UPDATE: Appropriations, ’18 Budget, ACA, Debt Ceiling, CBO

House to Advance Appropriations “Minibus”

This week House leaders are hoping to bring to the Floor an appropriations “minibus” that combines 4 bills: Defense; Energy-Water; Legislative Branch; and Military Construction-VA.

A last minute effort by some Members to combine all 12 bills into an omnibus measure appears to have failed.

Regardless of the outcome, the minibus or omnibus measure is largely a political exercise and a procedural placeholder.  All appropriations bills will have to be revised following bipartisan negotiations to re-set overall funding levels for FY 2018 defense and non-defense discretionary spending.  Neither Republicans nor Democrats are willing to live with the current spending caps that require cuts below FY 2017 levels for both defense and non-defense spending.

Negotiations on revised caps have not yet begun and a government shutdown is possible on October 1, 2017 if negotiations do not proceed swiftly in September.

In the meantime, here is the status of defense and non-defense spending (in billions of dollars):

Defense (base funding):  $551b appropriated for FY 2017 (without war funding); the statutory cap is $549b; Administration requested $603; House placeholder bill provides $621.5b; and the Senate bill is at the $551b cap level.

Non-Defense:  $518.5b appropriated for FY 2017; the statutory cap is $515.4b; Administration requested deep cuts to $462b; House placeholder bills restore most cuts, providing $511b; and the Senate is at the $518.5b cap level.

Understanding the Caps:  The statutory defense cap includes funding in the Defense appropriations bill, as well as defense-related funding in the Energy-Water and Mil Con-VA bills. Additional defense funding is appropriated outside of the statutory cap through “Overseas Contingency Operations.”   Most cap-exempt-OCO funding goes to the Defense Department, but some goes to State and other agencies.

Health; Debt Ceiling; U.S. Democracy

Health Reform: For late-breaking Senate developments on health reform and links to bill language and updated CBO estimates see our Health Reform webpage.

Debt Ceiling: House is likely adjourning for August recess at the end of this week without acting on the debt ceiling.  CBO reported in late June that “if the debt limit remains unchanged…the Treasury will likely run out of cash in early to mid-October—leading to delays of payments for the government’s programs and activities, a default on its debt obligations, or both.”

FedWeb has launched a new page U.S. Democracy with nonpartisan explanations and analysis of the constitutional separation of powers, limits on presidential authority, checks and balances, and related issues.

House Budget Committee FY 2018 Budget: Deep Cuts to Low-Income, Domestic Programs; No New Infrastructure Spending

The FY 2018 Budget Resolution passed the House Budget Committee (HBC) July 19, 2017 on a mostly party-line vote 22-14.  However, doubts about the budget plan passing on the House Floor were expressed by Freedom Caucus chairman Mark Meadows due to concerns of conservatives about a possible Border Adjustment Tax (eliminating corporate deductions on imports) to pay for tax rate cuts.

Highlights and analysis of the HBC budget plan:

