October 25, 2014

Washington Budget Report: Jan. 7, 2010

Washington Budget Report: Jan. 7, 2010
Senate Passes Health Reform; Tough House-Senate Negotiations Loom Health Reform: Comparison of Senate and House bills Congress to Debate Debt Ceiling, Deficit Commission, and PAYGO 2010 Outlook: Major Budget Issues Appropriations Tracker

Announcements

Moving On...

This is my final issue of the Washington Budget Report as Chief Budget Counsel at the Concord Coalition. Next week, I will begin a new challenge as Director of the new Economic Policy Project at the Bipartisan Policy Center (established by former Senate Majority Leaders Howard Baker (R-TN), Bob Dole (R-KS), George Mitchell (D-ME), and Tom Daschle (D-SD).  EPP's first major project is sponsoring a Bipartisan Debt Reduction Task Force co-chaired by former Senate Budget Committee Chairman Pete Domenici (R-NM) and Dr. Alice Rivlin (former Clinton Budget Director, founding CBO Director, and former Vice Chair of the Federal Reserve).  This is a unique opportunity to work with outstanding leaders from both sides of the aisle to make the tough choices required to restore fiscal sanity and place our nation on a sustainable fiscal path. 

I am grateful for the wonderful opportunity to work at the Concord Coalition.  In an era of excessive partisanship, Concord provides nonpartisan analysis of our nation's fiscal policy and involves Americans across the country in seeking a more responsible fiscal policy.  I look forward to continuing cooperation with Concord's outstanding staff as I undertake my new responsibilities at the Bipartisan Policy Center.  And I am pleased that the Washington Budget Report, which I launched three years ago, will continue.  -- Chuck Konigsberg

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Budget Process: Step-by-Step

2010 Congressional Calendar

Jan. 12: House reconvenes
Jan. 19: Senate reconvenes

Jan. 26: State of the Union
*
Feb. 1: President's Budget Submission
*Feb. 2: (State of the Union Alternate Date)
Feb. 15-19: President's Day recess
March 29-April 9: Easter/Passover Recess
May 31-June 4: Memorial Day Recess
July 5-9: Independence Day Recess
Aug. 9-Sept. 10: Summer Recess
Oct. 8: Target Adjournment
Nov. 2: Election Day


1. Economic Stimulus  (track expenditures at www.recovery.gov and
http://www.gao.gov/recovery/)

  • January:  Congress allowed release of the second half of TARP's $700 billion 
  • Feb 17: American Recovery and Reinvestment Act (ARRA) signed into law by the President (Concord Summary)
  • June 18: Congress enacted $1 billion "cash for clunkers" program in FY 2009 Supplemental
  • August 7: President signed (HR 3435) to extend "cash for clunkers" program w/ an additional $2 billion
  • Sept. 22: The House passed a bill (HR 3548) to extend unemployment benefits another 13 weeks for workers in states where the job market has been hardest hit (defined as a 3-month average unemployment rate over 8.5 percent). 
  • Nov. 6:  President signs legislation (HR 3548) to extend expiring unemployment benefits and the homebuyers tax credit, as well as providing net operating loss carryback relief to struggling businesses. 
  • Nov. 30: CBO analysis of impact of the stimulus bill on employment and economic output
  • Dec. 16: House passed a $154 billion jobs bill (HR 2847) by a vote of 217 to 212.   Summary of Jobs Bill

2. FY 2010 Budget and Appropriations

  • 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 detailed FY 2010 Budget 
  • May-Sept: Action on the 12 regular FY 2010 appropriations bills beginning with the House and Senate Appropriations Committees dividing their budget resolution allocations among their 12 respective subcommittees (known as 302(b) allocations).  See "Appropriations Tracker" below for detailed appropriations actions.
  • August 25: CBO and OMB Release Updated Economic and Budget Projections
  • October 1: Fiscal Year 2010 begins (a continuing resolution was signed by the President allowing government programs to continue operating at FY 2009 levels through October 31, 2009).
  • 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. 
  • October 30: President signed the Interior-Environment Appropriations Act including a 2d continuing resolution to keep the government operating through December 18.
  • December 16: President signed 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.  The Senate approved the $447 billion consolidated appropriations bill by a vote of 57-35, following House approval by a vote of 221-202 (all Republicans opposing the bill).
  • December 19: Defense Appropriations (HR 3326), was signed by the President after passing the Senate 88-10 and the House 395-34.

