The Dangers of Distraction: Health Care, Debt Ceiling, Dodd-Frank Repeal, Shutdown, Tax, Infrastructure

The Dangers of Distraction

Special Counsel Mueller’s investigation and all the related and rapidly unfolding developments deserve our highest level of attention and concern. The stability, integrity, and future of our democracy is at stake.

At the same time, we cannot afford to lose sight of vital matters of governance that continue to unfold and have profound implications for tens of millions of Americans and future generations.

Over the coming weeks, public policy matters of the greatest importance will be addressed in Congress: (1) the health care of tens of millions of Americans will be directly impacted by critical decisions made on Medicaid, health insurance subsidies, pre-existing conditions and other insurance protections; (2) the stability of our economy will be at risk if Congress fails to raise the debt ceiling and leaves the Treasury unable to honor U.S. financial obligations; 3) the federal government will shut down October 1st if Republicans and Democrats remain seriously divided on appropriate spending levels for defense and non-defense programs; (4) the stability of our banking and financial sectors are at stake as Congress works through changes to the Dodd-Frank reforms; (5) dozens of critical federal programs–from medical research to low-income energy assistance–are on the chopping block as work on the FY 2018 budget moves forward; and (6) our nation’s ability to compete in a complex global economy will be compromised if we fail to invest in a 21st century infrastructure and a skilled & educated workforce.

Visit FedWeb.com as each of these developments unfold.

McConnell presses for June vote on Health;
Schumer cites “legislative malpractice” 

House-passed health care legislation has been stalled in the Senate In the wake of projections by CBO that the “American Health Care Act” would increase the number of uninsured by 23 million due to Medicaid and health insurance subsidy cuts.

Majority Leader McConnell (R-KY) is pressing for a Senate GOP Task Force to complete an alternative bill for Senate consideration before the July 4th recess — without committee hearings and mark-ups — to be followed by expedited consideration on the Senate Floor under the filibuster-proof Budget Reconciliation process (requiring only 50 votes for passage). See Reconciliation and the Byrd Rule

Sunday, on Face the Nation, Minority Leader Chuck Schumer (D-NY) said the lack of hearings and opportunity for amendments amount to the “most outrageous examples of legislative malpractice in decades.”

In addition to bridging differences between GOP moderates and conservatives, a major challenge for the Senate GOP is that many of the key components of the Affordable Care Act (“Obamacare”) have broad public support:

  • Allow young adults to stay on their parents’ insurance plans until age 26 (85%);
  • Eliminate out-of-pocket costs for many preventive services (83%);
  • Close the Medicare prescription drug “doughnut hole” so people on Medicare will no longer be required to pay the full cost of their medications (81%);
  • Create health insurance exchanges where small businesses and people can shop for insurance and compare prices and benefits (80%);
  • Provide financial help to low- and moderate-income Americans who don’t get insurance through their jobs to help them purchase private coverage (80%);
  • “Cost-sharing reduction” payments to reduce deductibles and copayments for low-income Americans (60%);
  • Give states the option of expanding their existing Medicaid program to cover more low-income, uninsured adults (80%)
  • Prohibit insurance companies from denying coverage because of a person’s pre-existing conditions (69%); and
  • Require employers with 50 or more employees to pay a fine if they don’t offer health insurance (60%).

Source: nonpartisan Kaiser Health Tracking Poll, Nov. 2016.

In addition, many of the nation’s governors are concerned about provisions of the House-passed bill that would phase-out the ACA’s Medicaid expansion and place tight caps on all Medicaid payments to States–cutting federal Medicaid payments by more than $800 billion over 10 years.

The Senate GOP Health Task Force drafting the Senate alternative bill includes: Majority Leader McConnell and three other members of the leadership, Senators Cornyn, Thune, and Barasso; three committee chairmen, Senators Hatch (Finance Comm.), Alexander (HELP Comm.), and Enzi (Budget Comm.); conservative Senators Cruz, Lee, and Cotton; and several Senators from States that have expanded Medicaid coverage — Senators Gardner, Portman, and Toomey.

