Today, the White House is hosting a "Fiscal Responsibility Summit" -- a three hour bipartisan meeting including 30 Senators, 30 House Members, and 30 representatives of advocacy groups (including the Concord Coalition who will be represented by Robert Bixby, Executive Director).

Last Thursday, the Concord Coalition, along with other fiscal policy groups released a statement that "we view this summit as the first step to addressing the enormous long-term fiscal problem facing the United States. Without decisive action this problem will lead to serious harm to our economy and a huge financial burden on our children and grandchildren....We...urge the President to lead a major public engagement effort--beyond a one day summit -- to inform Americans of the scale and nature of the long-term fiscal crisis, explain the consequences of inaction and discuss the options for solving the problem."

Click here for the full text of the statement

This week, the House is expected to vote on an omnibus appropriations bill for the remainder of fiscal year 2009. The bill has been negotiated between House and Senate Democrats and Republicans and will likely not require a House-Senate conference.

Reason for the omnibus bill:  Last fall, Congress completed action on only 3 of the 12 regular FY 2009 appropriations bills.

Background -- Last year's FY 2009 appropriations process was one of the worst on record. Only one FY 2009 appropriations bill made it to the House Floor.

There were two reasons for the serious disruption of the regular appropriations process. First, President Bush threatened to veto any appropriations bills that exceeded his requests, and Democrats--as reflected in the Budget Resolution--called for nearly $25 billion more than the President requested. Second, House Republicans attempted to amend appropriations bills with off-shore oil drilling amendments, strongly opposed by many Democrats.

Consequently, in late September, Congress enacted a stopgap measure to keep Federal programs operating. The stopgap measure: 

• included detailed, full-year appropriations measures for the Departments of Defense, Homeland Security, and Veterans Affairs (based upon provisions informally negotiated by House and Senate Appropriators); and

• included stopgap funding through March 6, 2009 for all other departments and agencies of government at FY 2008 levels.

Impending $83 Billion War Supplemental:  Bloomberg News reports that the Administration will send to Congress, within the next few weeks, an $83 billion war supplemental for the remainder of FY 2009.  This would bring total war spending for the current fiscal year up to $149 billion.

Following Tuesday's State of the Union Address, the President will release on Thursday, February 26, 2009 a "budget outline" for FY 2010.

(The President is normally required to transmit the annual budget request to Congress by the first Monday in February; however, this being a presidential transition year, President Obama will transmit a budget "outline" on February 26, 2009, with detailed budget documents to be released by the Office of Management and Budget (OMB) in late March or April.) 

A few details have been made available about the impending 2010 budget outline:

• In his Saturday radio address, President Obama said he is determined to "get exploding deficits under control" and said his budget request is "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

• According to the Washington Post, President Obama is aiming to cut projected budget deficits in half over the next four years from $1.1 trillion in FY'10 to $533 billion in FY'13--about 3% of GDP. According to the Post, these projections assume some of the Bush tax cuts (those benefitting high income taxpayers) expire after 2010.  (That would mean that for taxpayers with incomes over $250,000, the top rate would jump from 35% to 39.6%; the tax on capital gains would jump from 15% to 20%, and the tax on estates worth more than $3.5 million would be taxed at the currate rate of 45%.) Also, the earnings of hedge fund managers would be taxed as normal income, rather than the lower 15% capital gains rate. According to a senior White House official, the budget will "create running room for health reform," by reducing spending on current health programs--such as subsidies to privately run Medicare programs, known as "Medicare Advantage"--in order to expand coverage for the uninsured. 

• According to Congressional Quarterly, the Pentagon and OMB have agreed on defense spending of $537 billion for FY 2010, excluding war costs.  This is $10 billion more than numbers floated last month, and is about 5% higher than defense funding appropriated for FY 2009.

 

• According to the New York Times, President Obama has banned four budget "gimmicks" that were used in recent years to make deficit projections appear smaller:

1. War spending will be included in the regular budget submission, as opposed to recent practices of funding the war in later "supplemental" bills;
2. The budget will no longer assume drastic reductions in Medicare payments to physicians that are technically required by a 1997 law, but have never been allowed to take effect.
3. An effort will be made to appropriately fund disaster accounts at the beginning of the year rather than paying for disasters on a piecemeal basis and declaring the emergency spending to be exempt from budgetary limits.
4. The budget will not assume higher revenues from letting the Alternative Minimum Tax (AMT) extend to upper middle income Americans, since Congress has routinely acted to prevent the expanded reach of the AMT.

