Congress, President Running Out of Time to Achieve Fiscal Priorities

In our last issue, The Watcher detailed the status of several federal spending measures that have been delayed most of the fall. In this issue, we take a look at what these delays could mean to millions of American citizens. Moves by Senate Republicans and the president to obstruct the passage of a spate of must-pass spending and revenue measures may result in benefit reductions or tax increases for millions of low- and moderate-income Americans if action is not taken quickly. President Bush has vetoed important and reasonable low-income assistance spending measures such as the Labor-HHS-Education appropriations bill and the SCHIP reauthorization bill, while Senate Republicans are in a deadlock with the Democratic leadership over Food Stamp and war spending. On the tax side, congressional Democrats also face Senate Republicans and a president hostile to fiscally responsible pay-as-you-go principles who would prefer to see taxes increased for some 20 million middle-income families rather than for wealthy private equity managers. Appropriations Entering the third month of the new fiscal year, Congress and the president have only passed one of the twelve appropriations bills into law. If Congress fails to pass or fails to override Bush vetoes of the remaining FY 2008 appropriations bills, it will have to pass another continuing resolution (CR) to avoid a government shutdown before Dec. 14. Congress may extend the current CR until early 2008 and take up the spending fight then, or it may pass a CR that would fund the government for the rest of the 2008 fiscal year (through Sept. 30, 2008). A CR would most likely extend FY 2007 spending levels without including increases for population growth or inflation, putting pressure on state governments to find supplemental funding for assistance programs millions of Americans depend on. The other option is for Congress to combine the remaining spending bills into one large bill, passing them all at once. This strategy, called an omnibus bill, may make it more difficult for the president to veto the bills should the funding levels not meet his demands. Although specific funding levels have not been mentioned during this stand-off, it is unlikely Bush would accept levels exceeding a compromise offered by Senate Majority Leader Harry Reid (D-NV) to split the difference. Because a significant number of conservative Republicans in the House are expected to back the president, overriding a veto of an omnibus is not in the offing. The delays and cutbacks currently taking place have real consequences. As the Center on Budget and Policy Priorities notes, if this scenario plays out, the Women, Infants, and Children nutrition program (WIC) would be funded at about $5.5 billion. And, depending on which version of the Labor-HHS spending level is cut (House or Senate version), some 295,000 to 405,000 women, infants, and children would be dropped from the program. If Congress capitulates to Bush's demand that spending bills not exceed his "top line level" of $933 billion, over 500,000 WIC participants would be dropped from the program. With only two weeks left to complete work, the worst-case scenario for appropriations would be enactment of a year-long CR. This would reduce funding for FY 2008 below even Bush's budget request and would result in substantial cuts in almost every budget area. The Farm Bill The current farm bill — a five-year agriculture subsidy and nutrition assistance spending bill — expired Sept. 30. If Congress fails to approve the pending $286 billion renewal, millions of Americans who rely on the Food Stamp program will face benefit cuts. Republicans are filibustering the Senate version over Reid's insistence that amendments be germane to the bill. It is possible a compromise will be reached soon that would allow Senate Republicans to offer a limited number of non-germane amendments, most likely to be related to tax policy. This would move the farm bill forward to likely passage later in December. It is crucial for the Senate to pass a reauthorization of the farm bill by the end of 2007. Because the current Food Stamp program eligibility requirements have not been adjusted for inflation since 1995, a simple extension of the current bill would cause millions of Food Stamp recipients to see their benefits reduced. The new farm bill would also provide an increase in the Emergency Food Assistance Program, which provides assistance to food banks. In light of a recent U.S. Department of Agriculture report, which found that 11 percent of U.S. households do not have access to enough food for an active, healthy life, erosion of this program would further threaten basic supports provided by food banks around the country. Without passage of a new farm bill, these and other programs providing nutrition assistance will likely cause millions of Americans to experience food insecurity or go hungry. State Children's Health Insurance Program (SCHIP) Aligning themselves with the president's opposition to expanding health care coverage for children, a group of conservative House Republicans have refused to override a veto of Congress's bipartisan, fiscally responsible extension of the State Children's Health Insurance Program. If these House members continue blocking the renewal bill and support Bush's meager proposal, one million fewer children and pregnant women would be enrolled in the program than if its current level of service was extended. If Congress simply extends current funding levels, 1.7 million pregnant women and children would not have access to this program. Although neither option is reasonable, inaction by Congress will result in the denial of health insurance coverage for over a million program participants. During the week of Dec. 3, Congress sent the president a slightly modified version of the SCHIP reauthorization he vetoed earlier in 2007. The new version contains minor changes to address some concerns expressed during the first debate over the bill. The modifications tighten eligibility standards for undocumented immigrants, adults, and children living in families making more than 300 percent of the poverty level ($61,950 for a family of four). Bush is expected to veto this version as well. War Funding Of all the spending measures confronting Congress in December, this is perhaps the least pressing. Although the president claims that without passage of supplemental war funding, thousands of Pentagon employees and contractors will be furloughed, he vetoed a $50 billion supplemental spending bill because of its requirement that he set a timeline for withdrawal of troops. Bush's claims that layoffs will be needed, however, is pure political theater, as the Defense Department has multiple options for continuing to fund the war in the absence of a new emergency appropriation. In particular, the Defense Department could transfer money included in the recently passed Defense appropriations bill for FY 2008 until additional funds could be approved. But even if layoffs were necessary, the president would bear ultimate responsibility. The vast majority of Americans — 67 percent according to a recent poll — disapprove of Bush's handling of the Iraq War. That Congress would exercise its power of the purse to alter war policy is an attempt to align the interests of Americans with the nation's foreign policy. Congress, then, is presenting Bush with two options: Be accountable to the citizens he serves or layoff thousands of workers to fight a massively unpopular war. By his own admission, Bush would likely choose the latter. AMT and Other Tax Provisions Two "must-pass" tax items remain on the year's legislative agenda, and they are joined at the hip. Congress has failed thus far to extend the fix, or "patch," it has applied for several years running to the Alternative Minimum Tax (AMT). Without such a fix in place by Dec. 31, the number of taxpayers subject to the AMT will rise by 500 percent in 2008, from 4.2 million to roughly 23 million. Extending this hold-harmless provision for 2007 tax year returns is estimated to cost just over $50 billion over ten years. Congress has also failed to extend the package of popular individual and business tax credits, deductions, and other provisions known as "extenders," which includes the state and local sales tax deduction, the Work Opportunity Tax Credit, and the Welfare-to-Work Tax Credit and the research and development credit for businesses. Extending this set of provisions — which also expires at year's end — would cost $21 billion over ten years. On Nov. 9, the House passed H.R. 3996, the Temporary Tax Relief Act of 2007, a bill (summary; vote; JCT score) combining the AMT patch and the extenders package. Since Congress' pay-as-you-go (PAYGO) rules require tax cuts to be offset, the bill contains revenue raising provisions, making it PAYGO compliant. The three chief offset provisions, each of which would raise just over $20 billion over ten years are: 1) taxing fund managers' carried interest payments as ordinary income; 2) eliminating the deferral of corporate deductions until executives' deferred compensation is actually received; and 3) delaying implementation of the provisions of the Job Creation Act of 2004. Shortly before H.R. 3996 passed the House, President Bush issued a formal veto threat against the bill, saying that "these offsets … would undermine the competitiveness of U.S. businesses in the global economy and could have adverse effects on the U.S. economy." There has been no action on the bill on the Senate side, and none is scheduled at present. Reid has insisted the principles of PAYGO be adhered to; GOP leaders have said they do not believe the AMT patch portion of the bill should require offsets. Although both the patch and the extenders are universally regarded as must-pass before Congress adjourns for the year, they currently remain in legislative limbo.
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