The federal government borrows money by issuing bonds.  About one-third of that debt is held within the government, by the Social Security Trust Fund.  Of the rest of the debt, nearly one-half is held by foreign governments; the remainder by corporate, pension fund, and other private financial interests.  The U.S. Treasury borrows enough to fill the gap between revenues collected and obligations to spend (that is, the deficit).  Despite the fact that Congress approves federal spending, it separately sets in statute limits on how much the federal government can borrow.

If the federal government hits up against the statutory ceiling on debt and Congress refuses to raise it, the federal government would not be able to spend more than the revenues it takes in each month.  H.R. 807 sets priorities for which bills to pay, placing bondholders at the front of the line.  Those who have bought U.S. bonds would be paid their principal and interest, and the Treasury would be authorized to exceed the limit on borrowing if necessary to prevent any default on bonds.  The bill was amended to add federal bonds held by the Social Security Trust Fund to its “must-pay” list.  By prioritizing repayment of funds borrowed by the federal government from the Social Security Trust Fund, it would make it make it possible to keep paying Social Security benefits without interruption.

H.R. 807 would not prevent the federal government from reneging on its other funding commitments, however, if the debt ceiling were not raised by Congress.  This legislation would in effect re-set the priorities established by Congress when it passes any legislation related to funding.  Bondholders and Social Security come first; everything else government does, from Medicaid to transportation to nutrition aid, is funded in part or not at all.

The Obama Administration issued a statement promising to veto this legislation if it made it to the President’s desk.  The Democratic leadership in the Senate has also voiced opposition.  However, Senator Pat Toomey (R-PA) previously introduced the Ensuring the Full Faith and Credit of the United States and Protecting America’s Soldiers and Seniors Act (S. 46) which he will seek to move as a stand-alone bill or attached to other legislation.  It has three items on its “must-pay” list – bondholders, Social Security bonds and beneficiaries, and military salaries.  As with H.R. 807, the Treasury would be allowed to borrow, even if it exceeds the existing debt ceiling, in order to pay these obligations.  The Senate Democratic caucus is not expected to support this legislation either.

There is reason to doubt that continuing to pay bondholders and a few powerful constituencies will end the risk to U.S. fiscal stability if Congress refuses to allow borrowing to pay its other bills.  When Standard and Poor’s downgraded the federal credit rating in 2011, it did so because it felt the stalemate that left us uncomfortably close to default made the federal government “less stable, less effective and less predictable” in its financial management.  New cliff-hanging negotiations threatening massive non-payment of bills and salaries will not be seen as a boon to stability and predictability.

The post CHN: Choosing Which Federal Debts to Honor; House Passes Bill to Protect Only Bondholders, Social Security If Federal Borrowing Authority Expires appeared first on Coalition on Human Needs.

The furloughs of air traffic controllers were the result of sequestration, the across-the-board automatic cuts triggered when Congress was unable to agree on a more sensible plan for deficit reduction.  The sequester was meant to be a thoroughly unappealing means of cutting about $1.2 trillion through FY 2021, with cuts equally assigned to the Pentagon and to domestic programs.  Initially set to kick in on January 1, 2013, Congress replaced the first two months of these cuts in hopes of a last ditch effort to come up with an alternative.  Enough Republicans decided they could tolerate the military cuts, so no deal, and sequestration took effect at the beginning of March.  (For background on sequestration, see Senseless Cuts Begin in the March 4, 2013 Human Needs Report.)

The President and Congressional Democrats continued to call for a comprehensive replacement of the sequestration cuts. Senate Majority Leader Reid (D-NV) offered legislation in the week before recess to stop the FY 2013 cuts, paying for them with savings from ending the Iraq and Afghanistan wars.  But a bipartisan group of Senators abandoned the call for a comprehensive solution to carve out the airport fix.  The bill passed in the Senate was sponsored by Senator Susan Collins (R-ME), with 15 co-sponsors including six Democrats (Begich-AK, McCaskill-MO, Nelson-FL, Rockefeller-WV, Udall-CO, and Warner-VA).  Similar legislation had been previously co-sponsored Senators Klobuchar (D-MN) and Hoeven (R-ND).  The Administration caved too:  spokesman Jay Carney told reporters that the President would “be open to looking at” separate legislation to allow the FAA to move money around to end the furloughs.

In passing legislation that let the FAA spend less on infrastructure improvements and shift those funds to pay the air traffic controllers, Congress was coming closer to the approach of a number of Republican-sponsored bills.  S. 799, co-sponsored by Senators Inhofe (R-OK) and Toomey (R-PA) would give the Obama Administration until May 15 to come up with alternative cuts for all of sequestration, but would not reduce the total amount to be cut.  The White House and Senate Democrats have strongly opposed this approach, saying that it is impossible to cut $85 billion in this fiscal year without doing harm, and sparing some programs will only result in even more unacceptably deep cuts in others.  The FAA could choose to put off building projects, even though that hurts jobs now and will constrain economic growth in the future.  Most other programs do not have funds to invest in infrastructure, so this choice is not even an option.

In a minor footnote to Congress’ haste to adopt this legislation, a typo made it necessary for the bill to be taken up one more time for form’s sake in the Senate.  This occurred on April 30, and the bill is now on its way to the President’s desk.

While the President will sign this legislation, he has continued to point out the harm of allowing cuts to proceed for vulnerable children seeking Head Start and other programs that affect the health and life chances of hundreds of thousands of people.  But every time a powerful interest is able to carve out its own fix, the chance of getting agreement on ending sequestration is diminished.

The post CHN: Fear of Flying; Congress Fixes Waits in Airports but Lets the Poor Wait One More Year for Housing Vouchers appeared first on Coalition on Human Needs.

The House Goes Home for Christmas: Its Top Priorities: Slash Health Care, Nutrition, and Federal Pay, Raise Taxes on Working Families, Preserve Pentagon Spending, and No Fingerprints on Tax Increases Even for the Very Rich

If you are reading this, the world did not come to an end on December 21.  Congressional action did, though, at least through Christmas.  Despite predictions by Speaker Boehner (R-OH) and Majority Leader Cantor (R-VA) that there would be enough Republican votes for Boehner’s plan to raise tax rates on income over $1 million, their caucus rebelled.  Without enough votes for passage, Speaker Boehner cancelled the vote, and the House went home.  They might come back before New Year’s, if a deal can be put together to avert the spending cuts, tax increases, and loss of unemployment benefits for 2 million long-term jobless people that will mark the start of 2013.

The House did cast votes on Thursday evening.  They re-adopted a bill they had passed last spring, which replaced the $110 billion in automatic spending cuts scheduled to start January 1 with a large number of domestic cuts.  That bill went nowhere last spring, and the President and Senate Majority Leader Reid (D-NV) confirmed its fate will be the same now.  The new-old bill, The Spending Reduction Act of 2012 (H.R. 6684), passed 215-209, with no Democrats voting for it and 21 Republicans joining all 188 Democrats to oppose.

The bill was not originally part of Speaker Boehner’s plan for Thursday.  He had hoped there would be enough support to pass an amendment he called “Plan B”, continuing the current tax rates for everybody except millionaires, whose income tax rates would rise to where they were before the Bush tax cuts were enacted.  Because other favorable treatment for millionaires and multi-million dollar estates would remain, those with incomes over $1 million would still get tax cuts averaging $50,000 each.  Treatment of 25 million low-income working families with children was not so favorable – they would see their taxes rise by an average of $1,000 each.  (For more detail, see below.)  Even Grover Norquist, originator of the anti-tax pledge that has a stranglehold on most Republicans, said that passing Boehner’s “Plan B” would be okay, because it would be preventing a tax increase on everybody else.  But that wasn’t enough to gather the near-unanimity among Republicans necessary to pass Boehner’s bill with little or no Democratic support.

