December 18, 2014

WASHINGTON BUDGET REPORT: Sept. 5, 2008

WASHINGTON BUDGET REPORT: Sept. 5, 2008
September: 3 weeks and a Packed Agenda Senate Appropriators Drafting Second Stimulus/Supplemental Bill Gridlock continues on Tax Extenders, Energy Incentives, AMT Bill FY 2009 Appropriations: The Impending CR CBO Releases New Social Security Projections

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Budget Process: Step-by-Step


September 8: Congress reconvenes

September 9:

--Congressional Budget Office Releases its mid-session update including new deficit projections and economic forecast
--House Appropriations Committee marks up the Defense Appropriations bill (webcast at 10am)
--House Budget Committee hearing: "A Weakened Economy: How to Respond?"
--Senate Finance Committee hearing: "Improving Health Care Quality"

September 26: Target Adjournment Date for 110th Congress

October 1: Fiscal Year 2009 Begins. Since few, if any, FY 2009 appropriations bill are expected to be enacted by September 30 (see articles below), Federal agencies that have not been funded will be forced to shut down on October 1 unless a "continuing resolution" is enacted. (Continuing resolutions allow funding for designated agencies and programs to continue at a specified level--usually the prior year's level or the House-passed or Senate-passed level--until the regular appropriations bills are enacted into law.) The last government shutdown occurred in 1995 during a stand-off between President Bill Clinton and the Republican-controlled Congress over proposed budget cuts.

 

September: 3 weeks and a Packed Agenda

When Congress reconvenes in September for a 3-4 week session, a number of budget-related measures could be considered by the House and Senate:

--FY 2009 Continuing Resolution (to keep agencies and programs operating in the absence of enacted FY 2009 appropriations bills). Passage of the CR will be complicated by strong Republican opposition to extending the current moratorium on new off-shore drilling; some observers have speculated that political gridlock on drilling could delay the CR and trigger a government shutdown.

--Second Stimulus / Supplemental Appropriations Bill (see article below).

--Tax-extenders / alternative energy tax incentives / AMT patch. (Currently stalled due to Republican opposition to paying for the extenders with revenue raisers.)

--Department of Defense FY 2009 Authorization bill (sets parameters and requirements for defense spending).

--Department of Defense FY 2009 Appropriations bill.

--Military Construction-Veterans Affairs FY 2009 Appropriations bill.

--Homeland Security FY 2009 Appropriations bill.

Senate Appropriators Drafting Second Stimulus/Supplemental Bill

A second economic stimulus/supplemental bill is being drafted by the Senate Appropriations Committee for consideration in September.

One scenario for September is that this discretionary spending package may be joined together with tax extenders, an AMT patch, and a continuing resolution through early 2009. Another possibility is that all of these items could be piggy-backed onto the Defense or Mil Con/VA appropriations bill.

According to a Senate Appropriations Committee press release, the stimulus/supplemental bill would provide more than $24 billion, including $10 billion for infrastructure, energy and economic recovery programs, and $10 billion for natural disaster recovery.

The $10 billion in infrastructure, energy, and economic recovery includes:

--$3.57 billion for highways;
--$2.3 billion for rural programs;
--$1.5 billion for alternative energy initiatives;
--$892 million for mass-transit agencies;
--$850 million for school repair and renovation;
--$570 million for nutrition programs;
--$561 million for border and homeland security;
--$500 million for job training;
--$400 million for clean water programs;
--$309 million for housing;
--$200 million for airport improvements;
--$100 million for small business assistance;
--$100 million for Amtrak; and
--$13 million for the Commodity Futures Trading Commission.

The $10 billion for natural disaster relief includes:

--nearly $3 billion for Hurricane Katrina Recovery;
--$1.8 billion for FEMA (Federal Emergency Management Agency);
--$1.8 billion for CDBG (Community Development Block Grants);
--$1.2 billion for repairing damaged highways; and
--$910 million for firefighting.

The other $4 billion in the bill includes:

--$1.3 billion for health and research investments at NIH, NASA, DoE, and CDC; and
--$1.25 billion for LIHEAP (the Low Income Home Energy Assistance Program).

Byrd Press Release

On the House side of the Capitol, House Speaker Nancy Pelosi recently suggested a larger stimulus bill in the range of $50 billion.

The first 2008 stimulus bill was signed into law on February 13, 2008 and cost $152 billion (HR 5140). The bipartisan package negotiated early this year provided tax rebates for individuals and business incentives. CBO cost estimate on first 2008 economic stimulus bill.

