In the final weeks of March, the House and Senate adopted budget resolutions for Fiscal Year 2008 by narrow margins and will now turn to the task of finding a compromise resolution in conference committee. The two $2.9 trillion budget plans are broadly similar — both seek to reach a budget surplus by the year 2012, establish reserve funds to extend the State Children's Health Insurance Program (SCHIP) to all eligible children, and embrace pay-as-you-go (PAYGO) principles. But their slightly differing spending provisions and definitions of PAYGO, as well as a Senate amendment to extend some of President George W. Bush's middle-income tax cuts, will present some critical choices in conference. The Senate passed its budget resolution, S. Con. Res. 21, on March 23, by a 52-47 vote, with Maine GOP Sens. Olympia Snowe and Susan Collins joining the 49 Democrats and Independents Bernie Sanders (VT) and Joseph Lieberman (CT) in support. The Senate's nonbinding budget blueprint provides $18 billion more in domestic discretionary spending for next year than Bush's proposed FY 2008 budget, projects a $132 billion surplus by 2012, offers a two-year patch for the Alternative Minimum Tax (AMT), and establishes a strict PAYGO regime. During floor debate on the resolution, the Senate voted 97-1 to add an amendment by Finance Committee Chair Max Baucus (D-MT) that recommended $195 billion — about $60 billion over and above the projected surplus — be used to extend Bush's 2001 and 2003 middle-class tax cuts, expand SCHIP, and make modest changes to the estate tax. More drastic amendments to cut the estate tax were rejected. The House adopted its own budget resolution, H. Con. Res. 99, on March 29, by a 216-210 margin, with 12 Democrats and two Republicans crossing party lines. The House resolution calls for a $153 billion surplus by 2012, a nearly $25 billion increase for domestic programs, a one-year AMT patch, and a less rigorous PAYGO rule than the Senate's. The House voted on, but rejected, alternative budget resolutions proposed by the Progressive Causes (by 81-340), the Congressional Black Caucus (by 115-312), and the GOP conference (by 160-268). The GOP alternative, offered by Budget Committee Ranking Member Paul Ryan (R-WI), would have cut entitlement spending by $270 billion over five years, added $168 billion to the deficit, and violated the House PAYGO rule; it was defeated 160-268. This vote was a wider-than-expected margin, with 40 GOP members breaking ranks to oppose it. The conservative Democrat Blue Dog coalition did not offer an alternative this year, instead endorsing the House leadership's resolution. OMB Watch and many of its progressive community partners, including the Emergency Coalition for America's Priorities (ECAP), support both resolutions, with a slight preference for the House version, which provides $5 billion more than the Senate for annually appropriated discretionary domestic programs, including $7.9 billion more for education and social service programs and $3.5 billion more for veterans programs for FY 2008 than Bush's budget. These increases and the commitment to PAYGO principles are seen as a start, a "down payment" on future efforts to redress the last several years' chronic under-funding of social service needs across the country. Much of the partisan debate surrounding the budget resolutions has focused on the Democrats' assumption that many of the 2001 and 2003 Bush tax cuts would not be extended — yielding nearly $400 billion more revenue than the president's budget over the next five years. The GOP has claimed repeatedly that the Democratic budget resolutions require "the largest tax increase in American history." In fact, however, they assume no tax hikes, only the same increase in revenues assumed under the very same tax cut laws. The major fiscal difference between the House and Senate resolutions lies in how this increased revenue is handled. The Senate plan, under the Baucus amendment, sets aside about $180 billion after 2010 to renew current middle-class tax cuts such as the expanded child tax credit, marriage penalty relief, and the 10-percent tax bracket, and fixes the estate tax at the current 2009 exemption levels ($3.5 million for individuals, and tax rate, 45 percent). These provisions consume all of the Senate's projected 2012 surplus and then some and call for an additional $15 billion for SCHIP. The Baucus amendment does not propose how that additional funding should be offset, but Senate Democrats would still be free to adhere to PAYGO principles in all their legislation. Their commitment to fiscal responsibility will in some ways be measured by their ability to draft deficit neutral bills even for their most popular priorities like middle-class tax cuts and children's health care. Finally, conference treatment of PAYGO itself will be telling. The House's PAYGO rule allows up-front expenses to be offset by future cuts or tax increases, so long as there is no aggregate increase in entitlement spending or decrease in taxes over the five- or ten-year period following the current fiscal year. The Senate plan permits only paid-for entitlement increases or tax cuts in any given fiscal year and extends PAYGO through 2017. In any event, the budget resolution conference committee report, expected by the end of April, is all but certain to include some version of PAYGO and additional resources for a new farm bill, SCHIP, education, and veterans' health, reflecting a significantly increased congressional commitment to fiscal responsibility and many underserved domestic spending priorities. Implications of the Baucus Amendment on the Estate Tax Debate The Baucus amendment offered and adopted in the Senate Budget Resolution may have implications for the estate tax debate. The amendment, however, does not change tax law or automatically alter estate tax exemptions and rates — in fact, it never even mentions the estate tax by name. The Baucus amendment is an adjustment to spending and revenue totals in the outline within the budget resolution. It is a non-binding suggestion — a proposal for how federal resources could be spent. The practical effect of the amendment is that it proposes to use the projected surplus for a few specific spending and tax policy changes. During debate on the amendment, Sen. Baucus gave details as to his desires for how the surplus revenues, projected in the budget resolution to materialize in 2012, could be spent. He spoke of three specific proposals: extending children's health insurance to all kids in America, extending some middle-class tax cuts, and extending the 2009 levels of the estate tax. The main motivation for the Baucus amendment was to outline a number of tax and spending policies that could be implemented to spend the projected 2012 surplus during 2011 and 2012, in the process staking a Democratic claim on the additional revenue. It was also likely proposed to deny Republicans their own proposals to use the surplus for additional tax cuts. In addition, the Baucus amendment's estate tax provision is notable for its recognition that previous proposals on the estate tax were far too irresponsible and expensive to actually implement. Both Baucus and Sen. Kyl (R-AZ), the main two senators involved in the estate tax debate, have now shifted significantly away from what once were pro-repeal positions on the estate tax toward far more moderate proposals. This is likely due to the Democrats' strong commitment to PAYGO in the current Congress. While the Baucus amendment does not force implementation of the policies he outlined during the debate on the budget resolution, it does represent an important shift in the Senate away from fiscally reckless estate tax policies and toward more common sense reforms.