Republican House members either objected to raising any taxes on anyone, balked at passing something that did nothing to stop the looming Pentagon and domestic spending cuts, or both.  To mollify enough of them, the Speaker agreed to let the House vote again on the bill to replace the “sequester,” or automatic spending cuts.  In voting for this, the majority made its priorities clear.  The bill would eliminate all the $55 billion in Pentagon sequestration cuts in 2013 and would replace about $38.5 billion in across-the-board cuts to domestic appropriations, in part by substituting $19.1 billion in spending reductions to be achieved by lowering the total cap on appropriations for FY 2013.  Medicare cuts of about $16 billion that were originally included in sequestration would stay in place.   The money lost by stopping the Pentagon cuts and some of the domestic reductions would be made up (and then some) by more than $217 billion in cuts over 10 years  to SNAP/food stamps, Medicaid, premium subsidies and other funding for the new health care law, the Child Tax Credit, and several consumer protection measures.  It also raised nearly $88 billion in revenues over 10 years by requiring federal employees to pay more of their retirement costs.  (More details about these provisions below.)

But although the House passed these spending cuts, it did not win over enough Republicans to get a majority for the Plan B increase in millionaire tax rates.

So what’s next?  Despite repeated assertions on the House floor by House Budget Committee Chair Ryan (R-WI) and others that President Obama has not come out with specific spending cut proposals in his deficit reduction plan, the President has put forth several offers in his negotiations with Speaker Boehner.  The President’s most recent proposal includes tax cuts for everyone, but reduces the tax breaks at the top, for a new revenue total of $1.2 trillion over ten years, and cuts spending by $930 billion, plus another $290 billion in debt interest savings.  Some of the savings are highly controversial among Democrats (see below).  If a solution is to be found, either before or soon after the beginning of the new year, it appears less likely to be achieved by legislation that can draw majority Republican support in the House.  Another option – passing a plan in the House with bipartisan support (lots of Democrats and some Republicans.  It remains to be seen whether Speaker Boehner will exercise leadership in pressing for that, or leave it to others to work around him.  In announcing the House’s departure, the Speaker did not seem to be signing up for a renewed battle to win over his caucus.  Instead, he said “Now it is up to the president to work with Sen. Reid on legislation to avert the fiscal cliff.”

Taxes

Taxes were a major issue during the Presidential campaign with a focus on the ’01 and ’03 Bush-era income tax rates set to expire at the end of this year.  On November 14, newly off an election victory where he campaigned for higher taxes on incomes over $250,000 and with opinion polls solidly favoring his position, the President at his first post-election news conference reiterated his position on income tax rates and pressed for $1.6 trillion in revenue as part of a comprehensive deficit reduction deal.  Democrats were buoyed by the President’s approach.  Republicans had strongly resisted any increase in personal income tax rates but some conceded that the election results would likely mean rates for high-income taxpayers would go up.  Others pressed for no rate increases and instead talked in vague terms about tax reform that included closing unspecified tax loopholes and ending some tax deductions.  In return they also wanted deep cuts in spending.

The President presented a more detailed deficit reduction plan on November 29, outlining nearly $1.6 trillion in addition tax revenue over 10 years.   Tax rates for income of less than $250,000 would remain the same while the two top rates of 33 and 35 percent would revert back to 36 and 39.6 percent; the rate on capital gains would increase from 15 percent to 20 percent and dividends from 15 percent to the ordinary income tax rate; the maximum value of tax deductions would be lowered to 28 percent (someone in the 35 percent tax bracket can currently deduct up to 35 cents for every dollar in deductions) and additional limits would be placed on itemized deductions for higher-income taxpayers; and the estate tax would revert back from its current $5 million exemption level and maximum rate of 35 percent to its 2009 exemption level of $3.5 million and 45 percent maximum rate .  The tax package would also continue the expansions made in the 2009 economic recovery act to the refundable Child Tax Credit and Earned Income Tax Credit (EITC) for low-income working families; extend for one year the 2 percent payroll tax cut for individuals; provide a one-year fix to the Alternative Minimum Tax (ATM), keeping new taxpayers from being hit with an average income tax increase of $2,250 according to the Tax Policy Center; and extend a number of business tax breaks.

In response to the President’s plan Speaker Boehner, the Republicans’ lead negotiator in deficit reduction talks with the President, offered $800 billion in revenue through limiting tax expenditures in tax reform that would occur next year.  His plan did not specify which tax expenditures would be limited.  Many of the most costly expenditures in terms of lost revenue are very popular and have powerful lobby shops supporting them, for example the home mortgage interest deduction, making them politically difficult to reduce significantly.

Under earlier House Republican tax proposals and plans proposed by Speaker Boehner, the 2009 improvements in the Child Tax Credit and EITC would be allowed to expire.  This means that 12 million families benefiting from the Child Tax Credit would see their taxes go up by $800, on average.  Six million families would pay an average $500 tax increase because of cuts to the EITC.

In early December deficit reduction talks between Speaker Boehner and the President continued.  On December 17, the President presented a new proposal containing both new savings on the spending side and a reduction in revenue.  The proposal reduced revenue by increasing from $250,000 to $400,000 the income threshold at which the lower tax rates would be extended.   The 33 percent income tax rate would be extended rather than reverting back to 36 percent.

Speaker Boehner seemed to be making a significant move toward the President on revenue when he indicated that he would let tax rates on income over $1 million expire.  However, coupled with extending the Bush-era tax rates on income up to $1 million, extending limits on certain tax deductions set to end on January 1, taxing dividends at 20 percent rather than at the rate of regular income, and continuing the current generous estate tax provisions, people with incomes of over $1 million would receive an average tax cut of $108,500 according to the Tax Policy Center.

In a high-risk strategy Speaker Boehner decided to take this so-called “Plan B” to floor of the House for a vote on December 20.  When conservative Republicans revolted, Speaker Boehner pulled the bill knowing that it would not pass.  It is not yet clear what the impact of his failure to pass the bill will have on future talks with the President.  Democrats and the White House are urging him to return to the negotiating table with the President.

See Citizens for Tax Justice report from December 20 comparing Speaker Boehner’s “Plan B” and the President’s original and December 17 proposals at: http://www.ctj.org/pdf/latestfiscalcliff.pdf.

The Real Cliff:  Unemployment Insurance About to Expire, Leaving 2 Million With No Help

The House spectacle before the abrupt departure was remarkable both in showing what the majority wanted to do and what it didn’t care to tackle.  Although 4 in 10 of the unemployed today have been out of work for more than six months (most for more than a year), and have run out of state unemployment benefits, the House took no action to continue the federal Emergency Unemployment Compensation program for the long-term jobless.  It will expire at the end of December.  Two million will be denied unemployment benefits right away, followed by another million by the end of the March in 2013.  The proportion of the long-term unemployed has risen dramatically over the years.  After the 1980’s recession, 26 percent of the unemployed were out of work six months or more.  The President’s plan includes the extension of unemployment benefits for a year, at a cost of $33 billion.

