Amendment to Strike Long-Term Care Entitlement Fails

During the initial week of Senate debate, the Senate failed to pass an amendment to delete a new long-term care insurance program (known as CLASS) from the bill.  Moderate Democrats joined Republicans in voting for the amendment, but they fell short of the 60 votes required to strike the provision.*  The Concord Coalition has raised serious concerns about the CLASS program which creates artificial budgetary savings in the early years, but could balloon into a highly expensive unfunded liability in later years.  Concord Coalition Report on the CLASS program

[*Important note: in an unusual procedural move, Senate Democratic leaders have agreed with Republican leaders to require 60 votes for passage of all amendments in order to ensure they have 60 votes for final passage of the bill (and to avoid the procedural steps required to overcome a filibuster on specific amendments).  This is a highly unusual move, since normal procedures require only a simple majority of 51 votes to pass amendments.  Typically 60 votes would be required only to overcome budgetary violations or to end a filibuster of an amendment.]

Drug Reimportation Amendment

Heading into the new week, the Senate is at an impasse on how to proceed with debate on an amendment by Senator Byron Dorgan (D-ND) to allow reimportation of prescription drugs from Canada.  The pharmaceutical industry is adamantly opposed to allowing importation of the lower priced pharmaceuticals from Canada, arguing that safety could suffer and the industry's  reduction in profits would adversely affect their ability to invest in new pharmaceutical research.  An alternative amendment has been offered by Sen. Frank Lautenberg (D-NJ) that would allow importation only if HHS certifies the safety and efficacy of every drug that crosses the border.  Supporters of the Dorgan amendment view the Lautenberg substitute as a "poison pill" amendment because it would be next to impossible for HHS to certify the safety of all imported drugs.

Next Steps

If Senate Majority Leader Reid is able to garner 60 votes for final passage of an amended bill, the next step will be a House-Senate conference committee to resolve differences between the House-passed and Senate-passed bills.  There are already very significant differences between the two bills, and changes on the Senate Floor are likely to add to the differences.  The conferees will have the very difficult task of developing a compromise bill that can simultaneously garner 218 votes in the House and 60 votes in the Senate (to overcome a filibuster). 

• However, if Senator Reid is not able to garner 60 votes for passage of his plan by the Senate, congressional leaders will have to re-group and crank up the budget reconciliation process -- under which a bill cannot be filibustered thereby reducing the vote threshold to 50 votes.  However, the downside of utilizing budget reconciliation is that the bill could not include any provisions that do not have a federal budgetary impact -- which would require that many of the key private insurance reforms would have to drop out of the bill, and be considered in a separate measure.

Democratic congressional leaders and the White House are now aiming for final passage of a conference report by the House and Senate in time for the President to sign the bill prior to the State of the Union Address in late January.

The Senate bill in a Nutshell (as it currently stands)

(1) beginning in 2014, establish a mandate for most legal residents of the US to obtain health insurance or pay a penalty;

(2) require employers (except small businesses) to offer insurance or pay a fee;

(3) bar private insurers from discriminating against individuals having pre-existing conditions or setting premiums based on differences in health; 

(4) expand access to coverage by: (i) broadening Medicaid for poor Americans; (ii) establishing insurance "exchanges" through which low-income individuals/families could purchase insurance with the aid of federal tax credits/subsidies; (iii) allowing 55-64 year olds to buy-in to Medicare; and (iv) establishing an FEHBP-like program to create a menu of national private insurance choices available to enrollees; and

(5) pay for the new subsidies and Medicaid coverage by (i) cutting projected Medicare payments to health providers; (ii) imposing an excise tax on high cost "cadillac" insurance plans; (iii) increasing the Medicare payroll tax from 1.45% to 1.95% for income above $200,000; and (iv) other offsets summarized in the Concord Coalition health reform side-by-side.

