September 18, 2014

WASHINGTON BUDGET REPORT: June 5, 2009

WASHINGTON BUDGET REPORT: June 5, 2009
President Opens Door to Taxing Health Benefits Obama Emphasizes Importance of Controlling Health Care Costs War Costs Nearing Trillion Dollar Mark Supplemental Held up by IMF and War Policy Concerns Appropriations Tracker

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Budget Process: Step-by-Step

Track 1- Economic Stimulus:

Track 2 - Completion of '09 Appropriations:

Track 3 - FY 2010 Budget [SEE APPROPRIATIONS TRACKER BELOW]:

  • February 26: President Obama transmitted a budget outline.
  • March 20: CBO released its Preliminary Analysis of the President's FY 2010 budget (using CBO economic projections)
  • March 25-26: House Budget Comm. and Senate Budget Comm. marked-up their respective versions of the FY 2010 Congressional Budget Resolution.
  • April 29: House and Senate adopted Budget Resolution Conference Report (S.Con.Res. 13).
  • May 11: Administration released remaining details of President's FY 2010 Budget
  • May-Sept: Action on the 12 regular FY 2010 appropriations bills   beginning with the House and Senate Appropriations Committees dividing their respective budget resolution allocations among their 12 subcommittees (known as 302(b) allocations, this is a key step in prioritizing funds)
  • October 15: Budget Resolution deadline for committees to report budget reconciliation legislation (health care reform and student loan reform), although congressional leaders will initially try to move a free-standing health reform bill without budget reconciliation's filibuster-proof protections.

Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)

Track 5 - Health Care Reform

Track 6 - Climate Change (major budget impact from auctioning allowances or emissions taxes)

  • May 21: House Energy & Commerce Committee completed action on the Waxman-Markey climate change bill, approving the measure on a nearly party-line vote (33-25).
  • Waxman-Markey climate change bill ("The American Clean Energy and Security Act")
  • Next steps: Addressing rural concerns raised by the Agriculture Committee and mark-up at the Ways & Means Committee (which will likely act on health care reform before taking up climate change).
Track 7 - Highway Bill (FY 2010-15)

  • Leaders of key congressional committees have begun negotiating the parameters of the next multiyear highway bill (FY 2010-2015). The House is aiming for Floor consideration of a bill in early June, though there are some in the Senate who believe the bill may not be completed until next year.
  • For the period covered by the budget resolution (2010-2014), Congress allocated $259 billion to the relevant House and Senate Committees for highway and transit spending. This amount reflects a $67 billion increase above the "baseline" level--which is tied to current highway bill spending.
  • Important note: the federal gas tax which funds the highway trust fund is already insufficient to cover baseline levels of spending.
  • Even though the highway trust fund is already seriously underfunded (by $41 billion over the next five years), transportation advocacy groups are seeking significant increases over and above the $67 billion increase built into the budget resolution.
  • American Association of State Highway and Transportation Officials estimates
  • American Public Transportation Association estimates

President Opens Door to Taxing Health Benefits

As discussed in recent editions of WBR, one of the key challenges of this year's health care reform is determining how to pay for the enormous costs of covering the uninsured, with estimates as high as $1.2 trillion over 10 years.

This year's congressional budget resolution requires that health care reform legislation must be deficit neutral, i.e., the costs must be fully offset. The President proposed to partially pay for health care reform by reining in Medicare and Medicaid costs, and placing a cap on itemized deductions for high income earners.

The latter proposal -- capping itemized deductions -- has not been well received on Capitol Hill, with some nonprofits arguing it would reduce charitable contributions.

An alternative proposal -- which has been frequently discussed among Members of Congress is capping the tax exclusion of employer provided health benefits. Background: Millions of employees in the U.S. receive health insurance benefits from their employers. Even though health benefits are a form of compensation, the tax code specifically excludes health benefits from taxation. This exclusion will cost the Treasury $155 billion in lost revenues in 2010 alone and more than $2 trillion over 10 years. Taxing only "high-end" health benefits would still bring in nearly a half trillion over 10 years.

Administration officials have been saying the President is opposed to taxing health benefits--and during the presidential campaign he strongly attacked Sen. John McCain (R-AZ) for proposing exactly that.

However, this week, following a meeting with the President, Senate Finance Committee Chairman Max Baucus (D-MT) said taxing health benefits "was discussed. It's on the table."