Shrinking the Adjustment for Inflation:  “The Chained CPI”

One of the most controversial provisions in President Obama’s deficit reduction package is a change in the way the Consumer Price Index (CPI) would be calculated for purposes of calculating benefits for Social Security, and also affecting many other low-income programs that rely on annual inflation adjustments for eligibility or benefit levels.  In what ultimately turned out to be abortive negotiations with Speaker Boehner, the President responded to the demand that benefits to entitlement programs be cut by agreeing to this change, which is called the “chained CPI.”  It reduces the inflation rate by assuming that when certain prices go up, consumers are likely to switch to other comparable but cheaper products.  Some research questions whether the elderly, or low-income people generally are able to make such substitutions as easily as the population as a whole.  According to the Center for Economic and Policy Research, after 10 years, the Chained CPI would result in a 3 percent cut in Social Security benefits, about 6 percent after 20 years, and nearly 9 percent after 30 years.  For an average worker retiring at 65, this reduced measure of inflation would result in benefits being cut $1,130 a year at age 85.  Women would be disproportionately affected, because they live longer and are more likely to be poor.  The Administration’s Chained CPI proposal, which is estimated to save $130 billion over 10 years, does provide exemptions for low-income elderly and disabled making use of Supplemental Security Income (SSI), but that alone does not offer adequate protection to low-income people.  If the revised calculation is applied to the federal poverty guidelines, it will lower the annual increases in the poverty line, which would be likely to reduce benefits or shrink eligibility for means-tested programs.  Many progressive groups, including labor, have strenuously opposed making use of the Chained CPI.

SNAP in Farm Bill and House Bill 

Prospects for a 5-year reauthorization of a farm bill including the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) before this Congress ends on January 2 has all but disappeared. There is not time for action on a separate bill and prospects for attaching it to the elusive larger deficit reduction package are fading.  The full Senate passed a 5- year farm bill extension in June with $23 billion in savings over 10 years, including $4.5 billion in cuts to SNAP.  In July the House Agriculture Committee approved bipartisan farm bill legislation with $35 billion in savings over 10 years, including $16 billion in cuts to SNAP.  The House Republican leadership has refused to allow a floor vote to happen because some Republicans want deeper cuts to SNAP while many Democrats do not support any cuts to the program.  The commodities provisions in the two bills that subsidize farmers also split members, more along geographic than party lines.  The Senate bill tends to favor northern commodities like corn and soybeans and the House bill rice, peanuts and wheat grown in the southern states.

Absent a full reauthorization, there is faint hope that a shorter-term extension of the current farm bill might pass.  The SNAP program will continue to operate uninterrupted without an extension of the full bill because the rules governing the program will not expire and funding was included in the continuing resolution through March 2013.  However, some programs would be affected.  Dairy subsidies would revert back to a 1949 law, likely doubling milk prices.  Dairy products are a large portion of the Women, Infants and Children (WIC) federally-funded nutrition program, and the price increase would lessen the buying power of WIC recipients.

The Spending Reduction Act passed by the House on Thursday night included $32.3 billion in cuts to SNAP/food stamps.  The House majority would return SNAP benefits to their old level of about $1.30 per meal, an amount judged by nutrition experts to be inadequate.  While current law would have started that reduction in November of 2013, this bill moves it up to February.  Recent analysis estimates that this cut will result in a loss of $8 – $10 per person per month.  The House will also deny SNAP to 2 million people who now get benefits because their low incomes qualify them for programs such as Temporary Assistance for Needy Families.  This change will also result in 280,000 low-income children losing free school meals.  In addition, the House agreed to make it harder to streamline eligibility for SNAP benefits, which now can be received without additional documentation if certain households already qualify for Temporary Assistance for Needy Families (expected to cut assistance to 1.8 million individuals).  This change will also result in 280,000 low-income children losing free school meals.  These restrictions were estimated last spring to save $11.7 billion over 10 years.  Further, this bill would reduce SNAP benefits to people who now receive a small benefit from the Low Income Home Energy Assistance Program, said last spring to reduce SNAP spending by over $14 billion.  Despite this time of high unemployment, the House would drop certain federal spending for SNAP employment and training programs (saving about $3.1 billion over 10 years) and would end federal bonus payments to states to encourage good performance in administering SNAP.

Health Care Spending Reductions

The President’s most recent offer calls for $400 billion in savings in health care programs over 10 years, said to come mainly from Medicare, with relatively little from Medicaid (although details were not available).  The House Spending Reduction Act keeps the $16 billion in Medicare cuts scheduled to take place as part of the automatic FY 2013 cuts imposed by the Budget Control Act ( 2011 legislation that set up the “sequestration” cuts to start in January 2013 if Congress could not agree on a deficit reduction plan).  In addition, the House bill slashes health care premium subsidies under the Affordable Care Act for 350,000 people, and cut Medicaid funding to Puerto Rico and other territories even though Puerto Rico, despite its disproportionate poverty, receives far lower federal Medicaid payments than any state (a high of 35 percent in 2010; states receive no less than 50 percent of Medicaid costs).  The amendment also allows states to make cuts in their Medicaid programs below the levels in place when the Affordable Care Act passed, which could reduce eligibility or benefits for millions of people.  Further, it includes a number of funding cuts aimed at undermining the Affordable Care Act (the major new health care legislation now being implemented).  These savings are estimated at $47.3 billion over ten years by the Congressional Budget Office.

The President’s plan is said to assume at least one-year funding for continued higher payment levels to physicians under Medicare.  Their payments were supposed to be cut by Sustainable Growth Rate (SGR) reductions passed by Congress some years ago, but Congress has not been willing to implement these cuts.

Debt Ceiling

President Obama has been emphatic in not wanting to undergo another crisis negotiation in which Republicans insist on spending reductions commensurate with increases in the debt ceiling.  The debt ceiling is expected to be reached within the next month or two.  If Congress does not authorize continued borrowing, the crisis would stall spending, spook federal bond-holders, with threats of catastrophe for our economy, according to people like Federal Reserve Chair Ben Bernanke.  Holding spending on domestic priorities hostage to deeper and deeper cuts to get the debt ceiling increased would be very dangerous to human needs programs.  Obama’s position initially would have reduced Congress’ role in debt ceiling increases permanently; more recent proposals have called for a two-year debt ceiling increase.

Appropriations

The President’s most recent offer called for cuts of $100 billion to defense and $100 billion to non-defense appropriations over 10 years, beyond the $1.5 trillion in cuts to these programs already set in motion over the next decade.  These cuts are much lower than the approximately $1 trillion in additional Pentagon, domestic, and international program cuts that are now scheduled to start in January and continue over 10 years.  Still, domestic appropriations are being cut deeply already, affecting education, housing, child care, WIC, Head Start, home energy assistance, and much more, and many groups oppose any further cuts.  On the other hand, many military spending experts believe that much more could be cut from military spending than the $100 billion called for in the President’s plan.

As noted above, the House spending reduction bill cuts appropriations by another $19.1 billion in FY 2013 by lowering the appropriations cap by that amount.  The bill also prohibits further military cuts.

The post CHN: The House Goes Home for Christmas appeared first on Coalition on Human Needs.

On September 22 by a vote of 62-30 the Senate passed HJ Res 117, a stopgap Continuing Resolution (CR), funding annually appropriated programs for the first six months of Fiscal Year (FY) 2013 from October 1, 2012 through March 27, 2013.  The House passed the bill 329-91 a week earlier.  The plan is based on the $1.047 trillion funding cap for annually appropriated programs for FY 2013 established in the 2011 Budget Control Act (BCA) and used by Senate Democrats and the Obama Administration to set FY 2013 funding. This amount is $8 billion above the FY 2012 level and represents an increase for most agencies of 0.6 percent.  The Republican budget passed by the House last March included a lower funding cap of $1.028 trillion for FY 2013.

Neither Democrats nor Republicans wanted controversy or talk of a government shut-down right before elections.  HJ Res 117 contains no controversial policy riders or funding levels that differ significantly from current levels.  It does contain extra funds for modernizing nuclear weapons, for cybersecurity work done by the Department of Homeland Security, for fighting wildfires, and for addressing a backlog of disability claims at the Department of Veterans Affairs.