CBO released on November 30 an analysis of the impact of the Reid plan on health insurance premiums and found that: (1) "the amount that subsidized enrollees would pay for nongroup coverage would be roughly 56% to 59% lower, on average, than the non-group premiums charged under current law"; (2) "in the small group market...the change in the average premium per person resulting from the legislation could range from an increase of 1% to a reduction of 2% in 2016"; and (3) "in the large group market...the legislation would yield an average premium per person that is zero to 3% lower in 2016."   CBO Analysis

Key Differences Between the House-passed and Senate bills

The Senate bill would increase coverage of legal, non-elderly from 83% to 94% by 2019, while the House bill would increase coverage to 96%.

The Senate bill does far more for health care cost containment by imposing an excise tax on high-cost "cadillac" health insurance plans and establishing an Independent Medicare Advisory Board with authority to implement cost saving measures (although the Commission's scope and authority should be strengthened). 

The Senate bill's total cost would be $848 billion over 10 years for subsidies, Medicaid expansion, and small employer tax credits, while the House bill's gross cost would total $1.052 trillion.

The Senate bill is projected by CBO to reduce the deficit by $130 billion in the first 10 years, with additional deficit reduction in the outyears if all provisions continue to be fully implemented. The House bill is projected to generate $138 billion of deficit reduction in the first 10 years, with "slight reductions" in the outyears.  However, some of the projected deficit reduction in both bills is artificial due to the inclusion of "budget savings" from the CLASS long-term care bill, which saves money only because premiums accumulate several years before benefits begin to pay out; moreover, the CLASS bill may increase deficits in the outyears.

The Senate bill's major costs over 2010-2019 are subsidies ($447 billion), Medicaid expansion ($374 billion), small employer tax credit ($27 billion), and a new prevention and public health fund ($15 billion).  The House bill's major costs are subsidies ($602 billion), Medicaid expansion ($425 billion), increased Medicare payments ($57 billion), and small employer tax credit ($25 billion).

The Senate bill's major offsets are reductions in Medicare fee for service payments ($192 billion), a 40% excise tax on high cost "cadillac" plans ($149 billion), reduction in Medicare Advantage subsidies ($118 billion), various fees on manufacturers, importers and health insurers ($102 billion), an increase in the Medicare payroll tax for high income earners ($54 billion), a reduction in Medicare and Medicaid DSH payments ($43 billion), and penalty payments by employers and uninsured individuals ($36 billion).  The House bill's major offsets are a 5.4% surtax on the wealthy ($460 billion), reductions in Medicare fee for service payments ($228 billion), reduction in Medicare Advantage subsidies ($170 billion), and penalty payments by employers ($135 billion).

For a comparison of the House-passed and pending Senate bill click here

The Treasury Department has informed Congress that the current $12.104 trillion "debt ceiling" is likely to be reached before the end of the year.  While there is no doubt that Congress will ultimately have to raise the debt ceiling in the very near future, that action is -- as usual -- becoming a political lightening rod.  This time around, the debt ceiling is complicating progress on the FY 2010 Defense Appropriations Bill.

Background.--Federal law contains a statutory limit on the ability of the U.S. Treasury to issue public debt, which is commonly called the "debt ceiling." 

The debt ceiling applies to gross (total) federal debt--which is the sum of "debt held by the public" and "debt held by government accounts."  

• Debt held by the public grows when the Treasury issues securities to finance deficits that occur when Congress approves Federal spending in excess of revenues.

• Debt held by government accounts results from the requirement that government trust funds invest their cash reserves in Treasury securities (as a financial safeguard).  This requirement applies to the Social Security, Medicare, Highway, and Civil Service Trust Funds, among others.  When trust fund surpluses are invested in Treasury securities, they become available to help finance government operations, along with funds borrowed from the public.

The statutory limit on the public debt is a legal limit on the ability of the Treasury to issue new debt to the public and to government trust funds.  However, this issuance of debt is not a discretionary decision by the Treasury.  As noted above, additional debt must be issued when congressional spending and revenue decisions create deficits, and when trust funds have cash balances.  Failure to issue debt under those circumstances would force the Treasury into default on debt instruments coming due and on legal obligations to program beneficiaries and contractors.