Gridlock continues on Tax Extenders, Energy Incentives, AMT Bill

On July 29 and 30, Senate leaders failed in their third and fourth attempts to invoke "cloture" (end a filibuster) on a package of energy incentives and tax extenders. The vote on S 3335, a revised tax bill introduced by Senator Baucus, was 51-43-- nine votes short of the 60 votes needed for cloture. An attempt to invoke cloture on the House-passed bill (HR 6049) fell seven votes short (53-43) of the required 60.

The tax package, which is also the likely vehicle for a critical one-year AMT (Alternative Minimum Tax) patch, will be at the top of Congress' agenda when they return in September. Failure to amend the AMT would result in tax increases for 21 million taxpayers when they file their 2008 returns.

In an attempt to garner the votes necessary to break a lengthy impasse, Senate Finance Committee Chairman Max Baucus (D-MT) had introduced S. 3335 and included some legislative "sweeteners" (disaster relief and mental health parity) to attract more votes.

However, Republicans continued to oppose the revised package because of their general opposition to including revenue raisers in the bill as required by the Senate's pay-as-you-go (PAYGO) rules. Senate Finance Committee Ranking Republican Charles Grassley (R-IA) said he objects to the bill because the legislation, "should not use tax increases to extend existing tax policy."

At the same time, Senate Majority Leader Harry Reid indicated that dropping the tax offsets would be a waste of time because "we know the House won't accept that, and rightfully so," (as quoted by BNA's Daily Tax Report).

The Baucus bill (S 3335) included:

--$17 billion in energy tax incentives;
--$28 billion in one-year tax extenders;
--$9 billion in "additional relief";
--$54 billion in revenue offsets to pay for the above provisions;
--$5.3 billion (not offset) in disaster relief provisions; and
--$64 billion (not offset) for a one-year AMT patch

Background.--The current House and Senate PAYGO rules were put in place when Democrats regained the majority in 2007. They are based on the PAYGO law of the 1990s, which required that any new tax cuts need to be offset by revenue raisers or entitlement cuts (and new entitlement spending offset by spending cuts or revenue raisers).

However, unlike the PAYGO statute of the 1990s (which was enforced through the threat of automatic entitlement cuts), the current PAYGO rules lack any statutory enforcement mechanism. Consequently, it has been difficult to enforce the current rules, which have already been waived a number of times. Most notably, last year's AMT patch was not offset.

Senate Democrats have already conceded that this year's AMT patch will not be offset, but they have joined House Democrats in their insistence that the tax extenders and energy incentives must be offset.

Earlier in the year, 41 Republican Senators (the number needed to successfully filibuster legislation) signed a letter opposing the use of any offsets for extenders or AMT relief. (The letter was signed by the party leadership, Senator John McCain (R-AZ), and all Finance Committee Republicans except for Maine Senator Olympia Snowe.) Text of the Senate Letter

Among the items that would be extended by S. 3335 are:

--the R&E tax credit (usually referred to as the research and development credit)
--the option to deduct state and local sales taxes instead of income taxes
--the deduction for qualified tuition expenses
--tax-free distribution from IRAs to certain public charities
--the deduction for teacher classroom expenses
--the "new markets" tax credit
--15-yr straight-line cost recovery for certain business improvements
--expensing of "Brownfields" environmental remediation costs
--other provisions described in the revenue estimates below

Among the energy tax incentives in the bill are:

--$10.6 billion over 10 years for alternative energy production incentives
--$1.8 billion over 10 years for transportation and domestic fuel security provisions
--$4.4 billion over 10 years for energy conservation and efficiency provisions
--other provisions described in the revenue estimates below

Among the revenue offsets in the bill are:

--Modifying tax treatment of deferred compensation of managers of offshore hedge funds
--Delaying the implementation of interest allocation provisions affecting multinationals
--Mandate reporting by brokers for transactions involving publicly traded securities

Latest veto threat on the extenders legislation

JCT Preliminary Revenue Estimate of Baucus Bill

Committee Description of Baucus Bill

JCT Revenue Estimate of House-passed bill

JCT Description of House-passed bill


FY 2009 Appropriations: The Impending CR

By late July, the House of Representatives would typically have completed Floor action on most of the 12 regular appropriations bills that fund the departments of government.

However, as reflected in the chart below, the House had taken up and passed only one appropriations bill--Military Construction/VA--when they adjourned for the August recess.

House Mil Con-VA bill summary

The other bills that might see action before Congress adjourns in September are:

--the Defense Appropriations Bill, which the Defense Appropriations Subcommittee in the House marked up the last week of July; and

--a second stimulus/supplemental bill (discussed in the article below).

