|Stimulus Bill: Spending Provisions||Stimulus Bill: Tax Cuts||Questions Raised About Stimulus Package||Fiscal Policy Experts Call for a "Budget We Can Believe In"||Stabilizing the Financial, Housing, and Auto sectors|
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Budget Process: Step-by-Step
Track 1- Economic Stimulus (Jan/Feb):
- Mon, Jan 26: CBO released a cost estimate of the House stimulus package
- Tues, Jan 27: Senate Appropriations Comm. (10:30am) and Senate Finance Comm. (10:30am) mark-up appropriations, entitlement, and tax provisions of stimulus bill
- Wed, Jan 28: House Floor action on stimulus bill
- Jan 28 or 29: Senate will begin Floor consideration of stimulus bill
Track 2 - Completion of '09 Appropriations (Jan/Feb):
- Feb 13: Target date for Democrats to complete action on omnibus FY '09 appropriations bill
- March 6: Funding for much of the Federal Government expires under the terms of the current continuing resolution (see article below)
Track 3 - FY 2010 Budget (Feb / March / April):
- Feb 2: President required to transmit the FY 2010 budget to Congress (however, this being a presidential transition year with a compressed schedule, it is likely that President Obama will transmit a "baseline budget" on February 2d followed by a "budget policy outline" later in the month)
- March: Markup of FY 2010 Congressional Budget Resolution
- April: Floor action and conference on Budget Resolution
- May-Sept: Action on FY 2010 appropriations bills and a Budget Reconciliation Bill (if called for by the Budget Resolution)
Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)
- The House last week passed a bill introduced by Financial Services Chairman Barney Frank to require that a portion of the remaining $350 billion tranche of the TARP (Troubled Assets Relief Program) be used for foreclosure mitigation (see article below)
Stimulus Bill: Spending Provisions
Last Wednesday (Jan. 21) the House Appropriations Committee passed the spending portion of the "American Recovery and Reinvestment" bill on a vote of 35-22.
The Senate Appropriations Committee will mark up its piece of the stimulus bill today (Jan. 27). Compared to the House Appropriations Committee bill, the Senate spending package would provide more money for Veterans medical and broadband, but less for highway construction and the electric grid. Senate Appropriations Committee stimulus provisions
The full House is scheduled to vote on the complete stimulus legislation (discretionary spending, entitlement spending, and tax provisions) this Wednesday, Jan. 28. (See the article below for details on the tax package). House Rules Comm. Web Site on Stimulus Package
Following is a broad overview of funds that would be appropriated under the House bill (in billions of $):
- State fiscal relief: $87 billion for a temporary increase in the Federal share of Medicaid; $79 billion in state fiscal relief to prevent cutbacks in services; and $4 billion for law enforcement.
- Energy: $85 billion for improving the energy grid, investment in renewable technology, retrofitting public housing and Federal buildings, and weatherizing low-income homes.
- Science and Technology: $16 billion for science facilities and research, and expanding broadband access.
- Roads, Bridges, Transit, and Waterways: $30 billion for highways, $19 billion for water projects and restoration, and $10 billion for mass transit.
- Education: $41 billion to local school districts, $16 billion for Pell grants, and $6 billion for higher education.
- Healthcare: $20 billion for health information technology (including $18 billion in mandatory spending) and $4 billion for preventive care and evaluating effectiveness of treatments.
- Assistance to Workers: $43 billion for increased unemployment benefits and job training; $39 billion to help workers keep health coverage (through COBRA and Medicaid); and $20 billion to increase food stamps.
Stimulus Bill: Tax Cuts
Last Thursday, January 22, the House Ways & Means Committee on a party-line 24-13 vote approved the $275 billion tax portion of the economic stimulus package (HR 598).
Last Friday, January 23, the Senate Finance Committee released its own package, which will be considered by the Committee today (Jan. 27). Compared with the House Ways & Means package, the Senate bill would provide more energy tax incentives and less for school construction bonds. The Senate bill also would temporarily suspend income taxes on unemployment benefits.
The largest component of the House and Senate tax packages is a $1000 tax
credit ($500 for individuals) distributed in the form of reductions in
payroll tax withholding spread over the course of the year. (The tax credit would phase out for upper
Highlights of the Ways & Means portion of the stimulus bill (in billions of $):
- "Making Work Pay" Credit: Middle class payroll tax relief in the form of a $1000 tax cut ($500 for individuals) -- phasing out at $150,000 for couples. ($145 billion)
- Tax Relief for Families w/ Children by increasing the EITC and the Child Tax Credit ($23 billion)
- Education Assistance: Partially refundable tax credit for college tuition and other expenses ($14 billion)
- Housing Stimulus: Remove repayment requirement on $7500 first-time home buyer credit until 6/30/09 ($2.6 billion)
- Tax Incentives for Business: Bonus depreciation for property acquired in 2009; Extend temporary increase in small business expensing; and 5-year Carryback of NOLs allowing companies to apply net operating losses to the last 5 years -- generating instant refunds ($20 billion).
- Relief to State and Local Governments: Expand bonding authority to stimulate State and local bonds, private activity bonds, school construction bond, and bonds for "recovery zones" ($34 billion)
- Renewable energy tax incentives including a 3-yr extension of the energy production tax credit for renewable energy ($20 billion)
Questions Raised About Stimulus Package
A key question being raised about the evolving stimulus bill is whether it is sufficiently focused on short-term stimulus (which should be deficit-financed) vs. long-term investment (which should be carefully crafted and paid for over time).
