A new congressional majority in 2007 promised a clean break from past practices of a Congress noted for its corruption, dysfunction and profligacy. It moved on a modest agenda and successfully enacted a few important policies, but overall, it failed to chart a new direction in fiscal policy. This failure was due in large part to the majority underestimating the ability and willingness of a coalition of conservative policymakers and the president to fiercely obstruct even the modest reform policies on the new Congress's agenda. 2007's successes were important. Congress raised the minimum wage for the first time in ten years. It vastly improved student loan programs and began to exercise increased oversight of the executive branch. Earmarks are now more transparent and will likely, for good or for ill, be far fewer in number. Perhaps most importantly, it established PAYGO budgeting rules and passed a budget resolution on time. But overall, Congress missed opportunities to turn a corner on fiscal responsibility, taxation, and budget policy. It appears to be wavering on its promises to follow PAYGO rules and did not enact any of the modest expansions in federal investments it proposed, despite strong bipartisan majorities in favor of many of those proposals. And it failed to address the inadequacy of long-term revenues or the stigma often attached to taxation and government investments. So 2007, much like 2006, belonged to a coalition of conservative Republicans in the House and Senate and a very unpopular president, who together fought back modest, fiscally responsible improvements in the tax code and sensible government investments. This coalition's obstruction ensured the new Congress would govern much like the last one, stuck in neutral or moving backward on fiscal policy — with dysfunction, rancor and instilling the public's view of the federal government with even greater cynicism. Here's to better results in 2008. Budget and Appropriations Congress Passes Positive Budget Resolution Congress achieved a basic — if merely preliminary — benchmark of responsible fiscal governance: passing a final budget resolution. The final FY 2008 resolution established a $954 billion discretionary cap for the twelve federal spending bills that would be passed later in 2007, which was $22 billion higher than the president's request. This accomplishment has become somewhat of a rare event in Washington (three of the past five fiscal years did not see a final budget resolution), and the votes were close (Senate 52-40, House 214-209) in passing this one. The discretionary cap made room for modest funding increases in human needs and government investments, but those were all but eliminated in the year-end omnibus appropriations bill.

• Budget Resolution Conference Faces Key Choices on PAYGO, Taxes
• Congress Approves Budget Resolution
• Background Brief: The Budget Resolution

President, Republicans Block Appropriations Bills The 2007 budget cycle — how the annual appropriations bills are completed — got off to a promising start. A number of bills raised funding levels for human needs programs and enjoyed bipartisan support. But the president rejected nearly all bills containing funding that went beyond his narrow request. Bush vetoed the most important human needs funding bill — the Labor, Health and Human Services, and Education appropriations bill — and enough conservative votes were mustered in the House to sustain his veto. The difference between Democrats and the president on overall domestic discretionary spending was $22 billion, and the Democrats agreed to cut this amount in half. Even though the differences between Democrats and the president amounted to less than one percent of discretionary spending, the president was unyielding. The resulting gridlock in Congress made a number of stopgap continuing resolutions necessary, and ultimately as we neared Christmas, Democrats capitulated on the dollar amount but not all the spending priorities. As an omnibus bill moves to completion, it appears the Democrats were able to salvage modest increases in a few top-priority areas and made cuts to some of Bush's priorities. They also added the extra $11 billion in spending they were seeking by putting some high-priority spending items, such veterans spending, into an "emergency" category.

• Congress to Send Labor/HHS Appropriations to President While SCHIP Conflict Continues
• Republicans Keep Obstructing Common-Sense Investment Initiatives
• Bush, Republicans Get Their Dream Budget

Conservatives Stop Improvements to Nutrition, Children's Health Insurance The new majority in Congress proposed several progressive changes to entitlement programs, but only one significant change — an expansion of student loan programs — was enacted. The most ambitious of these proposals was the $35 billion funding increase for the State Children's Health Insurance Program, which would have provided insurance for an additional four million uninsured children annually. The farm bill, too, contained $4 billion in improvements to several nutrition programs, including Food Stamps. But in the end, the SCHIP bill was vetoed by the president, and that veto was sustained by the House. After Democrats revised the SCHIP bill to address the president's concerns, he vetoed it a second time. Although Senate Republicans obstructed passage of the farm bill for weeks, it was finally passed shortly before Christmas and now needs to be reconciled with the House version.

