House of Representatives

House and Senate Move Forward on Appropriations

April 15 is the annual statutory deadline for passing a conferenced budget resolution though the House and Senate, which is intended to formally kick off the appropriations process. This year's deadline has already passed without a budget resolution coming from either chamber, but the appropriations season is still moving forward. How does the appropriations process move forward without a budget?

The budget resolution imposes discipline on the appropriations process by providing a topline number for discretionary appropriations known as a 302(a) allocation, which refers to that particular provision in the Congressional Budget Act of 1974 and is the total amount that the Appropriations Committees can spend. Once the 302(a) allocation is set through the budget resolution, the Appropriations Committees divide the topline amount among each of the twelve appropriations subcommittees using 302(b) allocations.

Without a budget resolution, there is no 302(a) allocation setting the total amount for the Appropriations Committees to spend, and in turn means the Appropriations Committees cannot establish 302(b) allocations to divide the topline spending among their twelve subcommittees. There is also no enforcement mechanism for violating these allocations, however there is a point of order against appropriations that exceed the statutory discretionary spending caps, applied to the appropriations bill that caused the excess (which is typically the last appropriations bill considered by the House).

House Budget Confirms It Takes $8 Trillion to Balance the Budget

The Fiscal Year (FY) 2017 House budget resolution that advanced out of the House Budget Committee last week keeps up the recent tradition of targeting a balanced budget within ten years. To do so, the budget claims $6.5 trillion of policy savings, a number that is notably less than the $8 trillion we previously said would be needed to balance the budget by 2026. Upon closer inspection, though, the House budget ends up in about the same place that we did. Here's how.

Our $8 trillion number uses the Congressional Budget Office's (CBO) January budget projections as the baseline. The House budget, by contrast, makes a few adjustments to that baseline that it does not count in the savings. The first is that it assumes a drawdown of war spending after FY 2017 from $74 billion to $27 billion per year from 2018-2021 and zero after that. The second is that it assumes economic effects of $194 billion in reduced deficits from last December's tax deal, of which $150 billion comes from increased revenue and $44 billion comes from decreased outlays. The deal came after CBO had already prepared its economic forecast for the January baseline, and the agency said that when those effects were incorporated, it could add $100-$200 billion to revenue. These two adjustments (plus a minor adjustment to remove FY 2016 emergency spending from the baseline) reduce deficits by $900 billion over ten years.

Two Committees Roll Out Mandatory Savings Package

Last week, two House Committees, Ways and Means and Energy and Commerce, released a package of bills that would reduce mandatory spending. The bills, which mostly contain policies included in a 2012 sequester replacement bill, would save a combined $123 billion over ten years. The Energy and Commerce legislation will be marked up next today, and the Ways and Means Committee may act as soon as this week.

The W&M package contains three separate bills. The first would require taxpayers claiming the refundable portion of the child tax credit to provide a Social Security number, which would save $4.8 billion over two years. The second bill requires taxpayers to repay any overpayments of health insurance subsidies; current law limits repayments to $300-$1,250 for singles and $600-$2,500 for married couples who make below 400 percent of the poverty line. This policy would save $8.7 billion over two years. The third bill would eliminate the Social Services Block Grant, which would save $3 billion over two years.

The Energy and Commerce package is one bill with five different policies:

  • Limiting Medicaid eligibility for lottery winners by counting winnings as income beyond the month they win.
  • Eliminating enhanced Medicaid matching for prisoners.
  • Reducing the Medicaid provider tax threshold, which limits how much revenue states can raise from providers to finance their Medicaid program, from 6 percent to 5.5 percent.
  • Eliminating the increased matching rate for the Childrens' Health Insurance Program (CHIP) contained in the Affordable Care Act
  • Eliminating the Prevention and Public Health Fund

The Federal Reserve Budget Gimmick In The House Transportation Bill

The transportation bill that the House passed last week contains a budget gimmick worth almost $60 billion (Wall Street Journal Paywall). The provision eliminates the $29.3 billion in the Federal Reserve's capital surplus account and prevents surplus funds going forward from being used to replenish the capital surplus account, even though the federal government would have eventually received all of the Federal Reserve's profits anyway. This results in one-time savings on paper but no actual change in the amount of revenue the Treasury would receive over the long term.

Both the Washington Post Editorial Board and Former Fed Chairman Ben Bernanke have recently written that the liquidation of the Federal Reserve’s surplus account leads to no actual government savings. As Bernanke says, "the additional highway spending would be reflected dollar for dollar in increased current and future budget deficits."

The surplus account is an off-budget account where the Federal Reserve holds treasury bonds as surplus capital. The money both provides working capital and is available to offset any losses from selling securities, which could be more relevant in the future as the Fed normalizes policy. Since this money is “off-budget,” transferring it to the Treasury appears to increase revenue. 