The Treasury Department and the Federal Reserve are engaged in ongoing efforts to stabilize the financial, housing, and automobile sectors.  Following is an update on recent developments:

Homeowner Recovery Plan:  President Obama last Wednesday, February 18, 2009, announced a "Homeowner Affordability and Stability Plan" to stem the tide of foreclosures and falling home prices. The plan would allow up to 5 million individuals to refinance their mortgages through Fannie Mae and Freddie Mac and assist 3 million homeowners to modify their monthly payments. Highlights of the plan:

• Help 4-5 million home owners--suffering from falling  home prices--to refinance loans owned or guaranteed by Fannie Mae or Freddie Mac. 
• Create a $75 billion fund to incentivize lenders to modify the mortgages of at-risk homeowners--bringing monthly payments down to 31 percent of the borrower's income.
• Steps to keep mortgage rates low for middle class families by strengthening Fannie Mae and Freddie Mac through Treasury purchases of mortgage-backed securities and other steps.

Link to Executive Summary
Link to Fact Sheet
Housing Example Sheet

Q&A

More Assistance for the "Big Three" automakers: GM announced last Tuesday that it would need a $2 billion loan to make it through March; another $2.6 billion in April; and another $12 billion by 2011 (including $7.5 billion in loans and $4.5 billion to pay off credit that comes due).

Chrysler requested another $5 billion in loans, without which the company said it would have to go into liquidation.

These two requests, according to Congressional Quarterly, bring total automaker assistance to $39 billion.

In return for their federal assistance, GM and Chrysler were required to submit comprehensive viability plans for administration review.  If the plans fail to show significant progress, Treasury can recall the loans. Those plans are now under review by an Presidental Task Force on Autos chaired by Treasury Secretary Geithner and National Economic Council Director Summers.

Link to Treasury Fact Sheet

On February 17, 2009, the President signed into law the economic stimulus bill, the American Recovery and Reinvestment Act of 2009 (PL 111-5).

The previous week, the House passed the measure on a 246-183 (without any Republican votes) and passed the Senate by the narrowest of margins 60-38 (with 3 Republican votes).  60 votes were needed in the Senate to waive a budgetary objection to the bill.

According to estimates by the nonpartisan Congressional Budget Office (CBO), the bill's spending and tax provisions will cost $185 billion over the remainder of 2009, $399 billion in 2010, $134 billion in 2011, and $787 billion over fiscal years 2009-2019.  Approximately 3/4 of the bill's spending and tax cuts will occur by the end of FY 2010 -- the target the Administration had been aiming for.

In a letter analyzing the likely economic effects of the stimulus bill, CBO estimated that "in the short run the stimulus legislation would raise GDP and increase employment by adding to aggregate demand and thereby boosting the utilization of labor and capital that would otherwise be unused because the economy is in recession. Most of the budgetary effects...would occur over the next few years, and as those effects diminished the short-run impact on the economy would fade....In contrast to its near-term macroeconomic effects, the legislation wold reduce output slightly in the long run...." 

Following are links to bill summaries, CBO and JCT estimates, bill text, and report language.

Final Stimulus Bill: Detailed Summary of Appropriations Provisions

Final Stimulus Bill: Summary of Tax, Health, and Entitlement Provisions

Final Stimulus Bill: CBO Estimates

Final Stimulus Bill: CBO Economic Analysis

Final Stimulus Bill: JCT Tax Cut Estimates

Final Stimulus Bill: Legislative Text of Spending Provisions

Final Stimulus Bill: Legislative Text of Tax, Unemployment, Health, and State Fiscal Relief Provisions

Final Stimulus Bill: Joint Explanatory Statement (Report Language) on Spending Provisions

Final Stimulus Bill: Joint Explanatory Statement (Report Language) on Tax Unemployment, Health and State Fiscal Relief Provisions