• Reauthorization of Children's Health Insurance Program Gains Momentum
• Republicans Keep Obstructing Common-Sense Investment Initiatives
• College Loan Bill Enacted!
• House Conservatives Sink SCHIP

Budget Process Portman Quits; Nussle Appointed New OMB Director In mid-June, Office of Management and Budget (OMB) Director Rob Portman quietly announced his resignation to spend more time with his wife and children, and President Bush nominated former House Budget Committee Chairman Jim Nussle to replace Portman. Some in Congress warned the nomination might face some trouble in the Senate, given Nussle's reputation as an ideological "bare-knuckled brawler" and poor budget steward as head of the House Budget Committee. But the Senate Budget and Homeland Security and Governmental Affairs Committees both confirmed Nussle after perfunctory hearings, and the full Senate followed suit in a 69-24 vote, with all Republican senators voting in favor of Nussle and the Democrats split down the middle.

• Portman Out, Nussle Tapped to Head OMB
• Questions, Concerns Surround Start of Nussle Confirmation Hearings
• OMB Watch Letter to Senate Concerning Nussle's Nomination
• OMB Watch Questions and Answers for Nussle Nomination Hearings

Congress Increases Debt Ceiling Again With Hardly a Mention In mid-September, Congress approved an increase of $850 billion in the nation's debt limit, bringing it to a total of $9.815 trillion. This was the fifth time the statutory debt limit was raised during the Bush presidency and was a direct result of the fiscal policies and practices implemented by Bush and Congress over the past six years. In that time, the national debt has increased 40 percent, from approximately $5.5 to $9 trillion — a milestone it reached on Nov. 6. There was little debate in Congress when the limit was raised and no discussion of the consequences of policies adding to the national debt, the impact on interest expenses or trade-offs in long- versus short-term budget commitments.

• U.S. Reaches Debt Limit: The Case for Long-Term Analysis
• Debt on Arrival — Take II

PAYGO(NE): Congress Institutes a Precarious Commitment to Fiscal Responsibility One of the first official acts of the House of Representatives, whose new leadership had promised to restore fiscal discipline, was to re-institute pay-as-you-go (PAYGO) rules after a six-year absence. The Senate followed suit in March when it passed its version of PAYGO with the Senate budget resolution. Both rules throw up procedural roadblocks to deficit-deepening tax cuts or mandatory spending increases that are not offset. The current Alternative Minimum Tax impasse has revealed the House is sticking to its pledge to offset tax cuts, while the Senate's 88-5 vote on an offset-free AMT patch with nary a point-of-order peep indicates its somewhat muted desire for fiscal discipline barely lasted one year. Unfortunately, a paid-for AMT patch is not a likely outcome, as the president has pledged to veto any fiscally responsible bill that patches the AMT. Adherence to PAYGO is tough with a tax-cut-and-deficit president in the Oval Office, but without demonstrable intestinal fortitude by Congress, PAYGO will not survive in 2008.

• Understanding PAYGO: Questions and Answers
• Perspectives on the Senate BR; the Road Ahead
• Price of Patch too High to Go with PAYGO

President Continues Poor and Manipulative Budget Projections When the president released his budget proposal in February, he loudly proclaimed his plan "balances the budget without raising taxes." At the heart of this claim, however, were a pair of gimmicks intended to confuse and mislead. First, Bush's budget assumed the AMT will be patched in 2007 but not in subsequent years. He maintained the AMT is an unintended, unexpected and unwelcome tax increase, and yet he relied on this very tax increase to balance his budget. Second, the president's budget assumed war spending will be $50 billion in 2009 and will not be required thereafter. His $200 billion FY 2008 war supplemental request would punch a $50 billion hole (plus interest on incurred debt) in his five-year plan. These unrealistic — or abandoned — assumptions are an impediment to a much-needed honest assessment of the federal fiscal outlook, which has been buried under a $3 trillion increase in debt since Bush took office.

• President's Budget Full of Cheap Rhetoric, Wrong Priorities
• FY08 Budget Encounters GOP Skepticism in Congress
• OMB Releases Flawed Mid-Session Budget Review

Federal Tax Policy AMT Reform: a Rough Patch for Congress At the beginning of 2007, House Ways and Means Committee Chair Charles Rangel (D-NY) said his number one priority was to address the Alternative Minimum Tax (AMT). A year-long discussion and debate of whether and how to eliminate or reform the AMT culminated in the introduction of Rangel's long-awaited "mother of all tax bills." The ten-year, $845 billion bill would eliminate the AMT, add a four percent surtax for those earning over $200,000 a year, reduce the corporate tax rate by four percent, and cut out a raft of business deductions, all on a revenue-neutral basis, redistributing the tax burden away from lower- and middle-class taxpayers and toward the wealthy beneficiaries of the Bush tax cuts of 2001 and 2003. But Congress did not have time or inclination to take up the Rangel bill — which may not see any action until a new administration is installed in 2009. Instead, it focused on a hold-harmless patch to keep 19 million Americans from paying the AMT for the first time. It also focused on whether and how to pay for the $50 billion cost of that legislation. The struggle over whether or not the AMT patch should comply with Congress' recently self-imposed PAYGO rules extended debate and inaction on the issue to the point where ten of millions of Americans will experience delays in receiving their tax rebate checks from the IRS. As of this writing, there is still not a solution to the AMT issue for 2008.

