to cut earmarks by 50 percent. While the earmarks issue has consumed a great deal of media attention, it is important to keep it in perspective. First, many earmarks have legitimate public policy objectives; the media tends to hype the projects that are not legitimate. Second, earmarks could be permanently eliminated and the fiscal crises we face would still remain: the explosion of Medicare and Medicaid outlays due to rising health care costs and, to a lesser extent, increases in Social Security due to the boomer retirement. A New CRS Report reviewing options for increasing the Social Security payroll tax base. The March 29, 2007 report finds that currently the “richest 1% of American families pay a smaller proportion of their income in payroll taxes than the poorest 20% of families” because of the cap on the payroll tax base. The new report of the United Nation's Intergovernmental Report on Climate Change has major budgetary implications. In addition rapidly rising Medicare and Medicaid spending, the Congress will inevitably be faced with enormous national expenditures as we adapt to the fallout of global warming.) See CBO's 2003 report, The Economics of Climate Change. Reflecting a major shift in the health care debate, many executives are starting to call for a national approach to fixing health care, warning that an employer-subsidized health system is unsustainable. An interesting retrospective on David Stockman who famously said, “"None of us really understands what's going on with all these numbers."
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | |||||||||||||||||||||||||||||||||||
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