Hedging their bets on the outcome of the election, both House Republicans and Senate Democrats agreed to the CR.  Republicans hope to be in a stronger position in March when they would work to reduce the over-all funding level for appropriated programs.  Some Democrats believe that their party would have had greater leverage to finalize a more favorable deal with a 3-month CR that expired at the end of December.  They are leery of a 6-month deal that will expire around the time Congress will also need to act on increasing the debt ceiling, a process Tea Party Republicans are already threatening to sabotage again.

Congress has passed a year-long budget by the October 1 beginning of the fiscal year without needing a CR only three times in the last 27 years – 1989, 1995 and 1997.  This year, the House Appropriations Committee passed 11 of the 12 appropriations bills and six passed the full House.  It was unable to complete the Labor-Health and Human Services-Education bill because the cuts being proposed were too severe.  The Senate Appropriations Committee also completed work on 11 bills but none passed the full Senate.  It did not consider the Interior-Environment bill because of pending Republican amendments attacking Environmental Protection Agency regulations.  This year’s CR is unprecedented because it includes funding for all twelve appropriations bill because none of the individual bills have been signed into law.

TANF

The CR was used as a vehicle to attach an extension of the Temporary Assistance to Needy Families (TANF) program which was set to expire on September 30.  The $16.5 billion annual block grant program provides funding to states for both cash assistance as well as a variety of other benefits and services to meet the needs of low-income families and children. The program became an election year issue after the Administration’s Department of Health and Human Services (HHS) sent a memo to states allowing them to apply for waivers to experiment with alternative approaches to strengthen employment outcomes.  (See more details in the July 24 Human Needs Report.) (Advocates were concerned that House Republicans would use HJ Res 117 as an opportunity to thwart the HHS waiver.  Instead the House chose to vote on a Resolution of Disapproval (HJ Res 118).  The measure passed 250-164 with 31 Democrats joining 231 Republicans in support of the resolution.  The Senate will not vote on HJ Res 118.

Fiscal Cliff

Passage of the 6-month CR takes regular appropriations off the table during the post-election lame duck session.  Instead, the Congress will grapple with impending across-the-board spending cuts (known as ‘sequestration’) set to take effect on January 1, and the expiration of the Bush-era tax cuts on December 31.  Sequestration was put in place in the Budget Control Act to force action on reducing the federal debt and deficits.  Failure by Congress to avert sequestration and tax increases would result in what has been dubbed by some as the ‘Fiscal Cliff.’  See more details in the July 24 Human Needs Report.  Those are not the only important issues facing deadlines, though.  The farm bill has been allowed to expire, and Congress will want to restore agriculture programs (See article in this Human Needs Report.)  Federal unemployment insurance for the long-term jobless will also expire at the end of December.  People out of work 27 weeks or more make up 40 percent of those unemployed.  Terminating the federal unemployment program serving that group would plunge more people into poverty.

As the end of the year draws near, pressure is mounting for an alternative plan to avoid the cliff.  Republicans and some Democrats are especially concerned about the pending cuts to the Pentagon.  Democrats and the Administration are advocating for a balanced approach that includes new sources of revenue, but thus far, Republicans have refused to agree to tax increases.  The results of the election will most certainly impact the timing and outcome of these critical policy decisions.

The post CHN: Congress Passes 6-Month Spending Bill for Fiscal Year 2013; Fiscal Cliff Looms appeared first on Coalition on Human Needs.

Two committees in Congress have a major say in setting military policy and spending levels.  The Arms Services Committee authorizes which programs will continue and the maximum funding level they can receive.  The Appropriations Committee determines the actual amount of funding each program will receive in the fiscal year. This year’s House defense authorization bill, the National Defense Authorization Act for FY 2013 (H.R. 4310), calls for expensive policies the Pentagon does not want.  The bill restricts the implementation of the New START Treaty on nuclear arms reduction between the United States and Russia; it requires the Pentagon to maintain 12 ballistic missile submarines, aborting the Defense Department’s plan to reduce the fleet to 10; it calls for a new missile defense site on the East Coast that the Pentagon believes is unnecessary; and it adds $8 billion over the military spending caps in the BCA.  On May 18, H.R. 4310 passed 299-120 with the majority of Democrats (77-104) voting against the bill. The Administration has issued a Statement of Administration Policy threatening to veto the House bill unless changes are made.  The Senate Arms Services Committee unanimously approved its authorization bill on May 24.  It has its own set of issues including funding programs the Pentagon doesn’t want and failing to reduce personnel costs by rejecting an increase in health insurance fees requested by the Administration. No time has been set for the full Senate to debate the bill.

The Administration’s FY 2013 budget in February proposed a level of funding which adheres to the over-all $1.047 trillion spending cap for appropriations in the Budget Control Act (BCA).  The Senate will also adhere to that cap.  The House sets a lower over-all level of $1.028 trillion, however, it allocates $8.1 billion more than the Senate and $3.1 billion more than the Administration for base Pentagon programs outside of funding for the conflicts in Afghanistan, Pakistan and Iraq, which are not subject to the cap. The House has passed its FY 2013 defense appropriations bill in the Appropriations Committee allocating $519.2 billion in base funding and $88.5 billion for the wars. The Senate has not yet begun to consider its appropriations bill. Democrats in the Senate and the Administration view that additional $8.1 billion in the House bill as a breach of the BCA.

The FY 2013 defense appropriations bills do not assume the second round of cuts scheduled to start on January 1, with all sides counting on the adoption of an alternative deficit reduction plan that will undo cuts to the Pentagon.

The national defense budget, apart from spending on wars, comprises 52 percent of annually appropriated funding (referred to as ‘discretionary spending’) in the federal budget.  Since 2000, the Pentagon’s budget has risen in inflation-adjusted terms by 42 percent.  It has taken a modest 2.5 percent cut since 2010 compared to the 7.2 percent cut to non-defense programs that include education and training, housing, child care and other services for families and children. The largess of the military budget can be attributed to a culture of spending in which the Pentagon has not been asked to scrutinize its expenditures, prioritize based on need, effectiveness and cost, nor be accountable. (This year the Pentagon agreed to attempt to provide an audit by 2014 after years of not doing so.)  In a key report published in 2010, the Sustainable Defense Task Force, comprised of an impressive number of experts across the political spectrum including former high-ranking members of the military, identified a menu of reasonable options for national defense savings totaling $960 billion over 10 years.

In August the Budget Control Act imposed 10-year spending caps on defense and non-defense programs resulting in cuts of approximately $900 billion.  And once the Super Committee failed last fall to create a balanced plan with revenues and spending cuts adding up to $1.2 trillion in further deficit reduction, the BCA required that sum to be cut, mostly from appropriations, over the next decade.  A cut of $110 billion, half from defense and half from non-defense programs, is set to take effect on January 1, 2013.  Defense Secretary Leon Panetta, many Republicans and some Democrats in Congress are decrying the cuts to the Pentagon while less attention is given to cuts to low-income programs for vulnerable people.

In an atmosphere where there is pressure to reduce the deficit, there are alternatives to achieving the $1.2 trillion reduction: cut non-defense programs even more deeply, many of which have already been cut to the bone; cut entitlement programs like Medicaid, Medicare, Social Security, and SNAP/food stamps; raise revenues from fair and progressive sources; or seek savings from wasteful military spending.  The SAVE for All Campaign which the Coalition on Human Needs founded has developed a set of principles that makes the case for focusing on the latter two options as both viable and necessary.  Thus far there has been over $1 trillion in deficit reduction, all from cuts to programs and not one cent raised from revenues.  Tax increases need to be a significant element in deficit reduction going forward.  Military spending must also be reined in. Some of the savings could be used to reduce the deficit, but a significant amount should also be used to make critical investments for our nation’s future including education, infrastructure, and health.

