This week, the House and Senate passed their respective versions of the FY 2010 Budget Resolution (fiscal year 2010 begins October 1, 2009).  The budget resolutions include a spending and revenue framework for the next 5 years.

The House passed the resolution reported by its Budget Committee by a vote of 233-196, with no Republicans supporting the budget plan and 20 Democrats opposing the plan.  

House Summary Tables       House Budget Summary 

Following the usual practice, the House did not permit amendments to the budget resolution, except for consideration of several complete substitute plans.  The House defeated alternative plans proposed by House Republicans (137-293), the Black Caucus (113-318), and the Progressive Caucus (84-348).

House GOP Budget Alternative
Black Caucus Budget         
Progressive Caucus Budget

The Senate passed the resolution reported by its Budget Committee (as amended on the Floor) by a vote of 55-43, with no Republicans supporting the budget plan and Democrats Evan Bayh (IN) and Ben Nelson (NE) voting no.

Discretionary Spending Levels:  A key issue for the House-Senate conference on the budget resolution will be the total amount of non-emergency discretionary spending for 2010. The House-passed resolution would provide $1.089 trillion which is about $8 billion more than proposed by the Senate, but $7 billion less than requested by the President.

Following are highlights of Senate action on key amendments:

• Senate adopted two amendments that, in effect, would require 60 votes for passage of a climate-energy bill later this year. A Graham (R-SC) amendment, adopted 65-33, would create a point of order (60-vote waiver) against any legislation that would lead "to an increase in the costs of producing, generating or consuming energy."  A Johanns (R-NE) amendment, adopted 67-31, would prohibit the use of filibuster-proof budget reconciliation procedures to expedite consideration of climate change legislation. While either provision could be dropped in conference, the strong, bipartisan vote makes that unlikely.
  

   

• Senate adopted 51-48 a nonbinding Lincoln-Kyl amendment calling for estate tax rates to be set at a lower amount than proposed in the President's budget. The President proposed a top rate of 45% with an exemption of $3.5 million per person, while the amendment calls for a 35% rate and $5 million per person exemption.  If the provision survives conference, subsequent action by the tax writing committees would still be required to implement the policy.  Senate Majority Leader Reid (D-NV) called the proposed estate tax cut "stunning" and "outrageous."
  

   

• Senate rejected 39-58 an Ensign (R-NV) amendment calling for higher-income seniors to pay higher premiums for the Medicare prescription drug program, as proposed in the Obama budget.
  

   

• Senate rejected 40-58 a Grassley amendment to patch the AMT (Alternative Minimum Tax) for fiscal years 2013 and 2014.  The Democratic budget plan would patch the AMT for 2010, 2011, and 2012, but not the last two years of the budget plan in order to make deficit numbers appear lower for those two years.
  

   

• Senate rejected 40-58 a Sessions (R-AL) amendment to freeze non-defense/veterans spending at current levels for two years and then hold inflation adjustments to 1 percent for each of the next three years.

 

• Senate rejected 38-60 a McCain substitute budget plan, that called for: (1) cuts in Medicare, Medicaid, and Social Security; (2) extending the Bush tax cuts for people earning more than $250,000 as well as those earning less than $250,000 (as called for by the President's budget); and (3) cuts in discretionary spending programs.

 

• Senate rejected 44-54 a Gregg proposal to establish an entitlement commission because it would have required that a majority of Democrats and a majority of Republicans would be required to report an entitlement reform plan.Budget Chairman Conrad, while generally supportive of an entitlement commission, opposed the formula that would allow half of the Republican Commission members to block action.

 

The President's Budget calls for comprehensive health care reform to rein in skyrocketing health care costs and cover the uninsured.

The President calls for a $634 billion downpayment on health care reform, funded by $316 billion in Medicare and Medicaid reforms, and $318 billion in new revenues from limiting tax deductions for upper income earners.

The House and Senate budget resolutions call for health care reform as a general proposition, but don't address the overall size or extent of healthcare reform or how to pay for it.

The Senate resolution requires that health care reform be "deficit neutral" over the next 11 years, that is, total new spending on health care over the 11-year period must be offset by spending cuts and/or tax increases over that period. This type of mechanism is known as a "reserve fund."  It does not require action, but provides a budgetary placeholder that allows spending and revenue levels to be adjusted at a later time to accommodate a new deficit-neutral program.  (Important note: Typically, reserve funds would require legislation to be deficit neutral over 6 years and over 11 years. The Senate's health care reserve fund only requires offsets over the 11-year period, recognizing that health care reform is likely to have a net cost up front, with savings not accumulating until later years.)

A key difference between the House and Senate budget plans is that the House plan would allow for use of the filibuster-proof "budget reconciliation" process to facilitate passage of health care reform. The Senate resolution would not use reconciliation, and health care reform would therefore be susceptible to a filibuster under the Senate approach -- with 60 votes being required to overcome a filibuster.

The key strategic question of whether reconciliation will be used to expedite health care reform will be decided during a House-Senate conference committee on the budget resolution the week of April 20.  As reported by Congressional Quarterly, House Speaker Nancy Pelosi (D-CA) said, "I believe it is absolutely essential that we come out of this year with substantial health care reform legislation. That is best secured by having reconciliation in the package."