Former CBO and OMB Director Alice Rivlin, addressed this last week at a January 21, 2009 hearing of the Senate Budget Committee:
"The first priority is an 'anti-recession package' that can be both enacted and spent quickly, will create and preserve jobs in the near-term, and not add significantly to long run deficits. It should include temporary aid to states in the form of an increased Medicaid match and block grants for education and other purposes....The package should also include temporary funding for state and local governments to enable them to move ahead quickly with genuinely 'shovel ready' infrastructure projects....Another important element of the anti-recession package should be substantial transfers to lower and middle income people, because they need the money and will spend it quickly.....
"The anti-recession package should be distinguished from longer-run investments needed to enhance the future growth and productivity of the economy....We have neglected our public infrastructure for far too long and invested too little in the skills of the future workforce....Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package...
"Since a sustained program of public investment in productivity-enhancing skills and infrastructure will add to federal spending for many years, it must be paid for and not simply added to already huge projected long-term deficits. That means either shifting spending from less productive uses or finding more revenue...." (emphasis added)
Former CBO Directors Robert Reischauer and Rudolph Penner addressed similar issues at the hearing:
A CBO analysis of the evolving stimulus package estimates
that while many provisions will generate significant government
spending in the short-term, others will generate most of their spending after FY 2010, as summarized below.
Examples of stimulus provisions that will generate most of their outlays in 2009 or 2010:
- Medicaid: $33 billion in 2009, $44 billion in 2010, and $12 billion after 2010
- Unemployment benefits: $16.8 billion in 2009, $19.7 billion, and $1.6 billion after 2010
- Food Stamps: $4.8 billion in 2009, $6.1 billion in 2010, and $9.1 billion after 2010.
- Corps of Engineers Programs: $1.1 billion in 2009, $1.7 billion in 2010, and $1.7 billion after 2010.
- HHS Education Programs: $3.1 billion in 2009, $9 billion in 2010, and $8.1 billion after 2010.
- Student Financial Assistance: $700 million 2009, $14 billion in 2010, and $2.3 billion after 2010.
- Health Insurance Assistance: $4.9 billion in 2009, $7.1 billion in 2010, and $1.4 billion after 2010.
Examples of stimulus provisions that will generate most of their outlays after 2010:
- Highway Construction: $3 billion in 2009, $7.5 billion in 2010, and $19.5 billion after 2010.
- Energy Efficiency and Renewable Energy: $450 million in 2009, $2.2 billion in 2010, and $15.9 billion after 2010.
- Wireless and Broadband investment: $10 million in 2009, $240 million in 2010, and $2.6 billion after 2010
- Federal Buildings Fund: $400 million in 2009, $900 million in 2010, and $6.2 billion after 2010.
- Health Information Technology:$383 million in 2009, $138 million in 2010, and $19.7 billion after 2010
In response to Republican concerns about the marginal impact of provisions with a slow spendout rate, OMB Director Peter Orszag on January 22 sent a letter to Congress stating that "our analysis indicates that at least 75 percent of the overall package (including its tax component...) will be spent over the next year and a half...." Based on CBO's estimates released yesterday (Jan 26), about two-thirds of the overall package will provide stimulus during the balance of 2009 and 2010.
Fiscal Policy Experts Call for a "Budget We Can Believe In"
On January 23, a cross-section of fiscal policy experts called on President Obama to address both America's short-term and long-term economic needs.
The memorandum was developed by fiscal policy experts at the Brookings Institution, Committee for a Responsible Federal Budget, Concord Coalition, Peter G. Peterson Foundation, Progressive Policy Institute, and Urban Institute.
Key points of the memorandum:
- The Obama budget should "strike a judicious balance between America's short-term and long-term economic needs."
- This means simultaneously "stabilizing America's financial markets....reducing the severity and duration of the current recession....controlling the growth of health costs and putting Social Security on a financially sustainable path....(and) reforming America's tax system...to raise adequate revenue while maintaining economic growth."
- The stimulus package "should not worsen the long-term fiscal outlook."
- Medicare, Medicaid, and Social Security are "growing faster than tax revenues because of soaring health costs and the aging of the population."
- Launch an "intensive public education campaign" to set the stage for tough choices.
- PAYGO rules should be reestablished to enforce a long-term agreement on entitlements and taxes.
- Long-term targets should be established for entitlement spending and tax expenditures, enforced through automatic triggers.
Stabilizing the Financial, Housing, and Auto sectors
Recent developments: The House on January 21 passed HR 384, a bill that would place restrictions on the Treasury Department's use of the remaining $350 billion in the TARP (Troubled Assets Relief Program). A key provision of the bill would require Treasury to allocate a minimum of $40 billion to foreclosure mitigation (although Obama Administration officials have already announced their intention to dedicate at least $50 billion for that purpose).
- Under the bill, the mitigation plan would be required to have five components: a guarantee for qualifying loan modifications; a program to pay down second mortgages; payments to mortgage servicers to implement the modifications; purchase of loans for the purpose of modification or refinancing them; and addressing the costs of the Hope for Homeowners program.
- Congressional Quarterly reports it is unlikely the Senate will take up the measure.