3. Stabilizing the Financial, Housing, and Auto Sectors

4. Health Care Reform 

5. Climate Change - Energy    

  • May 21:  House Energy & Commerce Committee passed the Waxman-Markey climate change bill, approving the measure on a nearly party-line vote (33-25). The bill would mandate a 17% reduction in greenhouse gas emissions by 2020 and 83% by 2050.  To accomplish this, the government would set a cap on the amount of carbon dioxide that could be emitted and would issue allowances to polluting sectors that could buy and sell those rights ("cap-and-trade").
  • June 6: CBO says Waxman-Markey climate bill (HR 2454) would reduce the federal deficit $24 billion over 2010-2019. CBO Report
  • June 17: Senate Energy & Committee Committee passed 15-8 a controversial energy bill opposed by many environmental groups    Press Release    Bill Summary  
  • June 26: CBO estimates that the revised Waxman-Markey climate bill (HR 2998) would reduce the federal deficit $9 billion over 2010-2019 (increasing revenues from "cap-and-trade" by $873 billion and increasing direct (mandatory) spending $864 billion).  CBO Report
  • June 26: House narrowly passed Waxman-Markey climate change bill 219-212
  • September 30:  Senators Kerry and Boxer introduce "Clean Energy Jobs and American Power Act" -- Press Release
  • October 23:  Senator Boxer releases Chairman's Mark of Clean Energy Jobs and American Power Act (and Administration cost estimate)
  • November 5: Senate Environment and Public Works Committee passed Kerry-Boxer climate change bill.  
  • Pending:  Senators Kerry (D-MA), Graham (R-SC), and Lieberman (I-CT) are attempting to put together a bipartisan bill aimed at garnering the support of 60 Senators needed to overcome a filibuster.
  • December 7: EPA announces "endangerment finding" that greenhouse gases threaten the public health and welfare clearing the way for regulation of GHGs.
  • December: Copenhagen Climate Talks

6. Highway Bill (FY 2010-15)

  • September 2008: Due to insufficient revenues in the Highway Trust Fund to pay for authorized levels of highway spending, Congress passed PL 110-318, providing an $8.017 billion transfer from the Treasury's general fund to the HTF.
  • 2009:  Leaders of key congressional committees have this year been negotiating the parameters of the next multiyear highway bill for fiscal years 2010-2015.  One major obstacle:  the federal gas tax is generating insufficient revenues to fund the desired level of highway spending.
  • February 2009: Sweeping reforms proposed by the National Surface Transportation Infrastructure Financing Commission
  • August 7, 2009: President signed legislation (HR 3357) to transfer $7 billion from the general fund to the Highway Trust Fund to keep it solvent through through spring 2010, past the expiration date of the current Highway Bill.
  • October 1, 2009:  The first FY 2010 CR included a temporary extension of the expiring highway authorization bill.  Negotiations over more short-term extensions will continue until passage of a 6-year highway bill. (The last highway bill required 12 extension bills over 22 months.) The long-term bill is increasingly being viewed as a "jobs bill."  However, financing of a 6-year bill has yet to be resolved since the existing federal gas tax cannot support the spending in the CBO baseline, much less the budget resolution or anything larger.  
  • Background.--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 spending.  For additional views on highway spending, see the Senate Budget Committee minority staff analysis of the highway program.