Congress nevertheless imposed a statutory limit on gross federal debt in 1940 when "debt subject to limit" stood at $43 billion.  Congress has increased the debt ceiling 90 times since it was first imposed, causing many observers to wonder why we have a statutory ceiling on the debt.

The short answer is that the debt ceiling is a political instrument--not a fiscal policy instrument.  Members of Congress concerned about annual deficits and increases in the accumulated debt have historically only been willing to increase the debt in relatively small increments to be certain that every time the debt ceiling is reached a fiscal policy debate will take place.  Unfortunately, it also allows the more cynical members of Congress to feign "fiscal responsibility" by voting against raising the debt ceiling without making the difficult spending and tax decisions required to balance the budget. 

In the current situation, the debt ceiling must be increased by the end of December (although there has been some speculation that Treasury may be able stretch this deadline into January through some financial maneuvers).  Democrats are hoping to avoid a blistering political attack by Republicans on raising the debt ceiling by attaching the measure to the pending FY 2010 Defense Appropriations conference report and to increase the debt ceiling by $1.8 trillion to avoid another vote prior to the November 2010 mid-term elections. However, in a December 9 letter to Speaker Nancy Pelosi (D-CA) and Appropriations Committee Chairman David Obey (D-WI), Republican committee members said, "House Republican members of the Appropriations Committee will not support passage of the Defense appropriations measure if it is used as a vehicle to raise the debt limit."  

The defense appropriations bill will be on the House Floor this week (the week of Dec. 14).  However, there are two further complications that are hindering progress on the bill:

1. On the House side of the Capitol, fiscally conservative Blue Dog Democrats are insisting that they will not vote for any bill that increases the debt ceiling unless it also includes statutory PAYGO -- which would write into law the current rule that all new tax cuts and mandatory spending increases be "paid for" with offsetting spending cuts and/or tax increases.   However, the House-passed version of statutory PAYGO is strongly opposed by Senate Budget Committee Chairman Kent Conrad (D-ND) because it specifically exempts the large budgetary costs associated with extension of the middle class portion of the Bush tax cuts, a fix for the Medicare physician pay system, a fix for the Alternative Minimum Tax, and a reduction in estate tax levels (which are scheduled to return to pre-2001 levels in 2011).
2. On the Senate side of the Capitol, a group of fiscally conservative Democratic and Republican Senators have said they will oppose raising the debt ceiling unless a measure is attached to it creating a bipartisan deficit reduction commission or task force.  But the task force proposal, itself, has some strong and powerful opponents (see the article below).
   
   
   

Senators Conrad and Gregg Re-Introduce Budget Task Force

Senate Budget Committee Chairman Kent Conrad (D-ND) and Ranking Republican Judd Gregg (R-NH) last week re-introduced their proposal to establish a bipartisan deficit reduction task force to address the nation's long-term budget crisis. The bill would establish an 18-member Task Force comprised of 16 currently-serving members of Congress (8 Democrats and 8 Republicans), plus the Secretary of the Treasury and another Administration official appointed by the President.  The Task Force would have Democratic and Republican co-chairs selected by the leadership.

According to Conrad, "everything would be on the table, including spending and revenues."

The Task Force recommendations would be considered by Congress under expedited procedures that would prohibit amendments and filibusters.  Conrad and Gregg seek to assure a "bipartisan outcome" with 14 of the 18 members needed to report the Task Force recommendations and three-fifths super-majorities needed for final passage in both the Senate and House.

Conrad-Gregg Press Release

Baucus Blasts Conrad-Gregg Task Force

The day after Senators Conrad and Gregg introduced their Task Force bill, Senate Finance Committee Chairman Max Baucus (D-MT) blasted the proposal charging that it amounted to "Congress...outsourc(ing) its core fiscal responsibilities."   According to Baucus, the Task Force "and its new fast track process are truly dangerous. If we were to cede all of our responsibilities to this commission, and we were to tie our hands so that could not amend its recommendations, then we would risk setting in motion some truly terrible policy."