According to the Washington Post, "White House officials moved quickly to clarify that taxing the health insurance provided by businesses is not Obama's first choice, but aides refused to rule out the possibility."

There are some challenging complexities in fashioning a "fair" cap on the tax exclusion of employer-sponsored health benefits. Earlier this week, the Tax Policy Center hosted a forum to consider ways to fashion a "fair cap." Click on the links below to listen to the forum and read a policy paper.

Policy Paper (by Stan Dorn): "Capping the Tax Exclusion of Employer-Sponsored Health Insurance: Is Equity Feasible?"

Tax Policy Forum on the Capping the Exclusion of Employer-Sponsored Health Insurance

Obama Emphasizes Importance of Controlling Health Care Costs

Earlier this week President Obama met with Senate Democrats working on healthcare legislation. In his prepared remarks, released by the White House, he underscored the importance of controlling health care costs at the same time coverage is expanded:

"I want to just make mention of something that I've talked to many of you privately about. I want to say this publicly. As we move forward on health care reform, it is not sufficient for us simply to add more people to Medicare or Medicaid to increase the rolls, to increase coverage in the absence of cost controls and reform. And let me repeat this principle: If we don't get control over costs, then it is going to be very difficult for us to expand coverage. These two things have to go hand in hand. Another way of putting it is we can't simply put more people into a broken system that doesn't work.

"So we've got to reform the underlying system. And this means promoting best practices, not just the most expensive practices. And one of the things I'm going to be discussing with the health and the finance committees is how can we change incentive structures so that, for example, places like Mayo Clinic in Minnesota are able to provide some of the best health care services in the country at half or sometimes even less of the costs than some other areas where the quality is not as good. What we should be--and by the way, that's not just unique to Mayo. The Cleveland Clinic in Ohio, same thing: top-notch quality, lower costs."

During the meeting with Senators from the Finance and HELP (Health, Education, Labor, and Pensions) Committees, the President also mentioned his interest in a proposal by Senator Jay Rockefeller (D-WV) to beef up the role of MedPAC--the Medicare Payment Advisory Commission. MedPAC is an independent congressional agency established in 1997 to advise Congress on payment and other issues affecting Medicare.

The Rockefeller proposal would reestablish MedPAC as an independent executive agency -- similar to the Federal Reserve -- with enhanced authority to establish and implement Medicare reimbursement rules.

Rockefeller proposal to enhance MedPAC

War Costs Nearing Trillion Dollar Mark

According to the Congressional Research Service, with enactment of the FY 2009 Supplemental Appropriations bill, ongoing war costs (budget authority) will reach nearly a trillion dollars:

  • Operations in Iraq since FY 2003 total $684 billion;

  • Operations in Afghanistan since FY 2002 total $223 billion;

  • Related military expenditures such as enhanced base and embassy security total $34 billion;

  • Total war funding since FY 2002: $941 billion.

The Obama Administration has requested $130 billion in war funding for FY 2010, although this is likely to be inadequate given the FY 2009 costs of $149 billion (including the supplemental).

These cost totals are only the tip of the proverbial iceberg. Additional costs, not reflected in the totals above include: lifetime health care and disability benefits for returning veterans; substantial costs of replacing military hardware (sometimes called "re-setting" the military); and long-term interest costs on the substantial increases in the public debt due to the war. (This is the first time in U.S. history that taxes were decreased during wartime--necessitating heavy borrowing to pay for the war.)

Supplemental Held up by IMF and War Policy Concerns

The House-Senate conference on the FY 2009 Supplemental Appropriations Bill has been delayed due to several developments:

  • Most House Republicans are now opposing the supplemental funding bill because it includes increased U.S. support for the International Monetary Fund. House Republican Letter on IMF

  • Without Republican support for the bill, House leadership will need to convince some anti-war Democrats to vote for the supplemental funding bill (which consists primarily of supplemental funding for Afghanistan and Iraq).

  • The Administration has requested additional pandemic flu funding, on top of their recent request.

  • Conferees will need to decide whether to include Senate language barring release of photos depicting U.S. abuse of detainees.

  • Discussions are under way on whether to include a "cash for clunkers" provision to stimulate the auto industry.

