|President Releases FY 2010 Budget Outline||CBO Releases Its Own "Plausible Baseline"||Congress Works to Complete FY 2009 Appropriations||Stabilizing the Financial, Housing, and Auto Sectors||The Fiscal Responsibility Summit|
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Track 1- Economic Stimulus:
Track 2 - Completion of '09 Appropriations:
Track 3 - FY 2010 Budget:
Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)
Yesterday (Feb. 26) President Obama released a general outline of his FY 2010 budget (with further details to be released in April). The budget plan covers the next 10 fiscal years. Following are highlights of the budget plan:
- For taxpayers with incomes over $250,000, the Bush tax cuts would be allowed to expire. 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 current rate of 45%. Also, the earnings of hedge fund managers would be taxed as normal income, rather than the lower 15% capital gains rate. These tax increases would generate more than $600 billion in deficit reduction over 10 years.
- For all other taxpayers, the budget would extend the Bush tax cuts--including the 10, 15, 25, and 28 percent brackets, the child tax credit, and marriage penalty relief--at a cost of more than $2 trillion over 10 years. The budget would also make permanent the stimulus bill's annual $800 per family tax cut at a cost of $526 billion over 10 years (paid for by new "cap & trade" revenues -- see below).
On the negative side: (1) the budget assumes economic growth of 3.2% next year, far higher than the Blue Chip estimates; (2) the budget artificially inflates the baseline by assuming that FY 2008 war funding levels continue indefinitely and then claims major "budget savings" by proposing war funding of only $50 billion for 2011 and thereafter; (3) the budget claims savings from letting the Bush tax cuts for high income earners expire, even though that is current law; and (4) the budget avoids paying for extension of the remaining Bush tax cuts and the AMT fix by "assuming" them as part of the budget baseline.
The BIG DECISION: Democrats' big decision will be whether to use the filibuster-proof Budget Reconciliation process to enact the major spending and tax initiatives in the Obama Budget. Under Reconciliation procedures, the initiatives can pass with 51 votes in the Senate. Without Reconciliation, 60 votes will be required -- a very tough threshold to reach, as demonstrated during consideration of the recent stimulus bill. The difficulty Democrats will face is the insistence of Budget Chairman Kent Conrad (D-ND) and others in the Senate that Reconciliation's fast-track procedures should be reserved exclusively for deficit reduction provisions.
Under these assumptions, the projected 2009 deficit of $1.4 trillion would decline to $715 billion in 2013, but then begin to rise again ending up at more than $1 trillion in 2019. The total 10-year deficit under this scenario would be $8.7 trillion.
This week, the House passed 245-178 a $410 billion omnibus appropriations bill for the remainder of fiscal year 2009 (HR 1105). The measure now goes to the Senate
Reason for the omnibus bill: Last fall, Congress completed action on only 3 of the 12 regular FY 2009 appropriations bills.
The bill passed the House on a close to party-line vote. House Republicans argued that the measure should have frozen 2009 spending at 2008 levels, rather than providing adjustments for inflation and other increases.
Congressional Quarterly reported that he bill increased spending by about $31 billion, or 8 percent, more than the total funding in the FY 2008 versions of the spending bills.
Senate Democrats will need to find several moderate Republican votes to reach the 60 votes needed to avoid a Republican filibuster of the appropriations measure. Senate Republican Leader Mitch McConnell (R-KY) said his colleagues want to "shrink the overall size of the pie."
The bill will be open to amendments when considered by the Senate next week. Amendments highlighting Republican objections to the President's FY 2010 budget document are likely.
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:
Impending $76 Billion War Supplemental: The Administration will send to Congress, within the next few weeks, a $76 billion war supplemental for the remainder of FY 2009. This would bring total war spending for the current fiscal year up to $143 billion.Link to late September Continuing Resolution
Latest Developments: The President's Budget states that "additional action is likely to be necessary to stabilize the financial system....Although the Administration is not requesting additional funds from the Congress at this point and although it is not yet possible to provide a precise estimate of how much additional Federal action may be involved...(the Budget) includes a $250 billion contingent reserve for further efforts to stabilize the financial system....Estimates of the value of the financial assets acquired by the Federal government to date suggest that the Government will get back approximately two-thirds of the money spent purchasing such assets--so the net cost to the Government is roughly 33 cents on the dollar....The $250 billion reserve would (therefore) support $750 billion in asset purchases."
Homeowner Recovery Plan:Link to Executive Summary
Last Monday, February 23, the President, Members of Congress, and budget experts from a variety of think tanks and organizations (including Bob Bixby from Concord) participated in a "Fiscal Responsibility Summit."
During his opening remarks at the Summit, the President highlighted the inter-generational responsibilities that are at the heart of the Concord Coalition's mission: "This administration has inherited a $1.3 trillion deficit -- the largest in our nation's history -- and our investments to rescue our economy will add to that deficit in the short term. We also have long-term challenges -- health care, energy, education and others -- that we can no longer afford to ignore. But...we cannot, and will not, sustain deficits like these without end. Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration, or the next generation....
"So if we confront this crisis without confronting the deficits that helped cause it, we risk sinking into another crisis down the road as our interest payments rise, our obligations come due, confidence in our economy erodes, and our children and our grandchildren are unable to pursue their dreams because they're saddled with our debts....
"We will reinstate the pay-as-you-go rule that we followed during the 1990s..." (emphasis added)
Small breakout sessions followed on health care, taxes, social security, government procurement, and the budget process.
During the wrap-up session, House Budget Committee Chairman John Spratt (D-SC) indicated that there was general agreement in the budget process breakout that entitlement reform would require some type of special commission or task force and some certainty that a vote would occur on the group's recommendations. (The Concord Coalition agrees with this point and believes that the budget reconciliation process, which allows for germane amendments but precludes Senate filibuster, is a good model.)Remarks by the President and the Vice President at the Fiscal Responsibility Summit
President Obama's FY 2010 Budget (see additional links in the article above)America's Priorities: How the U.S. Government Raises and Spends $3 Trillion Per Year, by Charles S. Konigsberg, Editor, The Concord Coalition's Washington Budget Report.