7. Statutory PAYGO

  8. Higher Education Reform

  • July 15: House Education and Labor Chairman George Miller (D-CA) introduced legislation (HR 3221) to convert Federal Family Education Loans (otherwise known as guaranteed student loans) to direct government loans. The budget savings from the student loan reforms would be used to boost Pell Grants and funding for community colleges and other programs.
  • July 21: House Education & Labor Committee voted to report HR 3221.
  • July 24: CBO Cost Estimate for HR 3221
  • CBO, July 2009: Analysis of the Subsidy Costs of Direct and Guaranteed Student Loans
  • Sept 11: CBO says an alternative proposal favored by the student loan industry would save less money than an administration proposal to convert all student loans to direct government lending   CBO Cost Estimate
  • Sept. 17: House passed HR 3221 by a vote of 253-71.
  • Oct. 6: Senate HELP Committee Chairman Harkin says committee expects to get an "extension" from Senate Budget Committee to use budget reconciliation for higher ed bill
  • Oct. 15: Budget Resolution deadline for committees to report budget reconciliation legislation including student loan and Pell Grant reforms
  • Current status: The student loan legislation is in a holding pattern while the Leadership determines if the FY 2010 reconciliation bill will contain only higher education provisions, or higher education plus health reform.

9. Long-Term Deficit Reduction

  • February 23: White House Fiscal Responsibility Summit 
  • March 17: Rep. Jim Cooper (D-TN) introduced legislation to establish a commission to reform tax policy and entitlement programs (HR 1557) 
  •  May 14: Sen. George Voinovich (R-OH) introduced legislation to establish a commission to reform tax policy and entitlement programs (S 1056) 
  •  July 22: In an interview with the Washington Post President Obama said he would support creation of a "commission or mechanism" to develop recommendations on which Congress would have to act and that "everything is going to have to be on the table." He said after health reform is enacted "then I think we're in a position to be able to, either at the end of this year or early next year, start laying out a broader picture about how we are going to handle entitlements in a serious way."
  • October 14:  Senators send letter to Majority Leader Reid urging that provisions establishing a special deficit reduction panel be added to  impending debt ceiling legislation
  • Nov. 10:  Senate Budget Chairman Conrad joins call for linking deficit reduction panel to impending debt ceiling bill 
  • Dec. 9: Senators Conrad and Gregg re-introduced their legislation to establish deficit reduction task force
  • Dec. 14:  The Peterson-Pew Commission released its first report Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt
  • 2010: Former Senate Budget Committee Chairman Pete V. Domenici (D-NM) and former Clinton Budget Director Dr. Alice Rivlin are co-chairing a bipartisan debt reduction task force sponsored by the Bipartisan Policy Center

10. Tax Legislation

  • Unsustainable Deficits and Tax Reform: Under the President's Budget, average revenues during 2010-2019 are 18.5% of GDP, with average spending amounting to 23.7% of GDP.  Tax reform proposals, such as a Value-Added Tax (VAT), are often mentioned as one way to close the gap.  See CRS: Major Tax Issues in the 111th Congress
  • Estate Tax:  Under current law, the estate tax is repealed for tax year 2010 and will snap back to pre-2001 levels in 2011.  A widely discussed option of permanently extending the 2009 estate tax rates could cost more than $200 billion over 10 years.
  • Tax Cuts Expiring:  Under current law, the 2001 (EGTRRA) and 2003 (JGTRRA) tax cuts expire at the end of 2010.  The cost of extending the tax cuts is $2 trillion over 10 years.
  • Alternative Minimum Tax:  The current AMT "patch" expired with tax year 2009, leaving the middle class vulnerable to the increasing reach of the AMT.  The cost to permanently fix the AMT could approach a half trillion dollars over 10 years.

 


Senate Passes Health Reform; Tough House-Senate Negotiations Loom

Senate Passes Health Reform

On December 24, 2009, the Senate passed Senator Reid's revised health care reform bill (HR 3590) on a strict party line vote of 60-39 (Republican Jim Bunning was not present).