House Republicans passed a partisan bill, the Sequestration Replacement Act of 2012, H.R. 5652, which makes draconian cuts to critical programs.  It replaces the $110 billion in cuts in 2013 in part by slashing programs that provide nutrition, health and social services to low-income people.  (For a full description of low-income cuts in the bill, see the April 30 Human Needs Report.  Democrats and advocates also support replacing the cut, but with a balanced approach that includes revenues.

With the January 1, 2013 sequestration looming, the Project on Defense Alternatives, building on the earlier work of the Sustainable Defense Task Force, issued its own report this month outlining modest Pentagon savings of $17 to $20 billion for FY 2013 and more that could be “safely achievable by rethinking national security commitments, strategy, and missions.”  Specific recommendations are identified in the areas of personnel, weapons systems, and nuclear weapons.  For example, personnel savings could be achieved by reducing active troops to mid-2007 levels and reducing the civilian workforce by an additional 8,000 positions to the 2010 level.  According to the report, alternatives for some versions of the F-35 Joint Strike Fighter program (the most expensive weapons system in history and one that has been plagued with cost overruns and development problems) ought to be considered.  The report also suggests that plans for modernizing and enhancing the nuclear weapons program could be curtailed based on a diminishing need.

Studies show that Pentagon spending is a much less effective way to create jobs than investments in education, health care, clean energy and other areas.  However, parochial concerns about job losses due to scaling back weapons programs or closing military bases are politically charged.  Defense contractors accustomed to lucrative cost-plus contacts (as their costs rise they receive additional money beyond the initial contract) hire powerful lobbyists who make the case for continuing unneeded programs.  The political power of the defense industry and the lack of oversight for war operations have encouraged waste and fraud.  According to a report by the congressionally appointed Commission on Wartime Contracting between $31 and $60 billion dollars were lost to waste and fraud related to the wars in Iraq and Afghanistan.

Achieving cuts to the Pentagon’s budget and program reforms will not come easily. Congress has the power to override Pentagon priorities by continuing to fund programs that have not been requested which results in less flexibility to the Administration to execute its defense strategy and redirect resources based on its priorities.  If Congress lacks the will to make even modest cuts in the Pentagon budget, a balanced deficit reduction plan that leaves room for critical domestic priorities will remain out of reach.

The post CHN: House Rejects Agreed Upon Funding Level for Pentagon appeared first on Coalition on Human Needs.

Most budget-watchers believe the answer to the first question is “no” – House Budget Committee Chairman Paul Ryan (R-WI) is expected to unveil his proposal at a speech before the American Enterprise Institute on Tuesday, with Committee action expected the next day.  As for the second question, while the full House would be expected to pass the budget in a party-line vote, Senate Majority Leader Reid (D-NV) has already announced the Senate will not vote on a budget resolution.  So there is no chance that the Ryan budget will be adopted by Congress.

Still, elements of Chairman Ryan’s proposal may prove influential.  In order to accommodate the House’s restive right wing, it is likely that the House budget will call for FY 2013 appropriations levels set lower than the caps already agreed to by Congress in the Budget Control Act.  That deficit reduction law limited FY 2013 appropriations to $1.047 trillion.  Some of the more right-wing members want the total reduced to $1.028 trillion.  Others, in the more extreme Republican Study Committee, have proposed slashing FY 2013 spending to $931 billion, or $116 billion less than the level Congress previously approved.   Republicans on the House Appropriations Committee, however, would prefer to stick with the cap already enacted.  Washington’s best guessers are expecting the Ryan budget to wind up at the $1.028 trillion level.

Senate Budget Committee Chair Kent Conrad (D-ND) plans to adhere to the $1.047 trillion spending limit.  If the House goes $19 billion or more below the enacted levels, the House and Senate will eventually have to negotiate the difference in the appropriations bills that must pass by September 30 (or be temporarily extended at that time).

The House Budget Resolution will do more than set appropriations totals.  It will also make other sweeping recommendations for cuts in mandatory programs such as Medicaid and SNAP (food stamps).  Last year, the Ryan budget proposed turning these two basic entitlements into block grants with fixed funding levels.  The Medicaid cut alone would be $1.4 trillion over 10 years.  The commonplace wisdom is that this year’s budget will repeat these proposals.

Last year’s House budget also made substantial reductions and structural changes in Medicare.  The new budget is expected to propose major changes to Medicare once again, but the proposal may be different.  Chairman Ryan has recently teamed up with Senator Ron Wyden (D-OR) to recommend a new system of “premium supports” that would subsidize insurance costs, allowing Medicare beneficiaries to opt for the current fee for service approach or other private insurance coverage.  Last year’s version did not allow beneficiaries to continue in the current program.  However, analysts are skeptical about whether the subsidies provided will really be enough to allow retirees to afford the current program, thereby forcing them into more limited insurance packages while also increasing their costs.  Last year’s plan would have doubled the individual’s costs (from $6,150 in 2022 under current law to $12,500 under the proposed plan).  The shifting of costs from the federal government to individuals in Medicare will be something to watch for in the new version of Medicare in this year’s House budget plan.  Last year’s plan featured such a shift, with modest federal savings (federal costs would be $8,000 for a 65-year old entering Medicare in 2022 under the new plan versus $8,600 under current law) but dramatically higher total costs ($20,500 in the new proposal as compared to $14,750 under current law) because of the reliance on more expensive private insurance.

With automatic across-the-board cuts in annually appropriated programs scheduled to begin in January 2013 unless Congress acts to reduce the deficit by other means, the expected massive cuts in the Ryan budget (last year totaling $4.3 trillion over ten years) would serve as one blueprint for avoiding the across-the-board cuts.  Two elements likely to be missing from any Ryan plan are a revenue increase and increased military savings.  While the President’s budget also seeks to replace the automatic January 2013 cuts with other forms of deficit reduction, his plan includes $1.5 trillion in revenue increases and nearly $500 billion in defense cuts over the next ten years.  Such a balanced package makes it possible to minimize the cuts to human needs programs.  The Ryan budget, if it lacks such balance, will inflict deep cuts in needed services.

The post CHN: Federal Budget Next Steps: House Budget Resolution Expected This Week appeared first on Coalition on Human Needs.

Because the Joint Select Committee on Deficit Reduction (aka the Super Committee) was not able to agree upon a deficit reduction plan and get it through Congress by last Thanksgiving, the Budget Control Act requires an alternative way of achieving $1.2 trillion in savings, utilizing no revenue increases and once again concentrating on cuts from appropriations.  The BCA establishes two caps starting in FY 2013.  The law creates a cap on defense spending (mostly the Department of Defense plus $24 billion elsewhere, such as nuclear weapons under the control of the Department of Energy) and another cap on nondefense expenditures.  For FY 2013, the defense cap is set at $546 billion; the nondefense cap is $501 billion, for a total of $1.047 trillion.  Separate caps remain in place through 2021.

The Super Committee’s failure to reach agreement has triggered automatic, across-the-board cuts in all non-exempt programs (referred to as ‘sequestration’) to take place beginning in January 2013.  Starting in 2014, instead of cuts applied across-the-board to all non-exempt programs, defense and nondefense cuts can be made any way appropriators see fit, as long as they add up to the required amounts for defense and nondefense.