• OMB Watch Background Brief: The Alternative Minimum Tax
• AMT: Prospects for Reform and the PAYGO Challenge
• AMT: Mother of All Tax Bills and Progeny

Carried Interest — Clears House Despite Massive Lobbying Effort In early June, Rep. Sander Levin (D-MI) introduced a bill to close the "carried interest" loophole permitting wealthy fund managers to claim compensation based on the performance of the stocks they manage — but do not own — as capital gains rather than ordinary income. A long struggle ensued over the next several months as the Senate Finance Committee held three hearings on the loophole, K Street lobbyists waged a campaign to preserve it, and various progressive advocacy groups — including OMB Watch — sought to educate the public about it and urged Congress to close it. In the end, the Levin bill was attached to the House version of the AMT patch as a way to pay for the lost revenue. But the Senate vowed not to pay for the patch, and the carried interest provision was dropped. It was included, however, in the "mother of all tax bills" as an offset to the cost of repealing the AMT, so it's possible that the carried interest provision could get taken up in 2008.

• Wall Street Tax Break Comes under Scrutiny
• OMB Watch Sign-on Letter to Congress Supporting Closing the Carried Interest Tax Loophole
• Addressing Objections to H.R. 2834 — the Levin Carried Interest Bill

Buffett Sets Tone in Muted 2007 Estate Tax Debate Reform of the currently chaotic statutory estate tax law became increasingly necessary as the one-year full repeal approaches in 2010 and then reverts to the tax policies prior the 2001 Bush tax cuts. In 2006, the estate tax played a leading role in congressional debates throughout the year and came up for repeated votes in the Senate. Ironically, by contrast, the issue received only scant attention in Congress in 2007, with only one hearing held in mid-November, almost as an afterthought. At that hearing, star witness Warren Buffett stole the thunder of those advocating for repeal of the estate tax and reframed the debate by comparing the less-than-one-percent of Americans who pay the tax with the 23 million families who earn less than $20,000 annually. It is safe to say estate tax repeal is no longer a threat in this Congress, but a need for a common sense, revenue-neutral reform still exists. And it is by no means a certainty Congress would pass a reform that is revenue neutral.

• OMB Watch Statement for Senate Finance Committee Hearing on the Uncertainty of Planning under Estate Tax Law
• OMB Watch Statement on the Estate Tax
• Estate Tax Repeal No Longer on the Table

Wealth and Income Inequality Inequality Continues to Expand The economic news for Americans not at the top of the income distribution was mixed at best this year. The Census Bureau's 2006 income and poverty report noted the poverty rate declined to 12.3 percent from 12.6 percent in 2005, and household median income reversed course and increased year-over-year by 0.7 percent. These positive developments are tempered by the figures for individual worker wages, which for both men and women declined for a third year in a row. And, as the CBO recently reported, shares of income for each of the bottom four income quintiles continued their historical decline.

• Census Releases 2006 Income, Poverty, and Health Insurance Numbers
• Census Report Shows Working Americans Falling Behind
• Higher Tax Rates = Higher Income Inequality

Low-Income Workers Get Some Relief with Minimum Wage Increase After a circuitous route to the president's desk, a meager minimum wage increase to $7.25 per hour was signed by Bush in May. The wage increase was ultimately attached to a $120 billion supplemental spending package and was accompanied by a $4.8 billion tax break for small businesses. The wage increase is historic for a number of reasons. Prior to this year's increase, the value of the minimum wage, adjusted for inflation, was at a fifty-year low. And not since World War II has the minimum wage sunk below 31 percent of the average wage in the United States. With the increase, some 5.6 million workers will see a raise in their pay.

• Squabbling Over Tax Cuts Continues to Delay Minimum Wage Increase
• Congress Passes Supplemental; Cease-Fire in the Capital

Accountability and Transparency in Federal Spending After Arduous Implementation, USASpending.gov Launches In a groundbreaking collaboration, OMB and OMB Watch teamed up to launch a free, searchable, downloadable website of all federal spending. Based on the underlying software of our FedSpending.org, the government site (USASpending.gov) provides a solid foundation to allow the American public to better understand and investigate federal spending. Although this site represents an important step forward for government transparency, more still needs to be done, including proper maintenance and significant data improvements for the site in the years ahead.