  • Medicaid Cuts: HBC budget proposes $1.5 trillion in Medicaid and other health programs over 10 years.  Medicaid is the joint federal-state health coverage program for low-income elderly, families, and disabled Americans.  FedWeb Medicaid page
  • Medicare Cuts: HBC plan proposes Medicare reductions of $487 billion over 10 years.  FedWeb Medicare page
  • Unspecified Cuts in Other Entitlement Programs:  HBC budget calls for $2.5 trillion over 10 years in unspecified entitlement cuts; reductions of this size would likely impact food stamps (SNAP) and child nutrition programs, Earned Income (EITC) and Child Tax Credits, Supplemental Security Income (SSI), Temporary Assistance to Needy Families, Pell Grants and student loans, and federal retirement programs. FedWeb entitlements page
  • Sharp Increases in Defense: HBC budget calls for a 13% ($72 b) single year increase in defense spending above the statutory cap level for FY 2018, and $929 billion in increases over 10 years.  Ironically, these sharp increases come at a time when the Administration is calling for allies to carry more of the defense burden. (The U.S. currently spends more on defense than the next eight countries combined — China, Russia, Saudi Arabia, India, France, UK, Japan, Germany).  FedWeb Defense page
  • Cuts in Non-Defense Discretionary (NDD):  HBC budget calls for $1.3 trillion in cuts to non-defense discretionary programs over 10 years. (Non-defense discretionary spending includes  government functions such as law enforcement, veterans’ healthcare, homeland security, education, disease and epidemic control, infrastructure, food and drug inspection, disaster relief, and health research.)  By 2027, total NDD would be 44% below 2010 spending levels after adjusting for inflation and, as a percent of the economy, spending on domestic discretionary programs would be at the lowest level since before the Depression.  FedWeb NDD page
  • No New Infrastructure Investment:  HBC budget plan proposes no new federal funds over the next 10 years for infrastructure investment.
  • Tax Cuts:  HBC budget promises tax cuts will be fully paid for by repealing unspecified current deductions and credits.  If the House GOP tax plan released in 2016 is used as a template for the proposed tax cuts, 96% of the cuts would go to households with incomes over $1 million once the tax plan is fully phased in, according to the nonpartisan Tax Policy Center.  HBC budget plan proposes to combine the tax cuts and entitlement spending cuts into a single Reconciliation bill,which could jeopardize the tax cuts.
  • Dubious Deficit Claims: HBC budget, in total, calls for $5.8 trillion in deficit reduction over 10 years, however, most of the budget savings are dubious:
    Rosy Scenario:  $1.5 trillion is claimed from assuming economic growth rates significantly higher than the nonpartisan CBO which uses an average of private sector projections.
    Entitlement Cuts “Assumed” but not required:  HBC budget “assumes” $2.5 trillion in non-health entitlement cuts but requires congressional committees to report legislation making less than 10% of the cuts ($203 billion over 10 years).
    $1.3 trillion in unspecified non-defense discretionary cuts are assumed.
    $700 billion in budget savings is assumed from setting up a commission to look for ways to reduce improper Medicare, Medicaid, and EITC payments.
  • Is Balanced Budget the right goal?  Aside from the validity of the claimed budget savings, there is also considerable disagreement on whether a “balanced budget” is even the correct economic goal:First, the federal government irrationally lumps together operating costs and long-term investments in a single “unified budget.”  State governments, by contrast, separate ongoing expenditures and long-term investments into separate operating and capital budgets. If States included spending for roads, bridges, and schools in a single unified budget, together of annual operating expenses, they would never achieve the “balanced budgets” most States are required to adopt.Second, even if the federal government’s operating expenses were separated from long-term investments, the balancing of every annual operating budget may not be the correct goal. Accumulated federal debt as a percent of GDP and annual interest payments are more meaningful metrics. (Annual interest payments are projected to exceed $800 billion by 2027.)
  • Bottom-line:  Public debt as a percent of GDP is rising dangerously and a long-term debt stabilization plan is necessary for our nation’s stability. At the same time, equally important are preservation of the social safety net, affordable medical care for all citizens, long-term investment in infrastructure, student loan relief, and economic relief for the middle class. Developing a long-term plan to accomplish all of these goals in a fair and balanced manner requires a serious bipartisan effort.  The Domenici-Rivlin and Simpson-Bowlesplans of 2010 both demonstrate that bipartisan comprehensive plans can be achieved when policymakers set aside ideology and put the nation ahead of partisan politics.

Former CBO Directors Reject Criticism of Nonpartisan Agency

All eight of the former CBO directors have signed a July 21, 2017 letter to Congressional Leaders expressing their strong objection to recent attacks on the integrity and professionalism of CBO and urging Congressional leaders to maintain and respect the Congress’s decades-long reliance on CBO’s estimates in developing and scoring bills.  

Congressional Quarterly reports that Rep. Morgan Griffith (R-VA) has proposed an appropriations amendment that would gut the nonpartisan agency — eliminating 89 employees. Griffith and other Members are complaining due to CBO’s nonpartisan estimates of increases in uninsured Americans resulting from proposed cuts to Medicaid and limiting health insurance subsidies.