Sequestration will require cuts of $54.7 billion each of the years from 2013-2021 in national defense and in non-defense programs.  In 2013, approximately $38.6 billion in non-defense cuts will come from discretionary programs and $16.1 billion from mandatory programs.  Mandatory programs exempt from sequestration include Social Security, Medicaid, Children’s Health Insurance Program, Supplemental Nutrition Assistance Program (food stamps) child nutrition, Supplemental Security Income, the refundable Child Tax Credit and Earned Income Tax Credit, veterans’ compensation and retirement benefits.  Cuts to Medicare would apply to payments to providers and insurers, not beneficiaries, and are limited to 2 percent annually.  On the discretionary side exemptions include veteran’s medical care and Pell grants and a limit of 2 percent in cuts for certain health centers and services.  Sequestration would be achieved solely through spending cuts and with no tax increases.  (See more details in the Center on Budget and Policy Priorities report, “How the Across-the-Board Cuts in the Budget Control Act Will Work.”)

There isn’t much that Republican leaders in Congress and the White House agree on, but they are agreed that going ahead with sequestration is a bad idea.  Neither wants to apply the required cuts to the military.  The President’s budget (see article in this issue) does not assume that these automatic cuts will take place.  Instead, it puts forth an alternative plan that saves more over the next decade than the minimum required by the Budget Control Act, and does so by replacing the exclusive focus on spending cuts (mostly in appropriations) with a more balanced mix that includes $1.5 trillion in revenue increases and $640 billion in savings in mandatory programs like Medicare and Medicaid.

The President’s plan rejects the Budget Control Act’s required annual defense and nondefense caps, and instead calls for a different and more temporary dividing line.  For FY 2013, the Obama budget puts in place caps on “security” and “nonsecurity” spending.  The “security” category is broader than “defense” – it adds the Departments of Veterans Affairs and Homeland Security and most State Department and international aid expenditures.  The President’s budget sticks to the same overall spending cap for FY 2013:  $1.047 trillion.  But it divides it into $686 billion for security and $361 billion for nonsecurity.  This change helps the President stay within the cap limits.  If he used the defense cap as required by the Budget Control Act, the defense spending in his budget for FY 2013 would exceed that cap by $5 billion (and would under spend the nondefense category by $5 billion).

And in FY 2014 and beyond, the President’s budget assumes there will no longer be separate caps at all – just one total that the President and Congress can divide up any way they choose.  This approach does what the Budget Control Act had provided if the Super Committee had successfully proposed a deficit reduction plan.  But they did not; going back to the security/nonsecurity categories for a year and then erasing the dividing line will require agreement by Congress to change the law.

Since sequestration was triggered by the failure of the Super Committee, doomsday scenarios have been promulgated by mostly Republican and some Democratic defense hawks and Defense Secretary Leon Panetta that the additional cuts to the Pentagon would result in a hollow force and inflict severe damage on the nation’s defense.  Some have suggested  moving more of the cuts to the non-defense side of the ledger, a concept totally unacceptable to human needs advocates who are equally concerned about sequestration cuts to nondefense discretionary programs.  The President shares Panetta’s concerns about sequestration but has said he would veto attempts to alter sequestration by shifting cuts from military to non-military programs.  He would spare defense by making savings through revenue increases.

House and Senate Republicans have sponsored legislation to alter sequestration.  Senator Jon Kyl (R-AZ) has introduced the Down Payment to Protect National Security Act of 2012 (S. 2065) that cancels the 2013 cuts requiring deeper cuts for 2014 through 2021.   Bill sponsors claim that the cost of delaying sequestration would be paid for by freezing the pay of federal workers for two more years and cutting the federal workforce by 5 percent.  However, the discretionary caps already in place will likely mean cuts in the federal workforce anyway, so proposing such cuts here is likely to be double-counting.  An analysis by the Center on Budget and Policy Priorities (“No Spending Cuts in 2013, But Bigger Cuts Later, Under Senate Proposal”, at http://www.offthechartsblog.org/no-spending-cuts-in-2013-but-bigger-cuts-later-under-senate-proposal/) concludes that the legislation would result in a greater burden on non-defensediscretionary spending, requiring a cut of $48 billion each year rather than $38.6 billion under current law.  Defense cuts under S. 2065 would grow from $54.7 billion to $59.7 billion for the 8-year period.   The end result of the Kyl bill is to shift the burden of cuts in sequestration from military to domestic spending.  Armed Services Committee Chairman Howard McKeon (R-CA) has introduced similar legislation (H.R. 3662) in the House.

The President’s budget challenges Congress to generate a package of cuts before January to eliminate the need for sequestration.  There likely will not be a resolution until the post-election lame duck session in November.  The Bush-era tax cuts are set to expire at the end of the year, putting trillions of dollars of potential deficit reduction in play.  The President’s budget proposes ending the  Bush-era tax cuts that apply to income over $200,000/250,000 (individual/couple) which would save $866 billion, and other revenue increases and spending cuts will be one option to avert the sequester – an option Republicans and some Democrats in Congress will resist.  The stakes are high and the outcome will surely be influenced by the election results.

The post CHN: Sequestration – Will It Happen? appeared first on Coalition on Human Needs.

Living within the annual caps for appropriations means that “non-security” appropriations drop from $373.6 billion in FY 2012 to $356.8 billion in the President’s FY 2013 request (a 4.5 percent cut, not counting inflation).  These include education, labor, health, many services for children and seniors, housing, transportation, the environment, and many other areas.  “Security” spending, including the Pentagon, international funding, and veterans’ services, bumps up from $684 billion in FY 2012 to $686 billion in FY 2013.

The federal budget includes programs that require annual appropriations by Congress (called “discretionary”) and mandatory programs, such as Social Security, Medicaid, Medicare, and SNAP/food stamps, that spend money based on the laws authorizing those programs without needing Congress’ yearly okay.  The budget also projects revenue levels, and recommends tax cuts and increases to meet its ten-year revenue estimates.  President Obama’s $3.8 trillion budget for FY 2013 projects only $2.9 trillion in revenues, for a deficit of $900 billion, or 5.5 percent of Gross Domestic Product (GDP, or all economic activity).  Below 3 percent is considered a more sustainable level.  The President predicts that the deficit will decline substantially between now and FY 2022, reaching 2.7 percent of GDP in 2018, and then remaining at 2.8 percent over the next few years.

A Focus on Job Creation. The Obama Administration budget calls for $350 billion in new up-front investments to create or save jobs, to be carried out mostly between now and FY 2015.  These include $50 billion in road and transit rebuilding, $30 billion to modernize at least 35,000 schools, $25 billion to hire and retain teachers and $5 billion for first responder jobs.  Another initiative is Pathways Back to Work, funded at $12.5 billion ($8.4 billion in FY 2013) to provide subsidized jobs and training for low-income, low-skilled workers and summer and year-round jobs and training for youth.  A new community college initiative would invest $2.1 billion in FY 2013 and nearly $7.5 billion over 5 years in education/training aimed at helping people get jobs.
In addition, Project Rebuild will hire workers in low-income communities to rehab or renew residential and commercial properties.  The budget also proposes an infrastructure bank (at $9.8 billion over 10 years), the National Affordable Housing Trust Fund ($1 billion, expected to result in production of more than 10,000 units of low-income housing), and various incentives for innovation in manufacturing, including tax credits.

