The House and Senate Budget Committees passed budget resolutions on March 5-6 that present a marked contrast to the President’s budget released in early February.  Both budgets signal a different set of priorities.  They reject the President’s request to cut $150 billion in cuts to Medicare over five years and billions in cuts to Medicaid; they reject new fees on health care for veterans and military retirees; and they propose an alternative to cuts in core job training, health, child welfare, child care, education, nutrition and housing programs that serve low-income families.
The budget resolutions spell out basic priorities for spending and taxes, and provide the total funding level for annual appropriations.  While much of the resolutions provide guidelines for future legislating in Congress, the appropriations totals set a limit on combined spending for military, international, and many domestic programs, with the details of how to divide up the spending later to be worked out by the Appropriations committees.

The Committee bills passed along party lines with all Democrats in favor and all Republicans opposed.  The full House and Senate are scheduled to debate their budgets next week before Congress adjourns for its two-week recess.  House and Senate leaders hope to pass a final budget resolution in early April.  The budget Congress passes is not signed into law by the President and does not set funding levels for specific programs, but it serves as an important blueprint.  It sets the overall amount overall amount of money the 12 Appropriations Subcommittees will have to allocate to individual programs under their jurisdiction.  It also makes assumptions regarding tax policy and entitlement spending.

Domestic Discretionary Spending

The House and Senate budget plans will increase next year’s domestic appropriations modestly above inflation, but fall far short of addressing the growing need of people caught up in the weakening economy.

The size of the pie for appropriations is bigger than what the President proposed to serve up in his budget.  The President did not provide enough funding for domestic appropriations to keep up with inflation, which means cuts in services.  Both the House and Senate go beyond the cost of providing this year’s services, with the House estimated to provide at least $5 billion more than the Senate.

Domestic appropriations include federal funding for education, public housing and rental assistance, job training and employment services, Head Start and some child care, public health programs, home energy assistance, and many social and community services.  A great many of these services have been shrinking for years.  The Coalition on Human Needs has tracked funding in more than one hundred programs of special importance to low-income and vulnerable people, and found that only 11 had real growth from 2005 to 2008; another 3 stayed even, and all the rest were cut, taking inflation into account.  (See http://www.chn.org/pdf/2008/fundingfy0508Pres09.pdf)  The House and Senate Budget Committee resolutions leave room to restore some of these losses, but do not go far enough, considering the need.  For example, the House Budget Committee approved $55.6 billion for a category called Income Security, which includes housing assistance, home heating aid, and certain nutrition programs such as WIC and emergency food.  The House funding is about $1.5 billion higher than this year’s service levels, according to the Congressional Budget Office (with an expected additional approximately $2 billion likely to be available in the House plan).  But it is clear that skyrocketing energy and food costs, combined with increasing joblessness, will increase need in 2009.  Added to that, the Center on Budget and Policy Priorities has recently reported a major shortfall in housing assistance that will require $7.5 billion beyond this year’s funding just to fund existing units (See http://www.cbpp.org/3-5-08hous.htm).  The Senate committee’s budget resolution is slightly lower for Income Security, at $55.5 billion.

Another category, Education, Training, Employment, and Social Services, would need $82.9 billion to keep pace with this year’s expenditures, according to CBO.  The President’s budget only provided $79.6 billion.  The House Budget Committee recommends $85.3 billion; the Senate committee, $84.2 billion.  This category includes child care and Head Start, which have been cut 10 percent and 8 percent, respectively, over the past three years.  Reductions in job training programs have ranged from 9 percent – 21 percent over the same period.  Again, although Congress has rejected the deeper cuts proposed by the President, it has not made the investments necessary to respond to growing need.

Taxes and Reconciliation

During House Committee consideration of the budget resolution Ranking Member Ryan (R-WI) accused Democrats of proposing a budget with an estimated $683 billion tax increase over five years because there is no provision in the bill to extend the Bush tax cuts enacted in 2001 and 2003.  Democrats, who countered that the tax cuts do not expire until 2010 and need not be dealt with in this budget, were able to defeat all amendments aimed at permanently extending any these cuts.  A similar debate and outcome ensued in the Senate.