The critical vote actually occurred earlier in the week when the Senate voted 60-39 to shut down a Republican filibuster of the legislation by "invoking cloture."  (Explanation: Under Senate rules, a measure cannot be brought to a vote until all debate has concluded.  This allows opponents of measures to block votes simply by refusing to conclude debate.  However, proponents can bring debate to a close by invoking cloture, which requires 60 votes.)

In a nutshell, the Senate-passed health reform plan would: 

(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 broadening Medicaid for poor Americans and establishing insurance "exchanges" through which low-income individuals/familes could purchase insurance with the aid of federal tax credits/subsidies;

(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; and

(6) yield net deficit reduction of $132 billion over 2010-2019.


Next Step: House-Senate Negotiations

The next step for health reform is House-Senate negotiations to resolve all differences between the House-passed and Senate-passed bills.  There are significant differences between the two bills.  The negotiators will have the difficult task of developing a compromise bill that can simultaneously garner 218 votes in the House and maintain 60 votes in the Senate (to overcome a filibuster). 

  • However, if Democratic leaders are unable to develop a compromise that can pass the House and garner 60 votes in the Senate, they will still have the option to re-group and use the budget reconciliation process -- under which a bill cannot be filibustered thereby reducing the Senate's vote threshold to 51 votes (50 votes, actually, since the Vice President can break a tie). 

  • The downside of utilizing budget reconciliation is that it's restricted to federal budgetary provisions and therefore could not include any provisions that do not have a federal budgetary impact.  Consequently, many of the key private insurance reforms would have to drop out of the bill, and be considered in a separate measure.  The use of the budget reconciliation fallback is therefore unlikely considering that Democrats in both chambers feel a strong political imperative to complete a comprehensive reform bill that includes key insurance reforms (no pre-existing conditions, no annual or lifetime caps, etc.). 

Democratic congressional leaders and the White House are now aiming for final passage of a health reform bill by the House and Senate in time for the President to sign the bill prior to the State of the Union Address (likely to be January 26, but possibly pushed back to February 2).   Because of this imminent deadline, Democratic leaders are likely to avoid the formalities of a House-Senate conference which would open up several additional opportunities for Senate Republicans to filibuster (for example, motions to appoint conferees and request a conference with the House).  Instead, a compromise will be developed and taken up as a House substitute amendment to the bill, which would be voted on by the House and subsequently voted on by the Senate (after invoking cloture).

(See below for a comparison of the Reid bill and the House-passed health reform bill.



Health Reform: Comparison of Senate and House bills

Concord Coalition side-by-side comparing the House-passed and Senate-passed health reform bills

Side-by-side prepared by House Staff (Ways & Means, Energy & Commerce, Ed & Labor Committees)


In a nutshell:

The Senate bill would increase coverage of legal, nonelderly Americans 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 Payment Advisory Board with authority to implement cost saving measures in the Medicare program (though the Commission's scope and authority should be strengthened).  Both bills seek to scale back future Medicare provider payments to reflect "productivity improvements" and by experimenting with new methods of payment, such as "bundling."  Both bills also seek additional cost containment from administrative simplification and/or setting standards for electronic transactions.

The Senate bill's total cost would be $871 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 $132 billion in the first 10 years, with continued 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 ($436 billion), Medicaid expansion ($395 billion), small employer tax credit ($40 billion), and a new prevention and public health fund ($13 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 ($186 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 ($101 billion), an increase in the Medicare payroll tax for high income earners ($87 billion), a reduction in Medicare and Medicaid DSH payments ($43 billion), and penalty payments by employers and uninsured individuals ($33 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).

Both bills would expand Medicare Part D coverage in order to reduce or eliminate the "doughnut hole," which is an entitlement expansion. 

Both bills require individuals to purchase health insurance, but the House requirement begins in 2013 and the Senate in 2014.

Both bills include "play-or-pay" provisions requiring employers to provide insurance or pay a penalty, although the House has a higher penalty.

