No Budget Resolution

Whether or not tax cuts must be offset - that is the question.

On April Fool's Day, congressional attempts to negotiate a final version of the budget resolution for fiscal year 2005 failed, leaving no chance that there will be a resolution until, at least, late in April. Congress returns April 19, after the Passover and Easter break. While the statutory deadline for a budget resolution is April 15, there is no penalty for failure to meet it, and this will certainly not be the first time the deadline has been missed.

The primary sticking point in the Senate budget resolution is the requirement that the cost of both tax cuts and entitlement spending increases must be subject to a "pay-go" requirement that requires a 60-vote majority to pass unless the costs are offset through an increase in taxes or other spending reductions. The House and the administration are absolutely determined to "protect" future tax cuts from the pay-go requirement. The House version of the budget resolution requires pay-go offsets for entitlement spending increases, but exempts tax cuts from this budget discipline.

As an example of how determined the House is to protect tax cuts, on March 30, Democrats put forth a "motion to instruct" the budget resolution conferees to reinstate pay-go budget rules on all tax cuts or entitlement spending increases. While the motion would have had no force or effect, House Republican leadership held the voting period open long enough to strong arm nineteen of their members who supported the motion to vote against it. The motion was tied at 209 to 209, one vote short of the majority needed by Democrats to succeed.

Given the deficit situation and the need for increased spending both domestically and in Iraq, this insistence on making it easy to pass costly tax cuts is irrational. According to the National Journal's Congress Daily, the nonpartisan Committee for Economic Development sent a letter to budget conferees supporting the inclusion of pay-go rules requiring offsets for new entitlement spending or tax cuts, noting that "[w]e are in danger of placing the country on a path of ever-expanding deficits and declining growth in our national output and living standards." Apparently, party discipline makes an impossible proposition for voting on the best long-term tax plan for the country.

Compromises may include exempting the three tax cuts that expire in 2005 from pay-go: the marriage "penalty" adjustment, the child tax credit, and the extension of the 10 percent bracket. All these tax cuts were included in "reconciliation" instructions for $82.6 billion in tax cuts that are exempt from the 60-vote majority requirement and filibuster. In addition to these three tax cuts, the Senate also included acceleration of full repeal of the estate tax moving it from 2010 to 2009, but it is not yet sorted out whether estate tax repeal - a benefit only to multimillionaires - will be included in the pay-go exempt tax cuts. Another area of compromise might be the length of time the pay-go requirements will apply. The Senate version extends pay-go requirements on taxes and entitlement spending for five years.

Additional points of contention include determining the length of time that discretionary "caps" or limits that will require large cuts in domestic discretionary spending will be imposed. The House resolution sets caps for five years while the Senate only sets caps for two years. Required cuts in entitlements are also still on the table, although a Senate provision targeting Medicaid and the Earned Income Tax Credit program has been dropped.

The budget resolution is for approximately $821 billion in discretionary spending for FY 2005, along with a $50 billion supplemental for Iraq. The discretionary spending will be divided up among the 13 appropriations bills, with the appropriation mark-ups beginning May 15. According to an April 2 National Journal's Congress Daily report, House Appropriations Committee Chairman Young (R-FL) sent a letter to House Budget Committee Chairman Nussle (R-IA) contending that the budget resolution should allow funds to be shifted as necessary, rather than setting aside reserve funds. Chairman Young noted that the $821 billion in discretionary spending is $2 billion below the President's request, and includes $2 billion in user fees and $1 billion in offsets that probably won't be enacted, resulting in a $3 billion budget shortfall that will have to be made up by cutting programs. The appropriations committees have their work cut out for them.

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