Rigell Releases Sequester Replacement Plan

Congressman Scott Rigell (R-VA) released a plan today we might like even better than our own Sequester Offset Solutions (SOS) plan. Congressman Rigell's America First Act would permanently replace about three-quarters of the sequester-level cuts with a combination of mandatory spending cuts, Medicare reforms, limits on tax expenditures, and the savings and revenue from the adoption of the chained CPI. All told, it would reduce the debt by about $135 billion after a decade and according to our estimate nearly $2.5 trillion over twenty years.

Rigell's Plan would raise discretionary caps by about $630 billion over ten years and repeal $135 billion in mandatory sequester cuts, for a total cost of $765 billion. He would more than offset these costs with $820 billion of savings – including $620 billion from spending (and user fees) and $200 billion from tax revenue. He would also save $125 billion over ten years from Social Security, reducing the shortfall by approximately 15 percent.

To achieve these savings, Rigell's plan focusses largely on slowing the unsustainable growth of federal health spending. His plan includes over $450 billion of health savings. About one-third of this comes from beneficiary-oriented changes such as modernizing cost-sharing, restricting Medigap coverage, encouraging the use of generic drugs, and increasing means-tested Medicare premiums. Another half of the savings come from providers, where his plan would bundle payments for post-acute care, reduce hospital payments for medical education, equalize payments for services performed in different settings, reduce reimbursements for bad debts, and "rebase" nearly all payments to post-sequester levels.

The $165 billion of remaining spending reductions in the Rigell plan come from a variety of sources, many of which we recommend in our Sequester Offset Solutions (SOS) plan. For example, his plan would index various user fees to inflation, increase federal employee retirement contributions, increase PBGC premiums, and adopt the chained CPI for other spending, among other changes.

Medicare Premiums Take Center Stage

Adding to the list of things lawmakers want to get done before the end of the year, Congress may take up a relatively obscure Medicare issue that could have significant consequences for some Medicare beneficiaries. Earlier today, House Democrats held a press conference calling for lawmakers to avert a significant Medicare premium increase that could hit a small subsection of beneficiaries next year, and a resulting increase in deductibles for all Medicare beneficiaries.

The issue at stake is the "hold harmless" provision that bars annual increases in Medicare Part B premiums from exceeding the dollar amount of a beneficiary's Social Security cost-of-living adjustment (COLA) for most enrollees. The provision usually does not come into play because Social Security benefits are generally much larger than Medicare premiums, meaning that even a small COLA should cause a large enough benefit increase to clear the bar.

However, with gas prices falling and remaining well below last year's prices, the Social Security Trustees predicted during the summer that there would be no Social Security COLA at all this year since there would be zero inflation. At the same time, Medicare Part B premiums will increase for 2016 because they are calculated for most beneficiaries as being roughly one-quarter of the average per-person Part B costs, which have grown; the deductible grows at the same rate.

Roughly 70 percent of Medicare Part B beneficiaries, therefore, will be protected from premium increases in 2016 due to the hold harmless provision, but the remaining 30 percent would have to shoulder the entire increase necessary to keep premiums at 25 percent of program costs (although the majority of these have their entire premium covered by Medicaid). These 30 percent include:

  • High-income beneficiaries who pay higher premiums at 35-80 percent of program costs;
  • New beneficiaries;
  • Beneficiaries who have not started receiving Social Security;
  • Low-income beneficiaries who have their premiums paid by Medicaid; and
  • Certain state and local employees who do not participate in Social Security.

House Reconciliation Runs Afoul of Byrd Rule

Update: CBO has released scores of the three reconciliation bills showing net ten-year savings of $57 billion but a deficit increase of $1 billion in 2025. The blog has been updated to reflect these numbers, and the second-decade numbers have been updated base on the official estimates.

Since Republicans took full control of Congress in the 2014 midterm elections, there has been plenty of discussion about the use of reconciliation, a fast-track process that most critically allows the Senate to pass legislation with 51 votes by allowing it to bypass the 60 vote requirement needed to end a filibuster, for repealing parts of the Affordable Care Act (ACA).

The relevant committees in the House of Representatives, this week, finally detailed their plans, but the proposed reconciliation package may run into trouble in the Senate because it appears to increase deficits in the second decade by in the range of $400 billion.

The bulk of the package comes from the Ways and Means Committee, plus some smaller policies from the other two relevant committees. The bills eliminate:

  • The individual mandate;
  • The employer mandate;
  • Auto-enrollment in health insurance for employers with 200 or more employees;
  • The Independent Payment Advisory Board (IPAB);
  • The medical device tax;
  • The Cadillac tax on high-cost insurance plans;
  • The Prevention and Public Health Fund; and
  • Funding for Planned Parenthood (which would be redirected elsewhere).

Unpaid-For Veterans Provisions Piggyback on Transportation Bill

Before Congress leaves for August, they must pass a transportation bill extending highway programs and transferring additional money into the Highway Trust Fund. The House posted a revised version of their transportation bill yesterday, which continues to responsibly offset the transfer to the Highway Trust Fund but adds in two deficit-financed tax cuts for veterans. The bill is expected to be voted on today, and Senate Majority Leader Mitch McConnell (R-KY) says the Senate will consider the bill after it is passed by the House.

