|CBO Projects $400 Billion-Plus Deficits||FY 2009 Appropriations: Heading Towards a CR||Diaster Relief; Second Stimulus Package||The Tax Morass: Energy Tax Incentives, Extenders, AMT, and PAYGO||Congress Clears Legislation to Replenish Highway Trust Fund|
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With only two weeks left before Congress' target adjournment date, the following major budgetary items are pending:
--Continuing Resolution (a must-pass bill because none of the 12 regular FY 2009 appropriations bills have been completed)
--Disaster Assistance (likely to be added to the CR)
--Second Stimulus Bill (a possible add-on to the CR)
--Renewable Energy and Conservation Tax Incentives (a top priority of Senate Majority Leader Reid)
--Tax Extenders (numerous expiring tax provisions caught up in a major battle over whether to follow the PAYGO rules and offset the cost of the extenders)
--AMT patch for tax year 2008 (a must-do item either now or in a post-election "lame duck" session)
September 26: Target Adjournment Date for 110th Congress
October 1: Fiscal Year 2009 Begins. Since few, if any, FY 2009 appropriations bill are expected to be enacted by September 30 (see articles below), Federal agencies that have not been funded will be forced to shut down on October 1 unless a "continuing resolution" is enacted. (Continuing resolutions allow funding for designated agencies and programs to continue at a specified level--usually the prior year's level or the House or Senate bill levels--until the regular appropriations bills are enacted into law.) The last government shutdown occurred in 1995 during a stand-off between President Bill Clinton and the Republican-controlled Congress over proposed budget cuts.
Lame Duck?? As reported today by Congressional Quarterly, Senator Majority Leader Harry Reid (D-NV) said Monday he wants to move a continuing resolution that could fund the government until February, "but, if not, we'll have to come back for a lame-duck."
Last week the Congressional Budget Office (CBO) released its September Update. CBO "estimates that the deficit will be substantially higher than it was in 2007, rising from $161 billion last year (FY 2007) to $407 billion this year (FY 2008)." CBO's projections indicate that if current laws and policies remain in place, deficits for the next two years will remain above $400 billion.
CBO's estimates post-2010 are not very useful because they assume the 2001 and 2003 tax cuts will expire--as required by current law. However, both presidential candidates as well as the congressional budget resolution propose to extend large segments of the tax cuts, making CBO's current law projections unrealistic.
Nevertheless, even assuming the tax cuts expire, CBO goes on to project that "over the long term, the budget remains on an unsustainable path. Unless changes are made to current policies, growing demand for resources caused by rising health care costs and the nation's expanding elderly population will put increasing pressure on the budget." (emphasis added)
"According to CBO's estimates, federal spending on Medicare and Medicaid is expected to total 4.6 percent of GDP this year, and, without changes in law, such spending will rise to 6.0 percent of GDP in 2018--an increase of 30 percent in just 10 years. Over the same period, spending on Social Security will rise from 4.3 percent of GDP to 5.0 percent." (emphasis added)
"Beyond 2018, those trends are poised to accelerate."
By this point in the budget process, most of the twelve FY 2009 appropriations bills should be in House-Senate conference.
However, as reflected in the chart below, the House has taken up and passed only one appropriations bill--Military Construction/VA--and no bills have been passed by the Senate.
This year's appropriations process is in a serious logjam because of two key factors:
First, President Bush has threatened to veto any appropriations bills that exceed his request, and Democrats--as reflected in the Budget Resolution--have called for nearly $25 billion more than the President requested. From Democrats' perspective, if they wait until after the presidential election to make FY '09 funding decisions, they may be working with a Democratic President. As reported by Congressional Quarterly, Senate Majority Leader Harry Reid (D-NV) said recently, "I hope we would do a continuing resolution until after Sen. Obama becomes President."
Second, House Republicans have been attempting to amend appropriations bills with off-shore oil drilling amendments, strongly opposed by many Democrats. On June 26, House Appropriations Chairman David Obey (D-WI) suspended markup of the Labor-HHS appropriations bill when Republicans attempted to substitute drilling language for the labor, health, and education provisions.