Both bills exempt small businesses from play-or-pay and provide tax credits to assist those wishing to offer insurance.

Both bills require private insurers to accept all applicants regardless of pre-existing conditions and prohibit insurers from varying premiums to reflect differences in enrollees' health (except for tobacco use).

Both bills prohibit annual and lifetime limits on benefits.

Both bills would cap out-of-pocket spending in order to prevent medical bankruptcies, although the limits on out-of-pocket costs are different.

The Senate bill would require each State to set up insurance "exchanges" through which individuals and families could compare plans and receive subsidies, while the House bill would set up a national "health insurance exchange."

The House bill would include in the national exchange a national public health option administered by HHS, while the Senate bill no longer includes a public option (and instead provides for multi-state plans offered under contract with the Office of Personnel Management. 

The Senate bill would provide subsidies in the form of refundable tax credits for individuals and families between 133% and 400% of the federal poverty level (FPL), while the House bill would provide "affordability credits" for people between 150% and 400% of the FPL.

Both bills would allow states to form compacts to permit cross-state sale of health insurance.

The Senate bill would expand Medicaid in 2014 by covering all people with incomes up to 133% of FPL, while the House would expand coverage beginning in 2015 and cover people up to 150% of FPL (thereby dovetailing with the subsidies).

The Senate bill would require the federal government to cover most of the costs of the Medicaid expansion (90% for all states), while the House would cover 91% -- with states picking up the remainder.  (Under a special provision in the Senate bill, Nebraska's Medicaid expansion would be entirely covered by the federal government.



Congress to Debate Debt Ceiling, Deficit Commission, and PAYGO

Current Status.--Prior to adjourning in December, Congress raised the debt ceiling (HR 4314) by $290 billion to $12.394 trillion -- an amount sufficient to continue borrowing until mid-February.  Democratic leaders were unable to pass a larger increase to last through 2010 due to the insistence of moderate Democrats in the Senate that the debt ceiling bill be linked to creation of a deficit commission or task force, and the insistance of Blue Dog Democrats in the House that it be linked to enactment of a statutory PAYGO (pay-as-you-go) requirement.

  • 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 accumulates when the Treasury borrows from individuals, financial institutions, and other governments to finance deficits that occur when Federal spending exceeds revenues.
  • Debt held by government accounts results from the requirement that federal 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, as a practical matter, this ceiling on the debt does not hold down deficit spending.  Deficit spending occurs when the federal government spends more than it takes in.  Issuing debt to cover deficits, is a result -- not a cause.  
  • 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, fiscally conservative Democrats in the House and Senate in late December agreed to only a short-term increase in the debt ceiling in order to secure commitments from the leadership to bring a statutory PAYGO proposal and a deficit reduction task force proposal to the House and Senate Floors (respectively) early in the 2010 session.  Debate in the Senate is scheduled to begin January 20, 2010.

  • The House passed a statutory PAYGO proposal twice during 2009, but the measure didn't receive a vote in the Senate where Budget Chairman Kent Conrad (D-ND) opposes the House legislation because it exempts from the pay-as-you-go requirement over $3 trillion in new expenditures: (1) extension of the expiring tax cuts, (2) the Medicare physician pay fix, (3) a fix for the Alternative Minimum Tax (AMT), and (4) estate tax reform.
  • The deficit reduction task force proposal in the Senate would be modeled on a proposal by Senators Conrad (D-ND) and Gregg (R-NH) to create a task force of lawmakers and administration officials to develop a comprehensive package of changes to spending programs and the tax code -- that would have to be voted on by Congress without change.  However, the Conrad-Gregg task force is already running into opposition from liberals who see it as stalking horse for entitlement cuts, and conservatives who see it as a stalking horse for tax increases.  Concord Coalition Press Release on Conrad-Gregg Task Force Proposal    Liberal Groups' Statement Opposing a Commission    Wall Street Journal Opposition to Commission     Fiscal Times Article on the Growing Support for a Commission

  • In addition to the Conrad-Gregg amendment, the Senate debt limit debate scheduled to begin January 20th will also include other amendments: a PAYGO amendment by Majority Leader Reid (D-NV); a John Thune (R-SD) amendment to prevent TARP authority from being used for other purposes; a Lisa Murkowski (R-AK) amendment to limit EPA's authority to regulate greenhouse gases; and a Tom Coburn (R-OK) amendment regarding rescissions. 