Baucus Statement on Conrad-Gregg Task Force

Concord Statement on Conrad-Gregg Task Force

"Tapping TARP" for Additional Stimulus

President Obama last week said that lower-than-anticipated TARP (Troubled Assets Relief Program) spending would free up funds for a new stimulus package comprised of  tax breaks for new hires and small business expensing, and federal spending aimed at infrastructure projects (e.g. highways, airports, railroads, sewer systems) and energy conservation programs to stimulate job creation. 

Democrats would also like to provide state governments with additional relief to forestall a new wave of public sector layoffs in 2010.

Although the White House declined to put a price tag on the stimulus package, Congressional Quarterly reports that House Majority Leader Steny Hoyer (D-MD) said Democrats are discussing a package in the range of $75 - $150 billion.

Obama Administration officials have argued that there is now more "fiscal room" in the overall budget for a stimulus/jobs bill because the TARP is costing $200 billion less than anticipated.  Last week President Obama said that "the assistance to banks, once thought to cost the taxpayers untold billions, is on track to actually reap billions in profit for the taxpaying public. This gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street."  (emphasis added)

(TARP, the Troubled Assets Relief Program, was enacted into law by Congress in October 2008 as part of the Emergency Economic Stabilization Act (EESA).  The legislation granted the Treasury Department authority to purchase up to $700 billion in "troubled assets" to stabilize the nation's financial system.)

However, the reality is that TARP expenditures have nothing to do with the proposed stimulus bill.  The TARP funds themselves are not authorized to be used for stimulus tax cuts and spending programs. New legislation must be passed.

Moreover, there are no "un-used" or "left over" TARP funds.  The federal government is running trillion-dollar-plus deficits.  Any new tax cuts or new spending programs require additional borrowing by the Treasury and will increase the debt. 

(To be fair, one can make an arcane budgetary scoring argument that if TARP's authorized level of spending is reduced below what was contemplated in the budget baseline, that reduction could technically be used as an "offset" for new tax cuts and new mandatory spending."  Nevertheless, the simple reality is that another stimulus bill means more borrowing and more debt at a time when annual deficits are exceeding a trillion dollars.  For a discussion of scoring the TARP, see the CBO Director's Blog, December 10, 2009.)

This is not intended to suggest that additional stimulus efforts are a bad idea.  Many economists support additional stimulus as a desirable means of facilitating a quicker economic recovery.  However, the additional debt that would result is a fiscal policy judgment call for Administration and congressional policymakers.  When making this judgment call, there should be no illusion about where the money will come from for another stimulus bill: Treasury borrowing, not TARP leftovers.

House Passes Historic Legislation to Overhaul the Nation's Financial Regulatory System

Last Friday, December 11, the House passed by a vote of 223-202 sweeping legislation (HR 4173) to overhaul the nation's financial regulatory system.  The "Wall Street Reform and Consumer Protection Act of 2009," would have little direct impact on the federal budget but could have an enormous indirect impact if it succeeds in preventing a recurrence of the financial meltdown that occurred in 2008 (leading to the recession and today's trillion-dollar-plus deficits).

The House-passed bill would: (1) establish a Consumer Financial Protection Agency (CFPA) to protect Americans from unfair and abusive financial products and services; (2) create a Financial Stability Council to identify and regulate firms that pose a risk to the entire financial system; (3) establish an orderly process for shutting down firms like AIG and Lehman Brothers; (4) strengthen the SEC's authority to better protect investors; (5) regulate for the first time the over-the-counter derivatives marketplace; (6) outlaw predatory mortgage lending practices; and (7) require the registration of hedge funds.  

Summary of House-Passed bill

CBO Cost Estimate of HR 4173

Overview

FY 2010 Consolidated Appropriations Bill Cleared for the President: On Sunday, the Senate cleared for the President's signature a consolidated appropriations bill (HR 3288) combining 6 of the 7 remaining FY 2010 appropriations bills into one bill: (1) Commerce-Justice-Science; (2) Financial Services; (3) Labor-HHS-Education; (4) Military Construction-VA; (5) State-Foreign Operations; and (6)Transportation-HUD. 