Continuing Resolution.--The Constitution and Federal law prohibit agencies from spending in the absence of appropriations. When appropriations bills are not enacted by the start of the new fiscal year on October 1st, Congress typically passes a stop-gap measure(s) called a "continuing resolution" or "CR." These joint resolutions of Congress (requiring presidential signature) authorize agencies to continue current programs for a period of time according to a formula--usually the previous year's levels, or the lower of the funding levels in either the House or Senate bills.
[Click on the blue links for information on each appropriations bill.]
|Latest House Committee|
|Latest Senate Committee|
|Agriculture||Subcomm: 6/19||--||Full Comm: 7/17||--||--
|Commerce-Justice-Science||Full Comm: 6/25||--
||Full Comm: 6/19||--||--
|Energy-Water||Full Comm: 6/25||--||Full Comm: 7/10||--
|Financial Services||Full Comm: 6/25||--||Full Comm: 7/10||--
|Homeland Security||Full Comm: 6/24||--||Full Comm: 6/19||--
||--||Full Comm: 6/26||--
|Legislative Branch||Subcomm: 6/23||--||--
|Military Construction-VA||Full Comm: 6/24||Passage:
|Full Comm: 7/17||--
|State-Foreign Operations||Subcomm: 7/16||--||Full Comm: 7/17||--
|Transportation-HUD||Subcomm: 6/20||--||Full Comm: 7/10||--
**War funding for the first part of FY '09 was provided in the FY '08 Supplemental Appropriations Bill.
Background on Appropriations.--The 12 annual appropriations bills provide funds for all of the discretionary programs, projects, and activities of the Federal government. In total, the 12 appropriations bills allocate about $1 trillion of discretionary spending -- one-third of the $3 trillion Federal budget.
(The other $2 trillion consists of entitlement programs--the largest being Social Security, Medicare, and Medicaid--as well as interest payments on the Federal debt and other "mandatory spending.")
The total amount of funding available for the annual appropriations bills is determined by the Congressional Budget Resolution. The House and Senate completed action June 5th on S.Con.Res. 70, the Congressional Budget Resolution for FY 2009 (the fiscal year beginning October 1, 2008).
Following adoption of the Budget Resolution, the House and Senate Budget Committees provided to their respective Appropriations Committees a lump-sum discretionary spending allocation (called a "302(a) allocation"). The total allocation for FY '09 was approximately $1,013 billion--about $21 billion higher than the President's $992 billion request (and $24.5 billion more than the President's request when advance appropriations and special adjustments for enforcement initiatives are included).
After receiving their respective 302(a) allocations, the House and Senate Appropriations Committees allocate total discretionary spending among their 12 respective subcommittees. These suballocations are called "302(b) allocations" and determine how much funding authority is available for programs under the jurisdiction of each subcommittee--a key decision-point in the budget process.
The Senate Appropriations Committee approved its 302(b) subcommittee allocations on June 19. The House Appropriations Committee approved its suballocations the week of June 24.
Congress is currently working on two appropriations measures which could be added to an FY 2009 continuing resolution (CR). Likely to piggyback on the CR is a disaster relief bill. Less likely is a second stimulus bill.
Disaster Relief.--House Speaker Nancy Pelosi (D-CA) said Monday that Congress is assembling a disaster relief package to respond to recent hurricanes (Ike and Gustav), wildfires, and floods."From debris removal and housing needs, to the restoration of infrastructure and local economies, the emergency disaster package will cover the range of recovery needs that must be immediately addressed," Pelosi said in a statement. The amount of aid to be included in the disaster relief bill has not yet been released.
Economic Stimulus.--Over the summer, the Senate Appropriations Committee staff began assembling a second economic stimulus bill for possible consideration this month--although Congress' timetable and recent press reports suggest that legislative action is increasingly unlikely.
According to a Senate Appropriations Committee July 30 press release, the stimulus bill would provide more than $24 billion, including $10 billion for infrastructure, energy and economic recovery programs, and $10 billion for natural disaster recovery.
Background: The first 2008 stimulus bill was signed into law on February 13, 2008 and cost $152 billion (HR 5140). The bipartisan package negotiated early this year provided tax rebates for individuals and business incentives. CBO cost estimate on first 2008 economic stimulus bill
Congress appears to be moving towards action on two tax bills.