2010 Outlook: Major Budget Issues

Health Care Reform

Enactment of a major health reform bill is likely by the State of the Union in late January or early February.   Based on the bills passed by the House and Senate, the legislation is likely to be at least deficit neutral over the next 10 years and beyond, with the possibility of deficit reduction (although the estimates are based in part on Congress following through on restraining the growth of Medicare payments to providers).  See the articles above for a summary of the legislation and a side-by-side comparison of the House and Senate bills.

 

The $2 Trillion Cost of Extending the 2001 and 2003 Tax Cuts

A budget issue of enormous consequence is the expiration of the 2001 (EGTRRA) and 2003 (JGTRRA) tax cuts at the end of 2010.  The Obama Administration has called for extending the tax cuts permanently for individuals earning less than $200,000 and couples earning less than $250,000.  Unfortunately, from a fiscal responsibility perspective, the proposal is to extend the tax cuts without PAYGO offsets.  The 10-year cost of extending these cuts--without offsets--would exceed $2 trillion if additional debt service costs are included.*  The extensions include continuing: modified individual income tax rates, relief from the marriage penalty, capital gains and dividend tax rates, and modified estate and gift tax rates.  *See Table 1-4, in CBO's June 2009 Analysis of the President's Budget

 

For further discussion of the fiscal implications of extending the tax cuts, see:
http://economistmom.com/2010/01/how-president-obama-can-save-face-on-the-bushobama-tax-cuts/

 

President's FY 2011 Budget

The President is required to submit to Congress his FY 2011 budget on February 1, 2010.  In preparing the budget, the White House Office of Management and Budget last June directed agencies to limit their requests to the FY 2011 "outyear" levels set forth in Obama's FY 2010 budget (released last May), and also to develop two alternatives: (1) a freeze at the FY 2010 level; and (2) a 5% reduction.  In addition, OMB directed each agency to include at least five "significant terminations, reductions, and administrative savings initiatives." Working with these three alternative budget levels for each agency and program, OMB has developed a comprehensive FY 2011 budget which is in its final stages of clearance at the White House.   June OMB Memo    Two-Page Summary of Congressional Budget Process

 

Jobs Bill ($154 billion)

On December 16, prior to adjourning, the House passed a $154 billion jobs bill (HR 2847) by a vote of 217 to 212.  In general, the bill would provide $48 billion for infrastructure projects (highways, transit, schools, rail, airports, water treatment); $27 billion to stabilize pubic service jobs such as teachers, firefighters, and police; $41 billion for unemployment benefits; $12 billion for extended COBRA assistance; $24 billion to boost federal Medicaid matching funds; and other provisions.   The Senate is expected to take up companion legislation early this year.  This would be the third stimulus bill aimed at mitigating the 2008-09 recession.

Summary of the House Jobs Bill

 

Major Student Loan Reform and Pell Grant Increases (Deficit Neutral)

Last September, the House passed a major overhaul of the student loan system that would terminate the Federal Family Education Loan program (otherwise known as guaranteed student loans) and re-direct all loan activity into the direct student loan program.  This would result in substantial budgetary savings which would be invested in Pell Grants, lowering borrower interest rates, and other education programs. The bill, HR 3221, passed the House by a vote of 253-71.

Currently, the two programs -- direct student loans and guaranteed student loans (FFELs) -- operate side-by-side.  In FY 2009, the guaranteed student loan program administered about $64 billion in loans and the direct student loan program administered about $22 billion in loans.  Both programs offer the same varieties of repayment terms and low-interest loans.  They differ only with respect to the source of the loan funds--private lenders and the Federal government, respectively.  (Since they are loan programs, the actual federal budgetary costs are limited to administrative costs, fees, and anticipated defaults.)