(Earlier this fall Congress completed action on 5 of the 12 regular appropriations bills: Agriculture, Energy-Water, Homeland Security, Interior-Environment, and Legislative Branch.  Link to each of the bill summaries in the chart below.)

The Senate approved the $447 billion consolidated appropriations bill on Sunday by a vote of 57-35, following House approval on Thursday by a vote of 221-202 (all Republicans opposing the bill).  

Conference Report: FY 2010 Consolidated Appropriations Bill

Statement of Managers, Consolidated Appropriations Bill (explanation of the appropriations levels)

Defense Appropriations: The only remaining FY 2010 spending bill is the Defense Appropriations (HR 3326), which will serve as a legislative vehicle for other "must-pass" legislation including increasing the debt ceiling, a six-month extension of unemployment benefits, an extension of COBRA health insurance continuation coverage, and possibly some economic stimulus measures.  Complicating completion of this legislation is the debt ceiling increase, which fiscally conservative Members are attempting to link to enactment of statutory PAYGO legislation and/or estabilshment of a deficit reduction commission (see the article above for details).

Current Continuing Resolution: On October 30th, the President signed the Interior-Environment Appropriations Act that also included a 2d continuing resolution to keep agencies without FY 2010 appropriations authority operating through December 18, 2009.  A third CR may have to be enacted depending on when compromises are reached on the defense appropriations bill.

Click on the dates below for links to bill summaries. 

*polled out (no formal subcommittee vote)

**no formal Senate action (added to consolidated appropriations conference report)

Earmark Disclosure

Earmark lists are available on the House Appropriations subcommittee websites and Senate earmark requests are available on the Senate Appropriations website.

Important Note

Following are links to the latest congressional action, plus a sampling of key issues. The numbers in parentheses are the FY 2009 regular appropriations level in billions (not including stimulus funds); the President's FY 2010 request; the House FY 2010 level; and the Senate FY 2010 level; and the Conference Report FY 2010 level.

OMB SAPS

Statements of Administration Policy (SAPS) on the Appropriations Bills are available by clicking here.

Appropriations Bills
 

1. AGRICULTURE ($21.4 / P-$23.6 / H-$22.9 / S-$24.0 / C-$23.3) -- Major issues included increasing FDA funding; overhaul of the food safety system; whether to continue a ban on importation of Chinese poultry; a controversial animal identification system that grew out of concerns about mad cow disease; the President's proposal to end direct payments to farmers with more than $500,000 in annual sales revenue; and the allocation of funding between rural issues and FDA.  House Bill Summary    Senate Bill Summary   Conference Report Summary

2. COMMERCE-JUSTICE-SCIENCE ($57.7 / P-$64.6 / H-64.4 / S-$64.9 / C-$64.4) --  The bill provides a $6.8 billion increase over FY 2009 levels.  Almost 60% of that increase is for conducting the required 2010 census. The bill provides $28 billion for the Department of Justice, $14 billion for the Department of Commerce, and $26 billion in science funding.  House Bill Summary   Senate Bill Summary   Conference Report Summary

3. DEFENSE ($631.9 / P-$640.1 / H-636.3 / S-636.3) not including military construction and housing which are funded in the Mil Con-VA bill -- Major issues include terminating the F-22 fighter program which has been plagued with operational problems and cost over-runs; McCain amendment to eliminate unrequested C-17 cargo aircraft; funding for a 2d engine for the F-35 Joint Strike Figher program; funding for the C-17 transport plane, the VH-71 presidential helicopter and the Missile Defense Agency's Kinetic Energy Interceptor--all of which the Administration wants to end; proposed cuts in the Army's Future Combat Systems; and rising personnel costs.  (Note: the Administration has threatened to veto the Defense Authorization bills if they authorize further funds for the F-22 or disrupt the F-35 program.)   House Bill Summary   Senate Bill Summary