The previous House bill used a variety of programs to pay for transferring $8.1 billion into the Highway Trust Fund, projected to be enough to continue current highway spending for five months, and presumably, allow Congress to continue negotiations over highway spending when they return in September. The revised bill keeps the same transportation section, although it only extends programs for three months, rather than five. Highway programs would need to be reauthorized by October 29, but Congress would likely be able to pass another extension through December without transferring additional money into the Highway Trust Fund.

However, the revised transportation bill also includes a new section on veterans, which refines and expands some veterans health programs, limits others, allows $3.3 billion of the Veterans Choice program to cover shortfalls within the VA health system, and enacts two small tax cuts. One of these cuts would exempt employers from counting veterans against the employer mandate, so veterans that already have access to health care will not count against the 50 employees that normally would require an employer to offer health insurance to their employees. The other tax cut allows veterans with service-connected disabilities to obtain health savings accounts, despite having medical coverage that would normally disqualify them.

Provisions in July 28 House Transportation & Veterans Bill
Policy Savings/Costs (-)
Transportation Section $0 billion
Transfer $8.1 billion into the Highway Trust Fund -$8.1 billion
Extend current budget treatment of TSA fees from 2023 to 2025 $3.2 billion
Require lenders to report more information on outstanding mortgages $1.8 billion
Close an estate tax loophole about the reporting of property $1.5 billion
Clarify the statute of limitations on reassessing certain tax returns $1.2 billion
Adjust tax-filing deadlines for businesses $0.3 billion
Allow employers to transfer excess defined-benefit plan assets to retiree medical accounts and group-term life insurance $0.2 billion
Equalize taxes on natural gas fuels -$0.1 billion
Veterans Section  -$1.2 billion
Transfer funds from Veterans Choice program to cover VA shortfall $0 billion
Exempt from the employer mandate servicemembers and veterans who already have health insurance -$0.8 billion
Allow veterans to qualify for health savings accounts, even if they receive VA care -$0.4 billion

Becerra Introduces Bill to Combine Social Security Trust Funds

Just hours in advance of the release of Wednesday's 2015 Social Security Trustees' Report, Rep. Xavier Becerra (D-CA), Ranking Member of the Ways & Means Social Security Subcommittee, and 22 Democratic co-sponsors introduced H.R. 3150, the One Social Security Act, a bill that would merge the Social Security Disability Insurance (SSDI) and Old-Age and Survivors' Insurance (OASI) trust funds into one combined Social Security trust fund. Aimed at averting the impending depletion of the SSDI trust fund, combining the trust funds would result in one insolvency date of 2034, according to the 2015 Trustees' Report.

As one of the Fiscal Speed Bumps that Congress will need to address before the end of the session, the SSDI trust fund will be unable to pay the full amount of the program's scheduled benefits by the end of 2016. The One Social Security Act would change the structure of the Social Security trust funds, merging the disability and old-age funds into one that collects the entire 12.4 percent of payroll taxes rather than the current split of 1.8 percent to the disability fund and 10.6 percent to the old-age fund. By combining the funds, insolvency for the combined program would be in 2034, reducing the OASI program's solvency by 1 year and extending SSDI's solvency.

House Transportation Plan Uses Elements that CRFB Highlighted

Here at CRFB we spend a lot of time reviewing responsible options to offset the cost of new bills and have provided many to lawmakers. So when current Ways & Means Chairman Paul Ryan (R-WI) announced an $8 billion transportation package to extend the life of the Highway Trust Fund until the end of the year, we were pleased that almost all of the savings ideas came from options we had previously identified as areas of consensus between former Ways & Means Chairman Camp's Tax Reform Act of 2014 and the President's Budget.

Many of the tax compliance ideas, dealing with mortgages, filing dates, an estate tax loophole, and a statute of limitations, were included in both plans. Three of the four were also in our PREP Plan as a way to pay for the tax extenders at the end of last year. And the single largest source of funds, to continue devoting some of current TSA fees to deficit reduction, had not been included in any previous legislation (that we are aware of) before we suggested it in The Road to Sustainable Highway Spending.

Offsets in House Ways & Means Transportation Plan
Policy Savings/Costs (-)
Extend current budget treatment of TSA fees from 2023 to 2025 $3.2 billion
Require lenders to report more information on outstanding mortgages $1.8 billion
Close an estate tax loophole about the reporting of property $1.5 billion
Clarify the statute of limitations on reassessing certain tax returns $1.2 billion
Adjust tax-filing deadlines for businesses $0.3 billion
Allow employers to transfer excess defined-benefit plan assets to retiree medical accounts and group-term life insurance $0.2 billion
Equalize taxes on natural gas fuels -$0.1 billion
$8.1 billion

Source: House Ways & Means Committee

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