What You Need to Know About Senate’s Budget-Tax Resolution and Complex Year-End Spending Negotiations

UPDATED Oct. 20:  Senate passes Budget Resolution

  • Senate passed a budget resolution (S.Con.Res. 25) late October 19 on a party-line 51-49 vote (except for Sen. Rand Paul (R-KY) voting no).  Here’s what you need to know:
  • Adoption of a concurrent resolution on the budget for FY 2018 by the House and Senate is an essential step to launch the filibuster-proof Budget Reconciliation process to advance a Republican-only tax bill.
  • A Reconciliation tax bill will require 50 votes for passage in the Senate, rather than 60 votes. (By contrast, the 1986 Tax Reform legislation had broad bipartisan support, so a filibuster-proof 50-vote threshold was not a concern.)
  • There are several key differences between the Senate-passed and House-passed resolutions (although House leaders are hoping they can secure the votes to pass the Senate version or something close to it):
    • The GOP tax framework is estimated to cost 2.4 trillion over the first 10 years, and $3.2 trillion over the second decade according to the nonpartisan Tax Policy Center. The House-passed Resolution would not attempt to pay for the tax cuts, claiming the cuts will pay for themselves, although historical evidence is to the contrary. The Senate plan would pay for some of the tax cuts, but add a net $1.5 trillion to the public debt. However, under either approach, tax cuts that are not paid for will have to expire at the end of 10 years due to the Senate’s Byrd Rule which does not allow Reconciliation bills to increase the debt beyond the 10-year budget window.  Moreover, the $1.5 trillion cost in the first 10 years will trigger automatic cuts in entitlement programs under the PAYGO statute, unless the GOP waives the PAYGO budget law as it did to enable the Bush tax cuts.
    • The House plan, which passed October 5th, would include $203 billion in controversial entitlement cuts in the tax bill; the Senate plan would not. Speaker Ryan has acknowledged that linking entitlement cuts for low-income Americans to tax cuts is an unlikely outcome.
    • The Senate plan includes a Reconciliation instruction aimed at clearing the way for legislation to open Alaska’s Arctic National Wildlife Refuge (ANWR) to gas and oil drilling.
  • If the House does not pass the Senate version, the two chambers will need to negotiate and pass a compromise version. Senate adoption of a Budget Resolution requires only 50 votes and does not require presidential signature.
  • Neither budget plan resolves the key issue of raising the FY 2018 Defense and Non-Defense spending caps, which is the key political and policy issue facing Congress for the remainder of the year. The Budget Resolution is supposed to set final discretionary spending levels for FY 2018, but the GOP leadership is punting this issue to bipartisan negotiations later this Fall – because the tax bill can be launched, now, with 50 votes, whereas negotiating discretionary spending levels will require lengthy and complex bipartisan negotiations.
  • Both budget plans could add trillions to the public debt by failing to include offsets to fully pay for the tax cuts or to pay for increases in defense spending. The “balanced budget” claims of both budget plans are based on unenforceable and undetailed projections of massive cuts to domestic spending programs (and in the House, inflated projections of economic growth). The Senate plan calls for more than $5 trillion in non-defense spending cuts over 10 years including cuts of $473 billion in Medicare and more than $1 trillion in Medicaid cuts – although these cuts would not be enforced through Budget Reconciliation.
  • The Committee for a Responsible Federal Budget estimates the GOP tax plan, alone, would increase Debt Held by the Public to more than 100% of GDP by 2027.
  • Distribution of the Tax Cuts advanced by the Budget Resolution: In their preliminary analysis, the nonpartisan Tax Policy Center estimates that under the new tax structure, in 2018, 50% of the total tax benefit would go to the top 1 percent, increasing to 80% of the total benefit by 2027.
  • FedWeb Budget Resolution Page
  • FedWeb Tax Reform Page

Complex end-of-year negotiations could address Spending Caps, CSR payments, DACA/border security, CHIP, Health Centers, Disaster Aid, Debt Ceiling

  • State of play: Avoiding a December federal shutdown requires bipartisan action by December 8, 2017.
  • FY 2017 appropriations expired on September 30, 2017, the last day of the fiscal year. The September 8, 2017 emergency bill continues 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.
  • Negotiating new Defense and Non-Defense caps: On September 14, 2017, the House passed an omnibus appropriations measure, but it is only a placeholder. The House bill combined the 12 regular appropriations bills passed by the House Appropriations Committee. However, these “placeholder bills” will not become law – because Republicans and Democrats have yet to negotiate overall spending levels for the (1) Defense and (2) Non-Defense Discretionary (NDD) spending categories. FedWeb Appropriations Portal
  • Background on spending caps: The Budget Control Act of 2011 set statutory caps on Defense and Non-Defense Discretionary spending for each year through 2021. However, the Bipartisan Budget Acts of 2013 and 2015 increased the defense and non-defense caps for the last four fiscal years. A similar bill could increase the caps for FY 2018 and FY 2019, although 60 votes (bipartisan agreement) are required in the Senate to raise the caps.
  • Items that could be rolled into bipartisan end-of-year spending bill negotiations:
    • New Defense and Non-Defense Spending Caps for FY 2018 and 2019;
    • Disaster funding for Texas, Florida, Puerto Rico, California, Virgin Islands—complicated by calls from some in the GOP to offset disaster funding with cuts to ongoing domestic programs;
    • Restoring ACA cost-sharing reduction payments (see article below);
    • DACA extension (protecting from deportation illegal immigrants who arrived as children) — probably linked to an increase in border security funding, although Democrats oppose funding for a border wall;
    • Funding for Community Health Centers (serving 27 million Americans in rural and urban communities) – lapsed Sept. 30. CRS report;
    • Funding for Children’s Health Insurance Program (serving nearly 6 million children) – lapsed Sept. 30;
    • Debt Ceiling: It is possible that an end of year bill could also increase the debt ceiling. The bipartisan Sept. 8 emergency bill suspended the debt ceiling through December 8, 2017, temporarily avoiding a catastrophic Treasury default on U.S. obligations. FedWeb Debt Ceiling Tracker

Trump scraps ACA subsidies risking fewer insured, higher premiums, increased deficits; Alexander-Murray agreement to restore subsidies

  • President Trump last week announced his intention to terminate ACA cost-sharing reduction (CSR) payments to insurance companies. The payments were enacted to reduce patient deductibles and copays for low-income enrollees (100-250% of the poverty level).
  • The nonpartisan Congressional Budget Office projects that terminating the payments will result in some insurers withdrawing from ACA health insurance exchanges (thereby reducing coverage), while others would raise premiums to cover the subsidy costs. Increased premiums would, in turn, increase federal subsidy payments to individuals, increasing the federal deficit by a net $194 billion over 10 years. In short, fewer insured, higher premiums, and increased deficits.
  • New Development: Politico reports that Senators Alexander and Murray have reached agreement on a bipartisan bill to restore CSR payments and provide states flexibility to approve insurance plans with “comparable affordability” to Obamacare plans.

Disaster Aid Advances

  • The House passed a $36.5 billion emergency aid package (HR 2266) last Thursday, October 12. The bill would provide more money for disaster relief, ease the shortfall in the federal flood insurance program, provide assistance to Puerto Rico, and replenish an account used to combat wildfires. CBO cost estimate.  The bill is awaiting Senate action, probably the week of October 23.