Update-Outlook

Washington Update and Outlook

(Latest news in red)

Welcome to FedWeb’s newest feature: WASHINGTON UPDATE & OUTLOOK.  On this page, you will find the latest developments – nonpartisan and factual – on Federal Spending (and Potential Shutdowns), Health Care, Tax Reform, Infrastructure, Economy, Debt Ceiling, Budget, Regulatory Rollback, Congress, and all things Federal.

2017 Spending / Possible Govt Shutdown:  According to Politico (4/24), President Trump may be willing to delay a fight over border wall funding until September in order to avoid a shutdown.  Stopgap funding for federal agencies (“continuing resolution”) expires at midnight April 28, 2017, at which time most of the government will shut down unless Congress passes appropriations for the remainder of FY 2017 or passes another stopgap continuing resolution (CR). (Only military construction and veterans programs have been funded through the end of FY 2017.)  Appropriations bills require 60 votes in the Senate (to bring debate to a close or to adjust spending caps), so bipartisan negotiation is essential.

Key open issues include: (1) the President’s request for $30 b in supplemental defense spending; (2) $1.4 b in supplemental border security funding for extension and enlargement of the US-Mexico border wall/fence, although the White House may be willing to put this off to September; (3) Budget Director Mulvaney’s request that language be included blocking federal grants to “sanctuary cities”; (4) funding sought by Democrats to continue Obamacare cost-sharing reduction subsidies; and (5) funding sought by Democrats to fix a shortfall in health care funding for retired coal miners. Link to Spending Webpages.

Health Care:  House GOP is attempting to revive legislation to repeal-and-replace Obamacare. A revised GOP repeal-and-replace plan would allow States to opt out of the requirements to cover all persons with pre-existing conditions and provide essential health benefits — both of which could be draw opposition from GOP moderates in the House and the Senate. If the legislation manages to pass the House, it would be considered in the Senate under the filibuster-proof Budget Reconciliation process requiring only 50 votes for passage. However, the filibuster-proof protections come with an important requirement: the Senate’s Byrd Rule allows only “budgetary” provisions in a Reconciliation Bill; therefore, provisions aimed at private health insurance that do not impact Federal outlays may violate the Byrd Rule.

House Speaker Paul Ryan (R-WI) withdrew the previous version of 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, and the $880 billion in tax cuts paired with the $883 billion in Medicaid cuts. Link to Healthcare Webpage for more details.

FY 2018 Budget: Administration Proposes Major Shift in Priorities;  Congressional Budget Resolution to Launch Tax Reform:  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.  Projected outcome: another Bipartisan Budget Act. similar to 2013 and 2015, that makes equal upward adjustments in the defense and non-defense spending caps – therefore, more money for nondefense programs, not less.  Link here to Defense Webpage and Non-Defense Discretionary Webpage.

Congress will soon begin work on an FY 2018 Budget Resolution (a congressional outline of spending, revenue, and deficit levels for the next 10 years).  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: Administration may release a tax reform outline on April 26.  Reportedly, it will include a reduction of the corporate rate to 15%, estimated by Tax Policy Center to cost $2.4 trillion in the first 10 years and $3.5 trillion in the second 10 years (violating the Senate’s Byrd Rule).  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).

Contrary to recent claims, passage of the healthcare legislation would not create savings that can be spent on tax reform. The only interaction of health care and tax reform is that failure of the repeal-and-replace bill might lead GOP leaders to attempt to repeal the Obamacare taxes in the tax reform bill, which would actually make tax reform more difficult by increasing the amount of revenue losses requiring offsets.  

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 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 the U.S. 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, annual 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.

International Trade:  Trump Administration has imposed tariffs (up to 24%) on five Canadian lumber firms exporting to the U.S..  U.S. lumber companies argue that Canadian firms benefit from unfair government subsidies — a point of contention going back to the 1980s.  The tariffs are preliminary; a final determination will be made in September. The tariffs were imposed after trade talks with Canada on dairy products collapsed. International Trade and Finance Issues for the 115th Congress

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. In order to be eligible for the “fast track” procedures for Senate consideration, that body has to act on a disapproval resolution during a period of 60 days of Senate session which begins when the rule is received by Congress and published in the Federal Register.  If a joint resolution of disapproval is enacted, the CRA provides that a rule may not be issued in “substantially the same form” as the disapproved rule unless it is specifically authorized by a subsequent law.  The CRA does not define what would constitute a rule that is “substantially the same.”  In addition, the CRA prohibits judicial review of any “determination, finding, action, or omission under this chapter.”

Major regs written by the Obama Administration, and overturned by Congress and the new Administration, would have: (1) required energy companies to disclose payments to foreign governments; (2) limited pollutants from coal mines into local streams; (3) prevented people at risk of self-harm due to mental illness from buying firearms; (4) required federal contractors to comply with fair pay and worker safety laws; (5) required employers to keep records of worker injuries and illnesses; and (6) prevented broadband internet providers from requiring consumers to share private information. Link to Regs Webpage.

Congress:   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.