May 1, 2007

War Supplemental Heading for Veto
President and Congressional Leaders to Meet Wednesday
Talks Continue on 2008 Budget Resolution

May 1: Congress to deliver H.R. 1591, the FY 2007 War Supplemental to the White House.

May 2: President expected to veto H.R. 1591, the War Supplemental. House vote to override veto of H.R. 1591. (Override attempt expected to fall well short of the required 2/3 vote.) Congressional Leadership to meet with President to discuss next steps on war supplemental.

May 3: CBO Director Orszag will testify on immigration and U.S. labor markets before the House Judiciary Immigration Subcommittee.

Week of May 7: Congressional leaders aiming to complete FY 2008 Budget Resolution.

May 15: Under the Budget Act, the House may begin work on Appropriations Bills even if a Budget Resolution Conference Report has not yet been adopted.

Mid-May: Following adoption of a Budget Resolution Conference Report, House and Senate Appropriations Committees make key discretionary spending allocations (known as 302(b) allocations) among their 12 subcommittees. This is a key step in setting Federal spending priorities.

May 25: Congressional leaders aiming to complete action on FY 2007 War Supplemental prior to the Memorial Day Recess.

THE WAR SUPPLEMENTAL: H.R. 1591

Table Comparing President's Request, House-passed, Senate-passed, and Conference Report

Last Wednesday, the House passed the $124.2 billion War Supplemental Conference Report 218-208, and the Senate passed the Conference Report 51-46 -- margins far short of the 2/3 vote necessary to override the President's expected veto.

An immediate presidential veto of the bill is expected due to his opposition to a requirement that redeployment of U.S. troops begin October 1, 2007, with a non-binding goal of completing the redeployment by April 1, 2008.

Next step: negotiations with the White House, with the likely outcome being a bill with benchmarks but no timetable.

After an accommodation is arrived at on the Iraq language, despite veto threat's based on non-war- related provision, it as unlikely the President will veto over inclusion of Katrina aid, veterans' health, international food assistance, emergency farm relief, children's health insurance, homeland security, LIHEAP, flu vaccines, minimum wage/tax relief, and other domestic provisions.

Highlights of the $124.2 billion Conference Agreement:

- $95.5 billion in emergency war spending for the Defense Department ($4 billion more than the President's request);
- More than $5 billion in defense and veterans funding for health care;
- $5.736 billion for State Dept. and International Assistance;
- $500 million for International Food Aid;
- $2.25 billion in new funding for Homeland Security;
- $6.9 billion for recovery from hurricanes Katrina and Rita (more than double the President's request);
- $3.5 billion in emergency farm relief;
- $650 million for the children's health insurance program to address shortfalls in 14 states; and
- Deficit neutral $4.8 billion small business tax relief package to accompany minimum wage increase.

Last week the Joint Committee on Taxation released: Technical Explanation and Revenue Estimates for the Small Business and Work Opportunity Tax Act (included in H.R. 1591, to accompany the minimum wage increase).

FY 2008 BUDGET RESOLUTION

Table Comparing President's Budget, S.Con.Res. 21 and H.Con.Res. 99

Pressure is building to bring House-Senate Budget negotiations to a conclusion by next week.

Adoption of a Budget Resolution Conference Report is an important step in the appropriations process because the Budget Resolution provides a total discretionary allocation (called a 302(a) allocation) to the House and Senate Appropriations Committees.

The Appropriations Committees then proceed to sub-allocate the discretionary total among their 12 respective subcommittees (called 302(b) allocations).

Each subcommittee then marks-up its FY 2008 Appropriations Bill within the parameters of its respective 302(b) allocation.

However, if a Budget Resolution is not adopted by May 15, the Budget Act permits the House to proceed with action on appropriations bills. In that event, the House would likely "deem" the House-passed Budget Resolution discretionary spending total to be in effect so that the House Appropriations Committee could move forward and make sub-allocations to its subcommittees.

But Democratic Leaders will be very reluctant to fail to adopt a Budget Resolution during their first year back in power.

Top issue in the ongoing budget negotiations continues to be the Senate's Baucus amendment which: (1) provides funds to extend some of the expiring "middle class" tax cuts (including marriage penalty relief, the child credit, adoption tax credit, and the 10% bracket) ;and (2) provides $15 billion to expand State Children's Health Insurance coverage.

The House-passed resolution, by contrast, makes tax cut extensions and SCHIP expansion contingent on identifying budgetary offsets (i.e. tax increases or entitlement spending cuts). Some House Democrats, particularly in the fiscally conservative Blue Dog Coalition, oppose the Senate's extension of tax cuts and expansion of SCHIP without adhering to the new House PAYGO rule that requires budgetary offsets for all new tax cuts and entitlement spending increases.

Context: Since most of the tax cuts do not expire until 2010, it is not urgent that Democrats address the PAYGO tax issue this year.

However, whether to apply PAYGO rules to the expansion of SCHIP is more urgent with the program up for reauthorization this year.

Other conference issues include:

(1) Whether to adjust revenues to allow for an Alternative Minimum Tax (AMT) fix for any years beyond FY 2007;

(2) 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);

(3) 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;

(4) whether to include the House's "Budget Reconciliation" instruction that would place student loan subsidy cuts on a filibuster-proof fast-track; and

(6) which of the Senate Resolution's new budget enforcement points of order to retain.

Link to H.Con.Res. 99

Link to House Committee Report

Link to S.Con.Res.21

Link to WBR Revenue Chart

WORTH READING

CRS released, on April 25, a new report reviewing proposals to address the growing impact of the Alternative Minimum Tax (AMT). Addressing the AMT--which years to cover, how much relief to provide, and how to pay for it--are key issues facing Budget Resolution negotiators and leadership of the tax committees. Highlights of the report by CRS analyst Gregg Esenwein:

"Temporary provisions intended to mitigate the effects of the AMT (expired) at the end of 2006. As a result, the number of taxpayers subject to the AMT will increase from 3.5 million in 2006 to 23 million in 2007. The Congressional Budget Office estimates that extending AMT tax relief would reduce federal revenue by $282 billion over the period FY2007 through FY2011.

"There are two main reasons for the increase in the number of taxpayers affected by the AMT. First, the regular income tax is indexed for inflation, but the AMT is not... The second reason is that the 2001 and 2003 reductions in the regular income tax have further narrowed the differences between regular and AMT tax liabilities..."

The report summarizes legislation introduced in the 110th Congress to amend or repeal the AMT.

CBO Report: Implications of Increasing U.S. Forces in Iraq.