The reform effort began earlier last year with an Obama Administration budget proposal to convert guaranteed student loans to direct government loans.  Budget savings would result by effectively removing the middleman from the lending process.  The Administration proposed to invest the savings in the Pell Grant Program and other education programs. 

Critics of the Administration plan have said the bill would eliminate thousands of jobs in the banking industry, and many have backed an alternative proposal by lending giant Sallie Mae that would preserve the role of private lenders in disbursing loans.  However, according to the Congressional Budget Office (CBO), that approach would have netted less in budgetary savings.   CBO Analysis

CBO has estimated that the student loan provisions in the House-passed bill would save $89 billion over 10 years.  Under the bill, $47 billion over 10 years would be used to increase the availability and amount of Pell grants -- from $5,550 per student in 2010 to $6,900 in 2019. (The bill would also index maximum grant amounts to the Consumer Price Index plus 1 percent.)

The bill would also provide $28 billion over 10 years in new direct spending for a number of education programs, including:  $8.6 billion for community colleges; $7.9 billion for the Early Learning Challenge Fund; $4.1 billion to modernize facilities for K-12; $3.0 billion for a College Access and Completion Innovation Fund; $2.2 billion for Historically Black Colleges and Universities; and $1.9 billion for education grants for veterans.

(Background on Pell Grants:  While the student loan programs provide the largest volume of student aid, the largest program in terms of federal expenditures is the Pell Grant program which provided grants to more than seven million undergraduates in 2009 at a cost of nearly $25 billion. A majority of Pell Grant funds are annual discretionary appropriations, which are boosted each year by additional mandatory spending.  For example, in 2010, the $5,550 Pell Grant is comprised of $4,860 in discretionary spending plus $690 in mandatory spending.)

The House passed HR 3221 as a free-standing bill, but also reserved the right to re-pass the measure as a budget reconciliation bill in the event that filibuster-protection is needed in the Senate (which will most likely be the case).  The Senate did not move on student loan reform in 2009 in order to hold budget reconciliation in reserve for health reform, if it's needed (see discussion above).   

CBO Cost Estimate for HR 3221 

CBO Analysis of the Subsidy Costs of Direct and Guaranteed Student Loans

 

Fixing the Alternative Minimum Tax Could Cost Nearly a Half Trillion Dollars

Relief from the Alternative Minimum Tax (AMT) expired with tax year 2009.  According to CBO, the 10-year cost of indexing the AMT -- as proposed in the Administration's FY 2010 Budget -- is $447 billion.   Of great concern, is last year's House-passed PAYGO legislation that would allow a permanent AMT fix without any offsets.

Background.--In 1969, after Congress learned that taxpayers with incomes above $200,000 had paid no 1966 Federal tax, lawmakers enacted the AMT in order to ensure that everyone pays a minimum amount of tax, regardless of how many tax preferences or deductions they may technically be entitled to. In general, the AMT operates by requiring people to recalculate their taxes under alternative rules that (1) include certain forms of income exempt from regular tax and (2) disallow certain exemptions, deductions, and preferences.

However, upper-middle and middle-income taxpayers are increasingly finding themselves subject to the AMT for two reasons. First, while the regular income tax is indexed for inflation, the AMT is not. Second, recent income tax rate reductions have narrowed the differences between regular and AMT tax liabilities.   In 2001, 2003, 2006, 2007, 2008, and 2009 Congress enacted temporary increases in the AMT exemption amounts in order to forestall the AMT's increasing impact on middle-income


Estate Tax Reform Could Cost Over $200 billion

As of January 1, 2010, the federal estate tax was repealed as required by the 2001 Bush tax cuts.  However, due to a complex Senate rule that limits the reach of the 2001 tax cuts (the Byrd Rule), the estate tax will snap back to pre-2001 levels next January (January 1, 2011).  No one likes the status quo.  Conservatives are strongly opposed to the 2011 snap-back, and liberals strongly object to the current absence of any estate tax. 

