Disaster/CR/Debt Bill Postpones Fiscal Cliff to Dec. 8, 2017
On Sept. 8, 2017 President Trump signed HR 601, an emergency measure negotiated with congressional Democratic leaders, and passed by the Senate 80-17 and by the House 316-90 (all the “no” votes being Republican). The bill has four components:
1. Provides $15.25 billion in emergency supplemental appropriations for Hurricane Harvey and other disasters, including $7.4 billion for the FEMA Disaster Relief Fund (passed a day before FEMA’s disaster funds would have been exhausted), $450 million for the Small Business Administration Disaster Loan Program, and $7.4 billion in Community Development Block Grant funding for areas most affected by the 2017 disasters;
2. Extends the National Flood Insurance program, which was due to expire September 30, to December 8, 2017;
3. Suspends the debt ceiling through December 8, 2017, temporarily avoiding a Treasury default on U.S. obligations; and
4. Provides continuing appropriations (effectively, a “continuing resolution”) to fund the federal government at current FY 2017 levels through December 8, 2017, avoiding a federal shutdown when the new fiscal year begins October 1.
While the measure provides much-needed emergency disaster relief, the “fiscal cliff” has only been postponed until December 8th, when a federal shutdown and economically catastrophic default faces the nation absent bipartisan agreement on spending levels and the debt ceiling – both requiring 60 votes in the Senate.
(The exact date of a default crisis will depend on Treasury’s cash balances on December 8 and the timing of government spending on disaster relief.)
Tax Cuts MUST be Preceded by Adoption of a Congressional Budget Resolution
The Administration and Republican leaders are aiming to pass a Republican-only tax cut bill by using the filibuster-proof Budget Reconciliation process (that requires only 50 votes for passage in the Senate). However, passage of an identical FY 2018 Congressional Budget Resolution by both chambers is a prerequisite to launching a Tax Reconciliation Bill.
House Budget Committee passed a draft Budget Resolution in July. In a politically risky move, the Committee’s budget plan would link tax cuts to substantial entitlement cuts – placing both in the same Reconciliation Bill. It remains unclear if the House Committee’s budget plan has enough GOP votes to pass the full House.
Senate Budget Committee has not yet scheduled a mark-up to draft a Budget Resolution.
Outlook: Genuine tax reform is immensely complicated — both technically and politically — and historically has required a sustained bipartisan effort, as in 1986. The decision to advance a one-party bill, reflects an effort likely to focus on business tax rate cuts rather than broad reform. But even that more limited objective cannot advance unless Congress first adopts an FY 2018 Budget Resolution.
Avoiding a December Federal Shutdown Requires Bipartisan Action to Raise Defense & Domestic Spending Caps
FY 2017 appropriations expire on September 30, 2017, the last day of the fiscal year. Last week’s emergency bill will continue federal funding at current levels through December 8, 2017 — at which time federal agencies will have to shut-down unless FY 2018 appropriations bills or another continuing resolution “CR” are enacted.
“Placeholder bills” for FY 2018 have been marked up by the Appropriations Committees and 4 bills (Defense, Energy-Water, Mil Con-VA, and Leg. Branch) passed the House in July and are expected to be combined with the remaining 8 bills. However, these placeholder bills will not become law – because Republicans and Democrats have yet to negotiate total FY 2018 spending levels for the (1) Defense and (2) Non-Defense Discretionary (NDD) overall spending categories.
Appropriations measures require 60 votes in the Senate and, therefore, bipartisan agreement in the closely divided Senate (the GOP has a slim 52-48 majority).
The Budget Control Act of 2011 placed spending caps on Defense and Non-Defense Discretionary (NDD) appropriations for each year through FY 2021. However, since 2013, Republicans have generally wanted to increase the Defense caps, while Democrats have wanted higher NDD caps. Consequently, the Bipartisan Budget Act of 2013 increased the defense and non-defense caps for FY 2014 and 2015; and the Bipartisan Budget Act of 2015 increased the caps for FY 2016 and 2017.
Many Republicans and Democrats agree the caps should again be adjusted — for FY 2018 and 2019. In fact, the House has already passed Defense appropriations that far exceed the statutory Defense cap — and would trigger automatic “sequestration” cuts if enacted. However, deep partisan disagreements over healthcare, paying for a U.S.-Mexico border wall, and other hot-button issues have delayed the start of bipartisan negotiations on increasing the spending caps. The Administration’s announced intention to roll back DACA (Deferred Action for Childhood Arrivals) has further complicated impending negotiations.