Economic Security Protections. The Administration recognizes that the safety net must be protected, especially during hard times.  It reverses a cut in SNAP/food stamp benefits scheduled to take effect starting in 2013, and assumes the continuation of federal unemployment benefits (without the cutbacks in weeks just adopted for the rest of 2012 (see article in this issue).  The budget also would make permanent the improvements in the Child Tax Credit and Earned Income Tax Credit.  These make the Child Tax Credit available starting with earnings over $3,000 (previously the first $8,500 in earnings was excluded in calculating the CTC) and provide a higher Earned Income Tax Credit for working families with three or more children.  Both these credits are “refundable” – that is, available to families as a refund check even if their earnings are too low to owe federal income tax.

The Administration proposes $2.2 billion over 10 years to modernize child support collections, and provides incentives to states to reduce the loss of income to states when they turn over all child support collected to the families owed, instead of keeping some of it to defray the costs of public assistance.

More modest but important, the Administration also proposes $5 million in new grants to assist states wishing to implement their own paid leave programs.

Under the Appropriations Caps:  Some Gains. Even within the constraints imposed by the caps, the President’s budget manages to invest in certain human needs priorities.  Some of the winners include annual appropriations for Head Start (up $494 million since FY 2011) and child care (up $380 million since FY 2011 and $325 million since FY 2012).  Race to the Top, the Administration’s incentive program for improving K-12 education, is increased by $301 million, or 55 percent above its FY 2011 level.  The maximum Pell grant award rises from $5,550 in FY 2012 to $5,635 in FY 2013; college work-study funding rises 15 percent, from $977 million to $1.127 billion.  Nutrition funding for Women, Infants and Children (the WIC program) grows to $7.04 billion in FY 2013, a one-year increase of $423 million, to support a caseload of 9.1 million.  Programs to assist the homeless are increased from $1.9 billion to $2.23 billion from FY 2012 to FY 2013.  According to the Department of Housing and Urban Development, 1.6 million people were homeless at some point between October 1, 2009 and September 30, 2010.  The Administration requests $75 million to fund affordable units for 10,000 veterans, who are homeless at levels very disproportionate to their numbers.

But Some Losses. However, cabinet departments that include many of the discretionary programs of importance to low-income people are cut substantially.   The Department of Health and Human Services’ funding declines from $84.4 billion in FY 2010 to $76.7 billion in FY 2013, as requested by the President.  Taking inflation into account over that period, HHS funding would decline nearly 15 percent.  The Department of Labor drops from $13.5 billion in FY 2010 to $12.0 billion in the President’s FY 2013 request, although $448 million of that loss is from the movement of Community Service Employment for Older Americans to the Administration on Aging at HHS.  Adjusting for that change and for inflation, the DOL cut would be just under 14 percent from FY 2010 to FY 2013.  The Department of Housing and Urban Development drops from $42.8 billion in FY 2010 to $35.3 billion in the President’s FY 2013 budget, although some of the drop is offset by an anticipated $4.4 billion in increased receipts from increased fees from borrowers and others.  With reductions like these, services needed by low-income people do not escape painful cuts.  Within HHS, the Low Income Home Energy Assistance Program (LIHEAP) drops from $3.472 billion in FY 2012 to $3.02 billion in the President’s plan.

According to the National Energy Assistance Directors’ Association, this cut will deny heating or cooling assistance to 1 million low-income households.   The Administration continues its attack on the Community Services Block Grant, once again recommending that its funding be cut in half (from $677 million in FY 2012 to $350 million in FY 2013).  CSBG provides funding to about 1,100 community action agencies nationwide, which administer programs such as Head Start, emergency food, LIHEAP, and job training, and provide an entry point for low-income people to receive a broad range of anti-poverty services.   Congress did not go along with this request last year; with stringent deficit reduction targets to meet, it is not clear what will happen this time.

Also within HHS, there are reductions in mental health and substance abuse funding.  Mental health funds decline from $1.022 billion in FY 2011 to $952 million in the President’s FY 2013 request.  Substance abuse treatment and prevention decline by $117 million over the same two year period, a nearly 10 percent cut, not counting inflation.  The Administration hopes to maximize effectiveness despite reduced funding both through competitive grants and because the gradual implementation of the Affordable Care Act will provide additional funding for these services.  Still, on top of substantial recent cuts made in state funding, it is hard to be confident that no loss in services will occur, at least in the short run.

Within HUD, although finding adequate funding to cover existing households in subsidized rental housing was a top priority, the Administration does so in part by increasing the minimum rents paid by very low-income tenants to a mandatory $75 a month.  Now, Public Housing Authorities may charge a minimum rent of $50, but many do not choose to do so.  For families or disabled or elderly individuals with extremely low incomes, paying the $75 will prove very difficult.  The Community Development Block Grant is level-funded at $2.95 billion, a disappointment to many community agencies who make use of its funds for diverse services including child care and help for victims of family violence.  Housing for low-income elderly (Section 202) is up from a low $375 million in FY2012 to $475 million in FY 2013, but well below its $825 million in FY 2010 funding.  Housing for persons with disabilities (Section 811) is down from $165 million in FY 2012 to $150 million in the President’s proposal; it was funded at $300 million in FY 2010.  Still, these combined funding levels are estimated by HUD to allow 5,300 new supportive housing units as compared to the current year.

With the Department of Labor, the Job Corps program is reduced from $1.7 billion in FY 2012 to $1.65 billion in the President’s request.  In FY 2012, the total appeared larger (nearly $2.4 billion total) because all of the program costs were paid for within the fiscal year; more typically, a substantial portion is “advance-funded” into the next fiscal year.  The Administration has apparently returned to the use of advance funding, but even taking that into account, Job Corps loses about $50 million. DOL plans to close sites it does not believe are effective, but will open new sites in New Hampshire and Wyoming.  Unemployment Insurance Administration is also cut by $245 million (down to $2.93 billion in the President’s FY 2013 request).  The Administration judges that the amount will serve 13.7 million beneficiaries.  There is a contingency reserve requested in case the workload grows beyond these expectations.

Most training programs are funded at about the same level as FY 2012, but the proposed addition of $8.4 billion in FY 2013 Pathways Back to Work funding, as well as investments in community colleges, would provide more job training and employment opportunities for low-income workers than have been available since the economic recovery act legislation funding ran out.

Options for Savings. The 1,600+ groups that signed the original Strengthening America’s Values and Economy for All Statement of Principles called for deficit reduction that protects low-income people and that invests in job creation, while reducing the deficit substantially through fair revenue increases and cuts in military spending. The President’s budget is in agreement with these basic principles, although some tax and military experts argue that more savings in both these areas are possible, and would leave more room for meeting needs as well as reducing the deficit.  The President proposes $525 billion in base Pentagon spending, plus another $88 billion for war costs in FY 2013.  The non-war funding Defense Department funding declines by a little over 1 percent; counting related expenditures, such as defense nuclear capacity under the Department of Energy, the reduction is about 2.6 percent.  Either way, this is a much smaller reduction than the overall cuts to domestic spending.   The Obama Administration has committed to making 10 years of cuts to discretionary programs called for in the deficit reduction plan that passed Congress, including defense, international, and domestic programs.  The Administration shows $487 billion in defense savings over ten years as a result of the reductions imposed in the FY 2013 budget (these savings do not count reductions in the Iraq and Afghanistan war efforts).  However, respected analysts have pointed to about a trillion dollars in Pentagon savings that can be made without jeopardizing national security.  Lawrence Korb, a former Reagan Administration defense official, has estimated over $100 billion in defense cuts that could take effect in FY 2015 alone.