Link to our Healthcare Reform webpage for details of the House bill and current law and our Blog on CBO’s Cost Estimate

Debt Ceiling: Financial Groundhog Day

On March 15, 2017, by earlier agreement, the Statutory Limit on the Public Debt was automatically re-set to the level of federal debt on that day.

Despite the new debt ceiling, Treasury has been able to meet legal requirements for redemption of bonds, payment of benefits, and payments to contractors by managing cash flow and dis-investing certain Federal trust funds (sometimes called “extraordinary measures.”)

These measures can pay the bills through mid-summer, but the Treasury Department is projecting that Congress must raise the debt ceiling before departing for August Recess, or the U.S. could face a catastrophic default.

As reported by Congressional Quarterly, there is internal dissension in the Administration, with Treasury Secretary Mnuchin requesting a “clean” debt ceiling, and OMB Director Mulvaney suggesting the debt ceiling could be used as a vehicle to force spending reforms. The House Freedom Caucus and Ways & Means Committee Chairman Brady are siding with Mulvaney, and House Speaker Ryan is considering which approach will garner enough votes for passage.

A similar debt ceiling impasse in 2011 took the Treasury to the brink of default, and eventually led to enactment of the Budget Control Act, which placed tight (and unsustainable) spending caps on defense and non-defense discretionary spending for each year through 2021. These “sequester caps” on spending are widely regarded as a major blunder, and the caps were subsequently loosened by bipartisan legislation in 2013 and again in 2015.

Bottom line: a U.S. default would have grave consequences for the nation and the global economy.  Treasury must have the ability to honor financial commitments to our citizens and holders of U.S. bonds. Congress should either use a filibuster-proof Reconciliation bill to pass a clean debt ceiling or repeal the debt limit altogether. A great nation does not repeatedly threaten default. This financial “Groundhog Day” must end.  Link to FedWeb’s Debt Ceiling webpage for nonpartisan coverage.

House Votes to Roll Back Dodd-Frank;  Opponents Fear Risk of Financial Crisis

On June 8, 2017 the House voted 233-118, largely along party lines, to pass HR 10, a bill to repeal much of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  Dodd-Frank is aimed at preventing the types of practices that led to the 2008 financial crisis and the recession it triggered.

Outlook:  While the House action was party-line, Senate action must be bipartisan, because 60 votes are required to bring the legislation to a vote in the narrowly divided chamber (52-48).

Proponents of the House-passed legislation argue that implementing regulations have stifled economic growth, asserting that small banks have been unable to provide credit due to costly regulatory compliance. Opponents argue that repealing Dodd-Frank would unleash the same behavior on Wall Street that led to the 2008 financial crisis.

On June 6, the Administration released a statement endorsing the legislation, highlighting provisions that “affirm the President’s authority to remove the Director of the Consumer Financial Protection Bureau (CFPB) at will.”

Key provisions of the legislation would:

  • repeal the Orderly Liquidation Authority for winding down large failed banks, instead opting for conventional bankruptcy proceedings;
  • replace regulations with enhanced penalties for fraud and deception;
  • roll back independence of the Consumer Financial Protection Bureau (CFPB) by making funding subject to annual appropriations and affirming the President’s authority to remove the CFPB Director;
  • repeal the “Volcker Rule” which bars federally insured commercial banks from trading with depositor’s money;
  • increase congressional oversight of the Federal Reserve by making its bank supervisory functions subject to appropriations;
  • waive regulatory oversight of banks that choose to maintain $1 of equity capital for every $10 in assets; and
  • repeal the Labor Department’s fiduciary rule, a requirement that broker-dealers put clients’ interests ahead of their own when providing retirement advice.

Link to FedWeb’s Financial Regulation Webpage for continuing coverage.

