Washington Update: State of Play on Appropriations/Shutdown, Health Care, Tax Reform, Infrastructure, Economy, Debt Ceiling, Budget, Regulatory Rollback

Welcome to FedWeb’s newest feature: WASHINGTON UPDATE.  On FedWeb’s front page, you will find the latest developments – always nonpartisan and factual – on Federal Spending, Health Care, Tax Reform, Infrastructure, Economy, Debt Ceiling, Budget, and Regulatory Rollback.

2017 Spending / Possible Govt Shutdown:  Stopgap funding for federal agencies (“continuing resolution”) expires April 28, 2017, at which time most of the government will shut down unless Congress passes appropriations for the remainder of FY 2017 (which ends Sept. 30). Appropriations bills require 60 votes in the Senate (to bring debate to a close or to adjust spending caps), so bipartisan negotiation is essential. Currently, disagreements exist over President’s request for $30 b in supplemental defense spending, $3 b in supplemental border security (including $1 b for the wall), and offsetting cuts of $18 b in domestic/non-defense programs. Link to Spending Webpages.

FY 2018 Spending Plan / Shifting Priorities:  On 3/16/17, the Trump Administration released an FY 2018 spending outline for defense and non-defense programs that calls for keeping total appropriations flat, and shifting $54 billion from domestic and other non-defense programs into the defense budget; the result being a 10% increase in defense spending, and major cuts in non-defense and international programs–including big cuts in federal support for health research, environmental protection, job training, education, rural programs, low-income energy and housing assistance, and international humanitarian aid. There is strong opposition to the proposed cuts from Democrats and Republicans — especially among Members of the Appropriations Committees. Bipartisan negotiations and agreement will be necessary to avoid a government shutdown when Fiscal Year 2018 begins on October 1, 2017.   Link here to Defense Webpage and Non-Defense Discretionary Webpage.

Health Care:  Administration and House GOP are attempting to revive legislation to repeal-and-replace Obamacare using the filibuster-proof FY 2017 Budget Reconciliation process. In addition to dissent within the House GOP, an additional hurdle for the legislation is the Senate’s Byrd Rule that permits only “budgetary” provisions in the bill (because it is a Budget Reconciliation Bill). Speaker Paul Ryan announced on 4/6/17 a change to the repeal-and-replace bill that would create a $15 billion federal high-risk pool aimed at lowering insurance rates—as part of ongoing talks to craft a Republican package with sufficient votes to pass the House. Ryan withdrew the repeal-and-replace bill on 3/24/17, lacking sufficient votes for passage. On 3/13/2017, the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released an Analysis of the GOP Repeal and Replace Legislation (“American Health Care Act”) finding that in 2018, 14 million more people would be uninsured, rising to 24 million by 2026, with the increases resulting from cuts in Medicaid, repealing the penalties associated with the individual mandate, and people not being able to afford higher out-of-pocket costs. Democrats strongly oppose: the reduction in subsidies, $880 billion in tax cuts, and $883 billion in Medicaid cuts. Link to Healthcare Webpage.

FY 2018 Budget after completion of FY 2017 Healthcare Reconciliation Bill:  Congress will write an FY 2018 Budget Resolution (a congressional outline of spending, revenue, and deficit levels for the next 10 years) when they return from Easter/Passover recess (however, the FY 2018 budget plan cannot be brought to the Floor if work is still continuing on an Obamacare repeal-and-replace bill since that is being advanced as part of the FY 2017 Budget Reconciliation bill).  Adoption of the FY 2018 Budget Resolution is a necessary procedural step to launch a filibuster-proof “Budget Reconciliation” Tax Reform bill. Tax reform cannot proceed unless and until a Budget Resolution is adopted. The Budget Resolution is filibuster-proof, requiring only 50 votes in the Senate and does not require the President’s signature, although passage could be slowed by internal GOP disagreements on whether and how to aim for a balanced budget within 10 years. Aiming for a balanced budget by 2027 is a very tall order considering that the deficit for that year — assuming continuation of current programs and policies — is projected to be $1.4 trillion, and will be even higher if defense increases, infrastructure spending, and tax cuts are enacted without budget offsets. Link to Budget Process Explanation.

Tax Reform:   Congressional GOP leaders and the Administration are calling for comprehensive tax reform that includes major cuts in tax rates (reductions for individuals, corporations, and pass-through businesses, as well as repealing estate & gift and AMT).  The plan is to adopt in May a Budget Resolution for FY 2018 that will launch a filibuster-proof “Budget Reconciliation” bill to advance tax reform. Senate Majority Leader McConnell said on April 7 he expects a tax bill to advance along party lines–making Budget Reconciliation’s 50-vote threshold a key factor. However, a major consequence of using this filibuster-proof process is the Senate’s “Byrd Rule” prohibition on Reconciliation legislation increasing deficits in the out-years (i.e., years following the 10-year budget window). Therefore, either the tax cuts will have to be fully paid for by closing existing deductions and credits, or the tax cuts will have to expire at the end of 10 years (like the Bush tax cuts enacted in 2001).