Appropriations Tracker

LATEST NEWS: This week, a House Appropriations subcommittee marked up the FY 2010 Commerce-Justice-Science bill, providing $64.4 billion for agencies including the Departments of Commerce and Justice, NASA, and the National Science Foundation. That's an increase of $6.7 billion from FY 2009 funding, but $200 million less than President Obama requested. (See Commerce-Justice-Science below for links to details on the bill.)

Week of June 8th: House Appropriations subcommittees mark-up Homeland Security, Leg. Branch, Interior-Environment, Agriculture. Full Committee marks up Commerce-Justice-State, Homeland Security.

In general--Congressional appropriators face the task of reconciling the President's FY 2010 discretionary funding requests that total $10 billion more than the amount allowed by the FY 2010 congressional budget resolution (see April 30, 2009 WBR). Appropriators will also have to decide whether to accept the $17 billion in program reductions and terminations proposed by the Administration (see May 11, 2009 WBR). Obama Administration's proposed "Terminations, Reductions, and Savings"

Following are LINKS to the latest congressional action, plus a sampling of issues facing the appropriators as reported by Congressional Quarterly. The numbers in parentheses are the FY '09 regular appropriations level in billions (not including stimulus funds), followed by the FY 2010 President's request.

1. AGRICULTURE ($21.6 / $22.9) -- Major issues include the President's proposed 6.5% increase over the current year; overhaul of the food safety system; and the President's proposal to end direct payments to farmers with more than $500,000 in annual sales revenue.

2. COMMERCE-JUSTICE-SCIENCE ($60.1 / $64.6) -- Major issues include the President's proposed 7% increase over the current year; funds to close Gitmo (not provided by the House bill); a major Southwest Border Initiative; readiness of the Census Bureau for the upcoming census; and and NASA's post-space shuttle priorities. House: Chairman's Statement Summary Table Earmark List

3. DEFENSE ($489 / $512) not including $129 billion for war funding and $23 billion for military construction and housing which are funded in a separate bill -- Major issues include termination of the F-22 fighter and the C-17 transport; proposed cuts in missile defense; proposed cuts in the Army's Future Combat Systems; and rising personnel costs.

4. ENERGY WATER ($32.8 / $32.9) -- Major issues include how to continue the big boost in renewable energy research after the stimulus bill's funds run out; the President's proposal to cut funding for the proposed nuclear waste facility at Yucca Mountain, Nev; and the adequacy of funding for water infrastructure projects.

5. FINANCIAL SERVICES ($22.8 / $24.2) -- Major issues include U.S. policy toward Cuba; education vouchers in the District of Columbia; funding to states to upgrade voting equipment; and a proposed OMB program to improve the efficiency of state programs receiving federal funds.

6. HOMELAND SECURITY ($40 / $42.7) -- Major issues include funding efforts to find and deport illegal immigrants; the fence along the Mexican border; whether the proposal to cut the DHS budget starting in 2012 is realistic; and increased funding for road and rail security.

7. INTERIOR-ENVIRONMENT ($27.6 / $32.3) -- Major issues include earmarks for water projects; eliminating a program to clean up diesel engines in California; adequacy of wildfire funding; drilling in federal lands and waters; and new taxes and fees on the oil and gas industry.

8. LABOR-HHS-EDUCATION ($136.4 / $144) -- Major issues include modifications to funding of the Pell Grant program; funding for school construction; increased funding for OSHA; increased funding for NIH after the stimulus funds run out; and the Administration proposal to eliminate abstinence-only education.

9. LEGISLATIVE BRANCH ($4.6 / $5.1) -- Major issues include the Architect of the Capitol's budget; and requests for more staffing at CBO and GAO.

10. MILITARY CONSTRUCTION - VA ($72.9 / $76.3) -- Major issues include advance appropriating FY 2011 funds for VA health care; and funding levels for military construction.

11. STATE-FOREIGN OPERATIONS ($36.6 / $52.0) -- Major issues include the President's proposed 9% increase for the State Dept. and foreign aid programs; funding for Bush's Millennium Challenge Corporation (aimed at countries that adopt democratic and free-market policies); and funding for the U.N. Population Fund (which is strongly opposed by anti-abortion groups).

12. TRANSPORTATION-HUD ($57.8 / $106.6) assuming the need for money from the general fund to supplement the Highway Trust Fund -- Major issues include how to make up the shortfall in gasoline tax revenues flowing into the highway trust fund; funding for a new air traffic control system; increased funding for the Community Development Block Grant program; and increasing loan guarantees through the FHA.