4. ENERGY-WATER ($33.2 / P-$34.4 / H-$33.3 / S-$34.3 / C-$33.5) --  Major issues included how to fund the backlog of Army Corps water infrastructure projects; Defense environmental clean-up; funding for the Administration's "Re-Energyse" proposal (energy innovation centers); how to continue the big boost in renewable energy research after the stimulus bill's funds run out; funds to dispose of weapons grade plutonium under a new agreement with Russia; streamlining approval of new nuclear reactors; and the President's proposal to cut funding for the proposed nuclear waste facility at Yucca Mountain.  House Bill Summary   Senate Bill Summary   Conference Report Summary

5. FINANCIAL SERVICES-GENERAL GOVT ($22.6 / P-$24.2 / H-$24.15 / S-$24.2 / C-$24.2) -- Major increases include $151 million for the Securities and Exchange Commission, $212 million for the Small Business Administration, $357 million for the Federal Courts, and $624 million for the IRS.  House Bill Summary  Senate Report   Conference Report Summary

6. HOMELAND SECURITY ($40.0 / P-$42.8 / H-$42.6 / S-$42.9 / C-$42.8) -- Major issues included funding efforts to find and deport illegal immigrants; whether to further fortify the fence being built along 700 miles of the U.S.-Mexico border; whether to bar release of photos of terrorism detainees; allowing Gitmo detainees into the U.S.; whether the proposal to cut the DHS budget starting in 2012 is realistic; the system for providing federal disaster relief; reorganizing the Federal Protective Service; continuing an "antiquated" Coast Guard navigation system; and increased funding for road and rail security. House Bill Summary    Senate Bill Summary   Conference Report Summary

7. INTERIOR-ENVIRONMENT ($27.6 / P-$32.3 / H-$32.3 / S-$32.1 / $32.2) --  Major issues included boosting EPA funding; 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. House Bill Summary    Senate Bill Summary   Conference Report Summary

8. LABOR-HHS-EDUCATION ($155 / P-$160.7 / H-$160.6 / S-$163.1 / C-$163.6) --  Major issues included the Administration's request to target NIH money at specific diseases; modifications and funding increases for the Pell Grant program; funding for school construction; increased funding for OSHA and LIHEAP; lifting a prohibition on federal funds for needle exchange; and eliminating abstinence-only sex education programs. House Bill Summary   Senate Bill Summary  Conference Report Summary

9. LEGISLATIVE BRANCH ($4.3 / H-$4.9 / S-$4.5 / C-$4.7) -- Major issues included creating a fund to pay for renovation of the Capitol and House and Senate office building; and requests for more staffing at CBO and GAO.  House Bill Summary   Senate Bill Summary   Conference Report Summary

10. MILITARY CONSTRUCTION - VA ($72.9 / P-$77.7 / $H-77.9 / S-$78.1 / C-$78.0) -- Major issues included advance appropriating FY 2011 funds for VA health care; BRAC funding; housing for trainees; more funds for VA health care for treatment that is not service-connected; and funding for Guard and Reserve initiatives. (Since Jan. 2007, Congress will have increased the baseline for the VA by $20 b, a 58% increase.)  House Bill Summary   Senate Bill Summary   Conference Report Summary

11. STATE-FOREIGN OPERATIONS ($50.0 / P-$52.0 / H-$48.8 / S-$48.7 / C-$48.8) -- Major issues included the President's proposed 9% increase for the State Dept. and foreign aid programs; conditions attached to funds for the World Bank and IMF; dropping the "Mexico City" policy that prohibited use of international family planning funds for abortion; funding for the 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). House Bill Summary   Senate Bill Summary  Conference Report Summary

12. TRANSPORTATION-HUD ($55.0 / P-$68.9 / H-$68.2 / S-$67.7 / C-$67.9) -- Major issues included how to make up the shortfall in gasoline tax revenues flowing into the highway trust fund; funding for high speed passenger rail and a national infrastructure bank; funding for a new air traffic control system; additional funding for low-income housing rental vouchers; increasing loan guarantees through the FHA; and capital and safety improvements to Washington's metrorail system.   House Bill Summary    Senate Bill Summary  Conference Report Summary