In addition, many revenue increases have been proposed beyond the $1.5 trillion the President recommends over the next 10 years.  If capital gains were taxed at the same rate as other income, it would bring in hundreds of billions over the next decade.  The Obama budget modestly raises the tax on capital gains for upper-income taxpayers, but only raises $36 billion for the same time period.  The Obama budget captures $147 billion from reforming U.S. treatment of companies with overseas profits.  Ending the rule allowing U.S. corporations to “defer” U.S. taxes on foreign profits would save well over $500 billion.  There are many other examples of revenue options greater than those proposed in the Obama budget – for example, the President previously had proposed $90 billion in higher taxes on the financial industry.  His FY 2013 budget proposes $19 billion in new finance industry taxes.  The provisions that are included in the President’s budget are welcome, and are a marked contrast to the intransigence of Republicans and a few Democrats in Congress in opposing any tax increases.  So far, no tax increases have been enacted either to reduce the deficit or to contribute to economic recovery.  Continuing on this course will result in harsh cuts that will stall economic growth – and hurt vulnerable people.

The post CHN: The President’s FY 2013 Budget: Despite Tight Funding Caps, Some Human Needs Priorities Maintained appeared first on Coalition on Human Needs.

If there are any members of Congress who want to see the automatic cuts take effect, they have not come forward.  The most vocal opponents have expressed concerns about the impact of the defense cuts.  Senators Kyl (R-AZ) and McCain (R-AZ), as well as Rep. McKeon (R-CA) have introduced the Down Payment to Protect National Security Act (S. 2065 and H.R. 3662), legislation to replace the first year of automatic cuts with savings from reducing the federal workforce by at least 5 percent and an extension of the current federal civilian pay freeze through 2014.   There is strong opposition to making deep cuts in the federal workforce, so this legislation will face steep barriers.

The President, and many Democrats in Congress, would prefer to replace the automatic cuts with a deficit reduction package that includes revenue increases.  Republicans have rejected most proposals to raise revenues, so the path to avoiding the auto-cuts is not at all clear.

Next FY 2013 Budget Steps?  Congress could outline alternative deficit reduction proposals in its FY 2013 Budget Resolution.  But Senate Majority Leader Reid (D-NV) said on February 3 that he would not bring up a Budget Resolution on the Senate floor.  The House is likely to pass its version of a FY 2013 Budget Resolution, and Senate Budget Committee Chair Kent Conrad (D-ND) wants to approve one in committee.  These two versions will offer stark differences, if they are similar to last year’s proposals.  And neither is likely to move spending or revenue choices that the House and Senate can agree on in an election year.

Congressional budget resolutions do not put forth complete budget detail similar to the multi-volume opus coming from the Obama Administration on February 13.  The Congressional resolution has one major task:  it sets appropriations totals, which are then divided up among the dozen appropriations committees.  But for the next decade, the annual work of the Budget Committees has been replaced by the spending caps set in the Budget Control Act.  While Congress could adopt a budget resolution that called upon tax-writing committees to recommend revenue increases and/or could recommend other forms of savings from committees with jurisdiction over Medicare, Medicaid, agricultural programs, or defense, to name a few, divisions in Congress make agreement over these options seem far-fetched.  With no need to set spending limits and little chance of agreement elsewhere, that doesn’t leave much room for budget action.

How the Auto-Cuts Work.    The Budget Control Act requires $1.2 trillion in deficit reduction over ten years (over and above almost a trillion dollars in appropriations cuts already set in motion through annual caps on spending).  Because Congress couldn’t agree on a plan, $492 billion will be cut from defense and another $492 billion from nondefense programs between FY 2013 and FY 2021, with the rest coming from reduced debt service.  In FY 2013, there will be automatic cuts in each program that is not exempt (called “sequestration”).  Appropriators have little choice about how the cuts will be applied.  They could increase the funding level for programs they want to protect, so that the automatic cuts will be applied to a higher number, but since there are already caps on spending, an increase in one program area means others must be cut more deeply.  For example, if Congress wanted to spare K-12 education from cuts by increasing appropriations for those programs in advance of the auto-cut, it would have to make deeper cuts in such programs as public health, medical research, or social services.

Sequestration, the automatic program-by-program cuts, only kicks in for FY 2013.  After that, the caps established for each of the next 9 years will be lowered, giving Congress the chance to decide how the reductions will be applied.  If Congress does not figure out an alternative to these cuts, discretionary (appropriated) spending will drop down to 5.6 percent of GDP in 2022, according to the Congressional Budget Office, a smaller proportion than in any of the past 50 years.

Although Congress and the White House do not like the automatic cuts barreling towards them, and are not planning budgets or appropriations that assume the cuts take effect, agreement on alternatives is still elusive.

Budget Rules.   House Budget Committee Chair Paul Ryan (R-WI) has introduced 10 bills making changes in the ways budgets are developed.  Some of the bills are starting to move through the House.  H.R. 3578, which passed in the House on February 3, would change the way CBO projects spending over time.  The bill would stop CBO from incorporating inflation increases into its baseline.  By taking inflation into account, CBO shows how much it costs each year to maintain the same purchasing power.  Preventing this adjustment to the baseline means that services will shrink each year unless Congress takes steps to increase funding.   Another rules change, legislation giving the President the authority to make line item vetoes, passed the House Rules Committee on February 1 by a voice vote (it was approved by the House Budget Committee in December).

The post CHN: The Federal Budget on Autopilot? appeared first on Coalition on Human Needs.

S.J. Res 10, the Republican BBA, failed by a vote of 47-53, strictly along party lines. This BBA is one of the most restrictive versions ever to come before Congress.  It would cap federal spending at 18 percent of the nation’s economic activity (gross domestic product or GDP).  Currently spending is at 24 percent of GDP.  It would require a three-fifths majority to raise the debt ceiling and a two-thirds majority in both houses to raise taxes. With spending capped far below current levels and a super-majority needed to raise taxes, this amendment is designed to achieve balance by a drastic curtailment of federal services. A two-thirds majority would be required to waive the balanced budget requirement.

S.J. Res 24, a Democratic measure, was rejected 21-79 with 20 Democrats and 1 Republican voting for the amendment.  Many of the Democrats who voted for the amendment are up for re-election in 2012.  (See the votes here.)  Under S.J. Res 24’s provisions Social Security would be exempt from cuts to bring the budget into balance and no tax cuts for individuals with incomes over $1 million could be passed unless there was a budget surplus.  A three-fifths majority would be required to waive the balanced budget requirement.

Both S.J. Res 24 and S.J. Res 10 would require the President to submit a balanced budget annually and would allow the requirement to balance the budget to be waived if a declaration of war is in effect.

The two versions of the BBA have distinct differences, S.J. Res 10 being more severe, but both would have harmful consequences on the economy.  They would cripple the federal capacity to provide countercyclical spending in times of recession.  According to a recent analysis by Macroeconomic Advisors, a preeminent economic forecasting firm, if a BBA was in place for FY 2012 the impact would be catastrophic.  One-year cuts of about $1.5 trillion would have been required.  Such deep cuts would result in a loss of 15 million jobs and doubling the unemployment rate from 9 to 18 percent.

While the White House does not have veto power over a constitutional BBA it did issue a Statement of Administration Policy strongly opposing H.J. Res 10.  The reasons cited for its opposition include its severe and unrealistic spending cap, the risk a BBA imposes of accelerating economic downturns by requiring the government to cut spending and raise taxes when the economy is contracting, and the potential that the Federal courts would end up making decisions that should be left to Congress.

The Budget Control Act (PL 112-25) passed in August required both chambers to vote on a BBA this year but does not impose a penalty for failing to pass it.  The House failed to pass a BBA in November. In 1997 after the House last passed a BBA (300-132) the Senate fell one vote short of passage.

The post CHN: Senate Rejects Balanced Budget Amendments appeared first on Coalition on Human Needs.