For the near-term, it is likely that the tax-writing committees will attempt to move legislation early this year to continue estate taxes through 2010 at the 2009 levels.  In addition, many in Congress would like to set estate tax rates permanently at the 2009 -- which is much lower than the pre-2001 levels that will snap-back automatically next year.  A group of Senate moderates would like to set permanent rates somewhat lower than the 2009 levels.

Setting estate tax rates at levels lower than the pre-2001 snap back rate is expensive -- more than $200 billion over 10 years. Consequently, an important piece of this puzzle is how to pay for estate tax reform.  House Democrats have decided not to pay for the costs of estate tax reform -- arguing there would be a reasonable trade off if prospective statutory PAYGO legislation is simultaneously enacted (i.e., requiring future legislation to be paid for).  However, Senate Budget Committee Chairman Kent Conrad (D-ND) argues strenuously against passing estate tax reform without fully paying for it with offsets.

While the cost of estate tax reform is high, the benefits would accrue to only the wealthiest Americans.  In 2001, only 2% of all deaths in the United States resulted in estate tax liability; in 2008, an estimated 0.5% of estates were taxed, due to the increasing exemption.

 

Tax Extenders

Another looming tax issue is legislation the House passed in December (HR 4213) to extend a variety of expiring tax provisions.  The bill, costing $31 billion, would extend a variety of provisions including the research and development tax credit.  However, unlike extension of the 2001 tax cuts and reform of the estate tax, this House tax bill includes offsets to comply with its PAYGO rule.  The costs would be offset by: (1) a series of provisions designed to combat international tax evasion; and (2) a provision that would tax the "carried interest" income of venture capitalists and private equity managers as ordinary income (rather than capital gains).

 


Appropriations Tracker

Overview

FY 2010 Consolidated Appropriations: On December 16, 2009, the President signed 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.  The Senate approved the $447 billion consolidated appropriations bill by a vote of 57-35, following House approval 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)

(Earlier in the 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.)

Defense Appropriations: The final FY 2010 spending bill, Defense Appropriations (HR 3326), was signed by the President on December 19, 2009, after passing the Senate 88-10 and the House 395-34.

 

Click on the dates below for links to bill summaries. 

BILL

House

Senate

Conference

Pres.

Sub

Comm

Floor

Sub

Comm

Floor

House

Senate

 

Ag


6/11

6/18

7/9

*


7/7 

8/4

10/7

10/8

10/21

Com-Just-Sci


6/4

 6/9


6/18

6/24

 6/25

11/5

12/10

12/13

12/16

Defense


7/16

7/22

7/30 

 9/09

 9/10

10/6

 
12/16
 
12/19

12/19

Energy-Water

6/25

 7/8


7/17

7/8

7/9

7/29

10/1

10/15

10/28

Fin Services

6/25 


7/7

7/16

 7/8

7/9 

**

12/10

12/13

12/16

Homeland Sec

 6/8


6/12

6/24

6/17

6/18

7/9

10/15

10/20

10/28

Interior-Env

6/10

6/18


6/26

6/23

6/25

9/24

10/29

10/29

10/30

Labor-HHS-Ed


7/10

7/17

7/24


7/28

7/30 

**

12/10

12/13

12/16

Leg Branch


6/9

6/12

6/19

 *

6/18 

 7/6

9/25

9/30

10/1

Mil Con-VA

6/16

6/23 

7/10 

7/6 

7/7 

11/17

12/10

12/13

12/16

State-For Ops

6/17

6/23

 7/9 

 
*

 7/9

**

12/10

12/13

12/16

Transp-HUD


7/13


7/17

7/23

 7/29

7/30 

 9/17

12/10

12/13

12/16

*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   Conference Report 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