Senate Majority Leader Harry Reid signaled openness to including reconciliation in the final budget resolution, saying "we're taking nothing off the table."

However, in a letter released yesterday, the Senate's President Pro Tempore Robert C. Byrd (D-WVa) argued that the purpose of reconciliation is to "adjust revenue and spending levels in order to reduce deficits. It was not designed to create a new climate and energy regime, and certainly not to restructure the entire health care system."

However, as a point of history, the budget reconciliation process was used in 1997, 1999, 2000, 2001, 2003, and 2005 to reduce taxes (as opposed to deficit reduction).  Moreover, a case can be made that health care reform--that includes spending restraints and squeezes inefficiencies out of the system--is integral to reigning in the rapid growth of health care costs which is a major driver of deficits.

Byrd Letter

In other health news, the White House this week released the Report on the White House Forum on Health Reform

Budget experts across the political spectrum agree that the U.S. is facing a long-term budget quandary of immense proportions. By 2030: Medicare, Medicaid, Social Security, and net interest are projected to consume all federal revenues.  The key reasons for this bleak outlook are the (1) rapid increase in health care costs and (2) the retirement of the baby boom generation -- which together are causing Medicare and Medicaid (and to a lesser extent, Social Security) to grow at an alarming and unsustainable pace.

On the positive side, the House- and Senate-passed budget resolutions each call for health care reforms  which can be integral to controlling rapidly rising health care costs. Moreover, each of the budget plans call for health care reform to be fully offset. For example, the President's Budget would pay for health care reform through Medicare and Medicaid savings and limiting tax deductions for upper income earners.  

However, of considerable concern, the House- and Senate-passed budget resolutions would advance the President's proposal to permanently extend the Bush tax cuts for taxpayers earning less than $250,000 per year. The cuts are currently scheduled to expire at the end of 2010.  

The cost of extending the tax cuts is more than $2 trillion over 10 years according to CBO -- revenue losses that further complicate the already precarious fiscal position of the U.S.

While one could make a reasonable case for temporarily extending the tax cuts during the economy's recovery from the current recession, it is fiscally imprudent to permanently extend the tax cuts given the rapidly rising debt burden, the desire for public investment in infrastructure, health care, renewable energy, and education, and the failure to enact any long-run reforms in Medicare and Social Security. 

Update: Last week, Senate Finance Committee Chairman Max Baucus (D-MT) introduced legislation that would permanently extend most of the Bush tax cuts.   Baucus press release

Global Warming / Energy Investments:  The President's budget proposes selling carbon emission allowances through auction as part of a "cap-and-trade" system to cut greenhouse gases dramatically by 2050. Sale of the emission allowances (estimated at $646 billion over 10 years) would be used: (1) to pay for $15 billion per year in renewable energy investments; and (2) to make the President's stimulus bill tax cuts permanent in order to offset the costs of higher energy prices. Both budget resolutions would establish reserve funds to allow spending and revenue levels to be adjusted later on to accommodate global warming and energy initiatives, provided they are deficit neutral.  Three points to highlight:

 

Unlike the Senate's health care reserve fund that is only required to be deficit neutral over 11 years, the global warming / energy reserve fund would have to be deficit neutral over 6 years and 11 years; 

 

Although the House opted to use the filibuster-proof budget reconciliation mechanism to expedite health care reform, it chose not to use the special procedure for climate-energy legislation (although it would be procedurally possible for the Ways & Means and Energy & Commerce Committees to tie health care and global warming legislation together into a single reconciliation bill).

 

The energy price increases that would result from so-called "cap-and-trade" legislation is making some Democrats nervous, despite the Administration's proposal to offset higher energy prices with tax relief. 

 

Education: The President's Budget would make college Pell grants an entitlement (i.e. not subject to annual discretionary spending decisions), would increase maximum awards, and would index the awards to increase with inflation.  This would be partially offset by originating all new student loans in the federal government's Direct Loan program, thus eliminating bank subsidies. The House-passed budget resolution would expedite consideration of this initiative by using the filibuster-proof reconciliation mechanism, while the Senate would establish a reserve fund to adjust budget levels for the program provided it is deficit neutral over 6 years and 11 years. 

 

An optional component of a Budget Resolution, which is used in numerous places in the Fiscal Year 2010 Budget Resolution, is called a “reserve fund.” These are provisions that allow total spending and committee allocations to be adjusted upward to accommodate additional spending for a specifically defined purpose. The adjustment of spending levels is dependent on one or more contingencies, typically that (1) the additional spending will be “deficit neutral” and (2) that the covered legislation is dedicated to specific objectives. Because most reserve funds require that the new legislation be “deficit neutral” (paid for by new spending cuts or tax increases), the use of the term reserve fund is actually a misnomer, since a Budget Resolution “reserve fund” does not provide any funds.|

In fact, the only scenarios in which a “reserve fund” has any purpose at all (other than to make a political statement) is where a mechanism is needed to allow the Budget Committees to adjust spending totals and/or committee allocations to accommodate a new program that is to be paid for by tax increases, or by spending cuts in another committee’s jurisdiction. If a new program is paid for by spending cuts within a committee’s own jurisdiction, there is no net increase in the committee’s spending or in total Federal spending, so no adjustments to the Budget Resolution are required and “reserve fund” authority is unnecessary.