Also receiving a lot of attention — and considerable opposition — is a form of Border Adjustment Tax (BAT) called a “destination-based cash flow tax (DBCFT) advocated by House Speaker Paul Ryan and Ways & Means Chairman Kevin Brady. The proposal would transform the corporate income tax into a consumption tax, under which goods and services destined for domestic consumption (including imports) are taxed, interest payments are no longer deductible, and goods and services destined for other countries (exports) are not taxed. One objective is to raise revenue by taxing imports and using the revenues to reduce corporate rates; another objective is to remove the incentive for corporate inversions (moving overseas) because taxation would be based on where goods and services are consumed, not where they are produced. The proposal has drawn strong opposition from various sectors, especially importers and retailers, although proponents argue that a stronger dollar would offset the taxes on imports. Link to Tax Reform WebPage.

Infrastructure:  Administration has called for a $1 trillion investment over 10 years, but financing mechanisms are unclear, given strong opposition among congressional Republicans to new spending. There is some discussion of financing through a one-time tax on repatriated corporate assets or using the tax code to leverage private investment. In its 3/9/2017 quadrennial report card, the American Society of Civil Engineers, gave U.S. infrastructure a cumulative grade of D+ which means “in poor condition” and a “strong risk of failure.”   Infrastructure rated at risk of failure include: U.S. roads, airports, dams and levees, water and wastewater systems, public schools and parks, transit systems, hazardous waste sites, and inland waterways. Infrastructure only slightly better and rated as “mediocre and requiring attention” include: bridges, ports, and solid waste facilities.  No U.S. infrastructure was rated as “fit for the future,” and only the rail system was rated as “adequate for now.”  Link to Infrastructure Webpage.

Economy: The nonpartisan Congressional Budget Office (CBO) reported in March a perilous long-term outlook if current programs and policies remain unchanged: annual deficits steadily rising from 2.4% of GDP in 2018, to 5.0% of GDP in 2027; and federal debt (owed to the public) rising from 77% of GDP in 2018 to 89% in 2027, 113% in 2037, and 150% of GDP in 2047. CBO cites the aging of our population, growing healthcare costs, and mounting debt as the chief driver of our fiscal woes, with Medicare growing from 3% of GDP to 4.2% over 10 years; Social Security from 5.0% to 6.0%; and net interest from 1.5% to 2.7%. Within 10 years, federal net interest payments will exceed three-quarters of a trillion dollars. Link to Budget Docs page for CBO reports; our Timeline page for highlights; and Economy/Fed page for real-time numbers.

Debt Ceiling:  On March 15, 2017, the Statutory Limit on the Public Debt was automatically re-set at current debt levels (on that day) as prescribed by a previous law. Despite the new debt ceiling, until this summer, Treasury can meet legal requirements for redemption of bonds, payment of benefits, and payment of contractors by managing cash flow and dis-investing some Federal trust funds. But by late summer or fall, Congress will have to raise the debt ceiling to avoid a U.S. default that would cause economic chaos.  Link to Debt Ceiling Webpage.

Regulatory Rollback: The Congressional Review Act empowers Congress to overturn recent regulations by means of a filibuster-proof legislative process. Major regs written by the Obama Administration, and overturned by Congress and the new Administration, would have: required energy companies to disclose payments to foreign governments; limited pollutants from coal mines into local streams; prevented people at risk of self-harm due to mental illness from buying firearms; required federal contractors to comply with fair pay and worker safety laws; required employers to keep records of worker injuries and illnesses; and prevented broadband internet providers from requiring consumers to share private information. Link to Regs Webpage.

Senate exercised the “Nuclear Option” to eliminate 60-vote threshold for Supreme Court nominees: The U.S. Senate exercised the so-called “nuclear option” on 4/6/17 – ignoring its own Standing Rules that require a 2/3 threshold to reach a vote on rules changes – and adopted by majority vote a precedent that filibusters of Supreme Court nominees can be ended with 50 votes, rather than 60. This cleared the way for the Majority Party to confirm the Supreme Court nomination of Neil Gorsuch, with only 54 votes. Fearing that this may lead to the demise of the legislative filibuster (which requires a super-majority of 60 to reach a vote on most legislative matters), a bipartisan group of 61 senators signed a letter on April 7, 2017 urging Senate leaders to maintain the 60-vote requirement; however, the letter is non-binding. See our blog The Senate’s “Nuclear Option” — How it Works and Why It Matters.