Energy Tax Incentives.--The first bill is a package of renewable energy and conservation incentives, reported by Congress Daily to total about $18 billion. The House is expected to vote this week on energy tax legislation that includes many of the energy-related tax incentives floated earlier in the session.
As summarized by the Ways & Means Committee: "The Energy Tax Incentives Act of 2008 will provide approximately $18 billion of tax incentives for investment in renewable energy, carbon capture and sequestration demonstration projects, energy efficiency and conservation. The cost of these provisions will be offset by repealing tax subsidies for the ‘Big 5' oil companies and oil companies controlled by foreign governments (e.g., CITGO). The cost of these provisions will also be offset by preventing the understatement of foreign oil and gas extraction income in calculating foreign tax credits."
Senate tax negotiators are working from a bipartisan Baucus-Grassley energy tax package (S. 3478) that includes: long-term extensions of wind and solar energy tax credits; a consumer credit of up to $7500 for plug-in electric vehicles; $2.5 billion in new credits for clean coal facilities; and long-term extensions for credits for alternative transportation fuel. Summary of Baucus-Grassley bill
Congress Daily reports that the tax negotiators intend to fully offset the cost of the energy provisions.
Tax Extenders / AMT Patch.--House and Senate tax negotiators are also working on a bill--reported by Congress Daily to total about $100 billion--that includes the so-called "tax extenders" and an AMT patch.
However, unlike the energy tax bill, the AMT patch would not be offset, and the extenders provisions would be only partially offset.
The "tax extenders" would continue numerous expiring individual and business tax preferences and incentives such as the widely supported R&D tax credit.
Background on AMT.--Relief from the Alternative Minimum Tax is scheduled to expire with tax year 2007. 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.
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.
According to CBO, until 2000, less than 1% of taxpayers paid AMT in any year. In 2001, 2003, 2006, and 2007, Congress enacted temporary increases in the AMT exemption amounts in order to forestall the AMT's increasing impact on middle-income taxpayers. However, if AMT relief is not provided for tax year 2008, more than 20 million taxpayers would become subject to the AMT.
As was the case last year, the more than $50 billion cost of the AMT patch would not be offset due to strong Senate Republican opposition to offsetting the provision.
For a description of some of the individual and business tax extenders under consideration, see this JCT description released last spring.
Background on PAYGO.--The current House and Senate PAYGO rules were put in place when Democrats regained the majority in 2007. They are based on the PAYGO law of the 1990s, which required that any new tax cuts need to be offset by revenue raisers or entitlement cuts (and new entitlement spending offset by spending cuts or revenue raisers).
However, unlike the PAYGO statute of the 1990s (which was enforced through the threat of automatic entitlement cuts), the current PAYGO rules lack any statutory enforcement mechanism. Consequently, it has been difficult to enforce the current rules, which have already been waived a number of times. Most notably, last year's AMT patch was not offset.
Senate Democrats have already conceded that this year's AMT patch will not be offset, but they have joined House Democrats in their insistence that the tax extenders and energy incentives must be offset.
Last week Congress cleared for presidential signature legislation to replenish the Highway Trust by transferring $8 billion from the Treasury. HR 6532
Federal spending on highways and bridges is funded by gasoline, diesel, and other Federal taxes credited to the "Highway Trust Fund." Every five or six years, Congress enacts a multiyear highway bill that sets total highway and bridge spending for each year (based on revenues flowing into the Trust Fund) and establishes allocation formulas for dividing available revenues among the States. The most recent highway bill was enacted in 2005.
Once established, the formulas are annually adjusted to keep spending authority aligned with projected revenues.
However, on September 5, Transportation Secretary Mary Peters announced that gas-tax revenues were coming in lower than expected as high gas prices cause Americans to cut back on driving. Peters said the Trust Fund would be depleted by the end of the month and urged Congress to pass an $8 billion infusion into the Trust Fund that President Bush had earlier threatened to veto.
The Administration's change of heart came in the wake of heavy lobbying from the National Governors' Association, Chamber of Commerce, and State Highway and Transportation Official, who had warned of severe economic consequences if transportation projects had to be placed on hold due to the Trust Fund shortfall.
In budgetary terms, the shift in funds will result in higher deficits because highway spending levels will remain unchanged, even as gas tax revenues to the Trust Fund are coming in lower than expected.
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.