October  Shutdown and Healthcare Timing Cast Shadow over FY 2018 Budget 

With the President’s FY 2018 Budget transmitted to Congress late last month, work begins on an FY 2018 Congressional Budget Resolution, albeit with two major complications:

  1. Timing Problem:  Before the GOP can use an FY 2018 filibuster-proof Budget Reconciliation process to advance tax and entitlement reforms, the FY 2017 Reconciliation process, which is the vehicle for health care, must be completed–or abandoned.
  2. Shutdown Looms on October 1, 2017:  FY 2017 Appropriations for all federal departments and agencies expire on September 30, 2017.  The FY 2018 Budget Resolution will set total discretionary spending levels for the House and Senate Appropriations Committees to allocate among the 12 annual appropriations bills. (See our comprehensive Appropriations Portal). However, there are deep disagreements on what the defense and non-defense discretionary levels should be.

50 Votes vs. 60 Votes: The annual Budget Resolution can advance tax and entitlement reforms with 50 votes in the Senate, due to the filibuster-proof budget reconciliation process. However, appropriations bills require 60 votes — and bipartisan support — in the narrowly divided Senate (52-48).

The latter point — 60 votes for appropriations — is particularly important because Democrats and Republicans strongly disagree on the defense and non-defense statutory spending caps for FY 2018 that were put in place by the 2011 Budget Control Act (BCA).

For the last four fiscal years (FY 2014 – 2017), Congress has — on a bipartisan basis — raised the defense and non-defense spending caps, to accommodate budgetary requirements.

However, for FY 2018, the Trump Administration, with support of congressional fiscal conservatives, proposes to keep the BCA’s overall spending levels for FY 2018 in place, but would shift $54 billion from domestic (and other non-defense programs) into the defense budget.

Democrats and a considerable number of congressional Republicans (especially Appropriations Committee Members) oppose the proposed domestic cuts. With bipartisan agreement required to move ahead with appropriations bills (and to modify the BCA’s defense and non-defense spending caps), another government shutdown in October — similar to the 2013 shutdown — looms unless a bipartisan agreement can be reached or a stop-gap continuing resolution is passed.

Another Bipartisan Budget Act?  Eventually Republicans and Democrats may resolve the appropriations stand-off with a new Bipartisan Budget Act — similar to 2013 and 2015 — which raised the defense and non-defense caps by equal amounts.  But it may take a lengthy shutdown for the two sides to reach this point. Notably, President Trump and OMB Director Mulvaney have both indicated they would welcome a shutdown.
Appropriations Portal
Background on Government Shutdown
Programs proposed for Elimination or Reductions by Trump Budget

No Plan for Tax Reform;  Infrastructure Investment without the Investment

No Tax or Infrastructure Plans: The prospects for tax reform and a 10-year “trillion dollar” infrastructure initiative this year received a major setback when the President’s FY 2018 Budget, released on May 23, 2017, contained no detailed tax plan and no appropriation request for infrastructure investment.

For tax reform, the President’s Budget simply reiterated the short list of principles laid out in the April 26, 2017 one-page outline of “2017 Tax Reform for Economic Growth and American Jobs.”  No detailed revenue estimates were provided — which is highly unusual for an Administration Budget. Tax Reform Webpage

If a tax plan is eventually completed and transmitted to Congress, the tax cuts must be deficit neutral or expire in 10 years. Reason: using the filibuster-proof Budget Reconciliation process means the tax legislation must comply with the Senate’s Byrd Rule which prohibits any deficit increases beyond the 10-year budget window.  Therefore, the cost of the tax cuts will have to be fully offset, or the tax cuts will have to expire after 10 years – similar to the 2001 Bush tax cuts. 
See Reconciliation and the Byrd Rule

Infrastructure Investment without the Investment

For infrastructure, the President’s Budget states, “while the Administration will propose additional funding for infrastructure, those funds will be focused on incentivizing additional non-Federal investments.” The Budget then claims a 10-year investment of “$200 billion in outlays related to the infrastructure initiative” but this turns out to include only $5 billion in FY 2018 — and does not include a specific appropriation request.  This is an “infrastructure investment” without the investment. Infrastructure Webpage  President’s Budget