• OMB Watch Applauds Important Step Forward for Government Transparency
• USASpending.gov Launched!
FedSpending.org Continues to Set the Standard for Access to Spending Data Despite helping to design and implement the government's spending database, OMB Watch continued to push the envelope in proving what is possible with federal spending transparency in 2007 through significant upgrades and expansion of the FedSpending.org website. To celebrate the one-year anniversary of FedSpending.org, OMB Watch released a new and improved version of the website, with a complete data set through FY 2006 for both contracts and federal assistance spending. This new version also includes major functionality upgrades, including the addition of a mapping feature on all searches, creation of a streamlined and powerful SuperSearch for all advanced searching needs, and increased flexibility in getting data more quickly through expandable summary views. OMB Watch intends to continue to operate and expand FedSpending.org in 2008 and beyond.
• OMB Watch Celebrates One Year of FedSpending.org with New Version of Site
• OMB Watch Updates Data, Features on FedSpending.org
• OMB Watch Launches Upgraded FedSpending.org Website
Earmark Disclosure Procedures Instituted One of the new reforms enacted in the lobbying and ethics reform bill passed by Congress in 2007 concerns earmark transparency and disclosure. Under the new rules, all earmarked spending items and tax expenditures in bills, resolutions, conference reports and managers' statements must be identified and posted on the Internet 48 hours before a vote. In addition, legislators must also certify that they will not financially benefit from any earmarks they've requested, and extraneous earmarks (i.e., not approved by either chamber) are now subject to a 60-vote point of order in the Senate. These reforms are critical because they allow for the underlying bill to continue to be considered, even when striking a specific provision, and gives the public greater access to the behind-the-scenes deal-swapping that often happens in Congress. While these reforms cover new legislation moving forward, OMB began a process of publishing past and current earmarks in a searchable, online database. Posting both earmarks in the FY 05 appropriations bills and in the current FY 08 bills as they move through Congress, OMB pushed the federal government to be far more transparent in presenting spending information to the public.
• Congress Passes Sweeping Lobbying and Ethics Reforms
• House Passes PAYGO and Earmark Disclosure Rules
• Senate Passes New Rules on Earmark Disclosure
• OMB 2005 Earmarks Database Up and Running
• Earmarks II: OMB "Database" Tracks FY08 Bills
Government Performance and Management Final Round of PART Scores Continue Biased Performance Reviews With the release of the president's FY 08 budget, OMB completed reviews of almost every federal program using its review mechanism — the Program Assessment Rating Tool (PART). To date, nearly 1,000 federal programs, representing 96 percent of all programs, have received at least one review with the PART. Unfortunately, the PART continues to be an ineffective tool for objectively evaluating program performance, has little to do with even the president's own budget proposal, and adds additional burdens and distractions to program management and implementation. The PART system has created a duplicative and only marginally useful system that many agency program staff treat merely as a compliance exercise.
• OMB Wraps Up First Complete Round of PART Reviews with Little to Show
• OMB-OMB Watch Collaboration Improving Results?
• White House Releases Next Round of PART Scores
Bush Attempts to Codify PART in Executive Order The White House issued an executive order (E.O. 13450) on Nov. 13 in an attempt to entrench the PART within federal agencies long after President Bush leaves office. The order would create a point person within agencies responsible for program performance, allow OMB more leverage over specific aspects of program implementation and solidify the PART program review process as the evaluator of government programs. While OMB has made commendable strides in making the PART process more transparent, unfortunately, this commitment to transparency is not enough to make up for the fact that the information being provided is of limited value.
• White House Attempts to Entrench PART at Federal Agencies
• Bush Attempts to Secure His Legacy
Problems Remain In Government Contracting/Privatization More contracting scandals emerged this year, from Blackwater to IRS outsourcing, while Congress moved to make some small but needed reforms of the contracting process. Chief administrators at both the General Services Administration (which handles most general government procurement) and the Department of Housing and Urban Development faced accusations of politicizing federal resources and playing favorites in the contracting process. Meanwhile, Congress passed legislation to set up a commission to investigate abuses in wartime contracting and to end a wasteful IRS program that uses private debt collectors to track down tax debts. The commission proposal was eventually enacted while repeated efforts to end the dangerous IRS program fell short.
• Wartime Commission Would Investigate Contracting Abuses in Iraq and Afghanistan
• Congressional Hearing Reveals Flaws in Outsourcing Tax Debt Collection
• Another Attempt at Ending IRS Privatization Program Moves Forward
• OMB Watch Questions GSA's Approach to Accountability
• Research Questions Cost-Efficiency of Privatization
• Jackson: Stretching the Truth at HUD