One tax provision that all agree will need to be addressed again this year is the Alternative Minimum Tax (AMT).  The AMT was initially designed to prevent very wealthy taxpayers from paying no taxes.  However, when initially enacted it was not indexed for inflation.  In recent years, Congress has enacted one-year AMT “patches” which increase the exemption amounts keeping millions more taxpayers from paying the AMT.  At issue is whether the budget resolution will require offsets in the form of spending cuts or revenue increases to pay for the AMT patch, estimated to cost $70 billion this year.  The pay-as-you-go rule adopted last year by Congress requires them to pay for tax cuts or entitlement spending increases unless the requirement is waived.  The Senate bill assumes the requirement will be waived.  The House bill does not.

The House bill contains two provisions called reconciliation instructions, a mechanism intended to reduce the deficit.  The first deals with the AMT, and directs the House Ways and Means Committee to develop by July 15 a package of new revenues or entitlement cuts within its jurisdiction, to pay for the $70 billion AMT patch.  The second reconciliation instruction, also directed to the Ways and Means Committee, calls for it to produce a bill by September 12 with a net reduction in spending of  $750 million over 5 years.  The Ways and Means Committee can accomplish this by including an increase in spending as long as it is accompanied by cuts that exceed the increase by $750 million.  This could be a vehicle used to pay for delaying a scheduled cut in reimbursement rates to Medicare doctors or for other tax or spending initiatives.  Reconciliation instructions are used to make it easier to pass tax or entitlement bills in the Senate because they require 51 rather than 60 votes for passage.

If both the House and Senate pass their budget resolutions next week perhaps one of the biggest challenges in reaching a conference agreement are the two reconciliation instructions in the House bill.

Reserve Funds 

Both the House and Senate budget resolutions include a set of reserve funds. These are used in the budget to express support for initiatives committees can take as long as they find the offsets to pay for them. As in FY 2008, the two resolutions provide a $50 billion reserve fund for the State Children’s Health Insurance Program (SCHIP).  They also include a reserve fund for moratoria on Medicaid regulations issued by the Administration that will cut benefits or eligibility for people receiving Medicaid benefits and/or shift costs to states.

Other reserve funds contained in both resolutions could be used for:

• Trade adjustment assistance and unemployment insurance improvements
• Child support enforcement
• Making higher education more affordable
• Tax relief
• Creating an affordable housing fund
• Infrastructure investment
• Veterans and service members medical care and disability benefits
• Enhancing education benefits of veterans, service members and their families
• Energy efficiency
• Preservation of national parks
• San Joaquin River restoration and Navajo Nation water rights settlements
• Improvements to Medicare and extension of Transitional Medical Assistance
• Establishing a new federal or public-private initiative for comparative research in healthcare quality, effectiveness and efficiency
• County payments legislation

In addition to these listed above, the Senate resolution also provides reserve funds for flood insurance, and for reauthorizing the Farm Bill and Temporary Assistance for Needy Families grants.

A Second Stimulus Package

Congress responded to the economic downturn by passing a stimulus package last month that included tax rebates to families, seniors, and disabled veterans.  Many in Congress believe that future stimulus will be necessary.

The Senate budget resolution sets aside $35 billion for legislation to further stimulate the ailing economy.  The legislation would be considered “emergency” spending and therefore would not need to be paid for with offsets.  Democratic priorities for a second stimulus include extending unemployment benefits, LIHEAP funding, heating aid, food stamps, and other such provisions meant to provide economic relief.  The House budget resolution does not include a set-aside for a second stimulus package.  However, House Speaker Pelosi (D-CA) has expressed support for further economic stimulus measures, such as addressing the home foreclosure and credit crisis our country is facing as well as other Democratic priorities.

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