House Defense bill subcommittee summary

Aside from possible action on Defense and MilCon-VA, this year's appropriations is in a serious logjam because of two key factors:

First, President Bush has threatened to veto any appropriations bills that exceed his request, and Democrats--as reflected in the Budget Resolution--have called for nearly $25 billion more than the President requested. From Democrats' perspective, if they wait until after the presidential election to make FY '09 funding decisions, they may be working with a Democratic President. As reported by Congressional Quarterly, Senate Majority Leader Harry Reid (D-NV) said recently, "I hope we would do a continuing resolution until after Sen. Obama becomes President."

Second, House Republicans have been attempting to amend appropriations bills with off-shore oil drilling amendments, strongly opposed by many Democrats. On June 26, House Appropriations Chairman David Obey (D-WI) suspended markup of the Labor-HHS appropriations bill when Republicans attempted to substitute drilling language for the labor, health, and education provisions.

Despite the unlikelihood of significant Floor action in September, the Senate Appropriations Committee has completed action on most bills as reflected below.

[Click on the blue links for information on each appropriations bill.]


Latest House Committee
Action
House
Floor Action
Latest Senate Committee
Action
Senate
Floor Action
Conference
Action; President
Agriculture Subcomm: 6/19 -- Full Comm: 7/17 -- --
Commerce-Justice-Science Full Comm: 6/25 --
Full Comm: 6/19 -- --
Defense**

Subcomm:
7/30

--
--
--
--
Energy-Water Full Comm: 6/25 -- Full Comm: 7/10 --
--
Financial Services Full Comm: 6/25 -- Full Comm: 7/10 --
--
Homeland Security Full Comm: 6/24 -- Full Comm: 6/19 --
--
Interior-Environment Subcomm: 6/11 -- --
--
--
Labor-HHS-Education Subcomm: 6/19
-- Full Comm: 6/26 --
--
Legislative Branch Subcomm: 6/23 -- --
--
--
Military Construction-VA Full Comm: 6/24 Passage:
8/01

Full Comm: 7/17 --
--
State-Foreign Operations Subcomm: 7/16 -- Full Comm: 7/17 --
--
Transportation-HUD Subcomm: 6/20 -- Full Comm: 7/10 --
--


**War funding for the first part of FY '09 was provided in the FY '08 Supplemental Appropriations Bill.

Click here for additional details on status of appropriations bills.

Background on Appropriations.--The 12 annual appropriations bills provide funds for all of the discretionary programs, projects, and activities of the Federal government. In total, the 12 appropriations bills allocate about $1 trillion of discretionary spending -- one-third of the $3 trillion Federal budget.

(The other $2 trillion consists of entitlement programs--the largest being Social Security, Medicare, and Medicaid--as well as interest payments on the Federal debt and other "mandatory spending.")

The total amount of funding available for the annual appropriations bills is determined by the Congressional Budget Resolution. The House and Senate completed action June 5th on S.Con.Res. 70, the Congressional Budget Resolution for FY 2009 (the fiscal year beginning October 1, 2008).

Following adoption of the Budget Resolution, the House and Senate Budget Committees provide to their respective Appropriations Committees a lump-sum discretionary spending allocation (called a "302(a) allocation"). The total allocation for FY '09 was approximately $1,013 billion--about $21 billion higher than the President's $992 billion request (and $24.5 billion more than the President's request when advance appropriations and special adjustments for enforcement initiatives are included).

After receiving their respective 302(a) allocations, the House and Senate Appropriations Committees allocate total discretionary spending among their 12 respective subcommittees. These suballocations are called "302(b) allocations" and determine how much funding authority is available for programs under the jurisdiction of each subcommittee--a key decision-point in the budget process.

The Senate Appropriations Committee approved its 302(b) subcommittee allocations on June 19. The House Appropriations Committee approved its suballocations the week of June 24.


CBO Releases New Social Security Projections

Last week, on August 21, 2008, the Congressional Budget Office released new long-term social security projections. In a nutshell, CBO projects that:

--Social Security outlays will first exceed revenues in 2019; and

--Social Security trust funds will be exhausted in 2049.

The 2019 projection is the more significant number because that is when the Federal Government will begin paying out more in Social Security benefits than it takes in through payroll taxes.

Background.--Technically, the Social Security Trust Funds hold trillions of dollars in U.S. Treasury securities and that is why the trust funds are projected to be "solvent" until 2049. The Treasury securities exist--on paper--because the Social Security program has been running surpluses for the last two decades, which by law have been invested in Treasury securities. (The result is that the trust funds get IOU's and the Treasury can use the surplus cash to pay for other programs.)

However, in order to redeem the securities held by the trust funds, the U.S. Treasury will have to raise taxes or borrow more money from American and foreign investors--on an enormous scale, as the boomers retire. Consequently, from a fiscal policy perspective, the existence of the Treasury IOUs in the Trust Funds are irrelevant. The fiscal challenges begin when Social Security outlays exceed payroll tax revenues in 2019.