CHN: Congress Passes FY 2002 Budget Resolution

Appropriations, Tax Bill Next Up
The House and Senate last week passed a budget resolution establishing the basic framework for $1.95 trillion in spending in FY 2002, which begins October 1, and a tax cut worth at least $1.35 trillion over eleven years. The resolution was passed over the vocal opposition of most congressional Democrats, who argue that it will force unacceptable cuts in domestic spending and dip into the Social Security and Medicare surpluses. The budget resolution is not law, however. Congress must now enact the appropriations and tax bills that actually establish future levels of spending and taxation, and history indicates that there will probably be some fudging of the budget resolution numbers before work is completed for the coming fiscal year.

The Senate passed the resolution (H. Con. Res. 83) on May 10 on a largely party line vote of 53-47. Democrats who crossed party lines to support the resolution were Sens. John Breaux (D-LA), Max Baucus (D-MT), Max Cleland (D-GA), Zell Miller (D-GA), and Ben Nelson (D-NE). Republicans opposing the resolution were Sens. Lincoln Chafee (R-RI) and Jim Jeffords (R-VT). The House passed the resolution the previous day by a similarly partisan vote of 221-207, with six Democrats crossing party lines to support the plan.

The plan provides $661.3 billion in discretionary budget authority (BA), including $325.1 billion for defense and $336.2 billion for nondefense programs. According to Senate Budget Committee Democrats, the nondefense spending level represents a cut of $5.5 billion below what would be necessary to maintain nondefense spending at FY 2001 levels. The resolution also limits advanced funding for FY 2003 in this year’s appropriations bills to $23.2 billion. In recent years, advance funding has been common for several programs of concern to advocates, including a number education and training programs, child care funding, and the Low Income Home Energy Assistance Program (LIHEAP).

It seems likely that the resolution’s overall discretionary limits will be increased as the year progresses, however. Even Senate Majority Leader Trent Lott (R-MS) has referred to them as little more than a starting point in ongoing negotiations. House Democrats pointed out that the allocation does not include expected increases in health, education, defense, and emergency-related spending that are either backed by the Bush administration or otherwise seem likely. Nevertheless, the House and Senate appropriations committees are expected to distribute the resolution’s initial $661.3 billion allotment and begin work on the year’s 13 appropriations bills within the next one to two weeks.

The budget resolution also provides for a $1.35 trillion tax cut over 11 years (FY 2001-2011), not including about $400 billion in interest-related costs. At least $100 billion of the $1.35 trillion would take effect over the first two years. The total tax cut represents a compromise between the Senate, which included a $1.18 trillion ten year cut in its initial version of the resolution, and the House and administration, which backed a ten year cut of $1.62 trillion. The total could be increased later this year, however, if a Congressional Budget Office reestimate of future budget surpluses, expected to be released in early July, comes in higher than the last estimate issued in January. Additional tax cuts not included in the budget resolution, including a package of tax cuts for small businesses that is expected to accompany any increase in the minimum wage, may also be considered later this year.

On May 11 Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Democrat Max Baucus (D-MT) unveiled a draft Senate tax bill. The bill doubles the child tax credit from $500 to $1,000 by 2011, making it refundable beginning in the current tax year by an amount up to 15 percent of earned income over $10,000, at an estimated cost of $180-190 billion over eleven years. Other provisions in the draft bill include a phase out of the estate tax ($150 billion), a reduction of income tax rates ($700-800 billion), a reduction of the so-called marriage penalty ($750-100 billion), IRA and other pension changes ($40 billion), and a package of higher education changes ($30 billion). Sen. Olympia Snowe (R-ME), a Finance Committee member, is expected to push for a trigger that would reign in future tax cuts and spending increases if certain surplus levels are not maintained, a proposal that concerns some advocates. More broadly, some advocates and many Senate Democrats are also concerned that a small number of moderate Democrats, including Baucus, appear to working with congressional Republicans and the administration, a factor that increases the likelihood that a major tax cut will be enacted this year. The Senate bill is expected to be marked up in committee in the coming week, with possible consideration occurring on the floor the week before Memorial Day.

The House has already passed three tax bills that cost approximately $1.5 trillion over the next ten years (H.R. 3, H.R. 6. and H.R. 8). It is unclear whether the House will simply allow those bills to stand, and negotiate differences between the package of three bills and any bill passed by the Senate, or whether it will pass a new comprehensive tax bill more in line with the budget resolution.

The budget resolution also includes a combined $300 billion over ten years for the creation of a new prescription drug benefit for seniors and for reform of the Medicare program, an amount that is widely believed to be insufficient. Additional items of concern to advocates, according to an analysis by Senate Budget Committee Democrats, include:

Temporary Assistance to Needy Families Supplemental Grants (TANF Supplemental): The conference agreement assumes an additional $319 million to extend TANF Supplemental Grants in 2002.

TANF/Charity State Tax Credit: The conference agreement includes the president’s proposal amending the TANF program to permit states to use TANF block grant funds to offset any revenue losses because of state income tax credits for charitable reductions. The proposal costs $60 million over ten years.

Social Services: The conference agreement includes $600 million in budget authority over 10 years for the president’s Older Foster Care Initiative and $2 billion for his Promoting Safe and Stable Families proposal.

Expanding Coverage for the Uninsured: The conference agreement includes $28 billion in funding for expanded health insurance coverage. The conference agreement differs from the Senate passed resolution in allowing these funds to be spread over 10 years instead of three and to be used to provide tax deductions related to the purchase of health insurance.

Refundable Portion of Health Tax Credit: The conference agreement includes $18.7 billion to pay for the refundable portion of the president’s health tax credit proposal.

Tightening Medicaid Upper Payment Limit: The conference agreement includes the president’s proposal to close the Medicaid Upper Payment Limit loophole, for a savings of $12 billion.

Reserve Fund for Family Opportunities Act (FOA): The conference agreement includes a reserve fund for the Family Opportunities Act with $200 million in FY 2002 and totaling $7.9 billion over ten years. The FOA will allow parents of children with disabilities to buy into Medicaid.

Budget and Appropriations
tax policy