FY 2008 Budget & Appropriations Update - May 2007
by Dom Ruscio with Cavarocchi-Ruscio-Dennis Associates
May 3, 2007
House and Senate lawmakers will spend the next few weeks hammering out a budget blueprint that erases the federal deficit and boosts domestic spending—without raising a single penny in new taxes. No small task given the stark choices to be made.
Just hours before leaving for a two-week Easter/Passover recess, the House passed by a vote of 216 to 210 a fiscal year 2008 budget resolution (H. Con. Res. 99) that promises a budget surplus by 2012. The vote sets the stage for negotiations with the Senate, which passed its version of the budget plan the week before.
Theoretically, Congress is supposed to adopt a final budget resolution before lawmakers can begin voting on any of the 12 federal appropriations bills. But if a resolution is not agreed to by May 15, each chamber is free to set its own spending limits and proceed to consider appropriations bills.
Gimmicks, They're in the Eye of the Beholder
The House-passed bill increases aggregate spending for domestic programs—including education, public health and environmental protection—while forestalling a decision on tax cuts due to expire in 2010. The tax cuts, a signature accomplishment during President Bush's first term, lowered rates on income, investments and large estates, and contained tax breaks for married couples.
In its version of this year's resolution, the Senate adopted a provision that made room for extensions of several middle-class tax cuts, including the child tax credit and marriage penalty relief—but only for one year. The House bill made no such accommodation, in large part because doing so would erase any projected budget surplus. (Extending the tax cuts would cost about $250 billion in 2012 alone.)
Also at issue is how to rein in the alternative minimum tax (AMT), which is expected to ensnare 23 million middle-income taxpayers in 2008 unless some action is taken. Neither version of the budget resolution tackles the problem in any permanent way. The Senate resolution assumes a two-year fix to the problem while the House bill includes a one-year patch for AMT.
Neither the House nor the Senate tackle the intractable problem of entitlement spending growth, but it was obvious since last year's mid-term elections that incremental change was all that was likely to occur this year. The narrow margins of power in the House and Senate, extreme partisanship, and a divided government meant from the start that a bold budget deal was not likely.
Domestic Programs Get a Boost
House majority leader Steny Hoyer (D-MD) has indicated that work on fiscal year 2008 appropriations bills will probably begin in late May and last throughout June. Senate action could begin as early as July.
Whenever work begins it seems likely that lawmakers will attempt to restore some of the budget cuts absorbed by social programs in recent years.
Both the House and Senate versions of the budget resolution assume a five-year, $50 - $60 billion expansion of the children's health insurance program (SCHIP), with a goal of reaching the six million children who are eligible but not enrolled. The House budget plan also awards domestic agencies average budget increases of six percent over current levels.
The Senate plan goes a step farther. During floor debate on the budget resolution, the Senate voted to adopt an amendment offered by Senators Arlen Specter (R-PA) and Tom Harkin (D-IA), adding $2.2 billion for health programs. That amendment, together with funds already provided in the resolution, would restore the National Institutes of Health and health professions training programs to the fiscal year 2005 inflation-adjusted level, and bolster funding for the Centers for Disease Control and Prevention. This is certainly not the first year that Senators Specter and Harkin have offered amendments to the budget resolution. In years past, however, the House-Senate conference has either failed to come up with a compromise or the amendment has been dropped.
When it comes to the battle over fiscal year 2008 funding, what happens next—and when—may very well hinge on how government leaders resolve the showdown over the fiscal year 2007 supplemental war spending bill.
The President has taken a strong stand against any legislation that sets a timetable for the withdrawal of US troops from Iraq, saying he will veto such a measure: Democrats in Congress say their legislation reflects public sentiment. The President says the bill is larded with special projects that have nothing to do with the war's execution: Democrats argue that domestic priorities have been included in Iraq war spending bills for the past four years, and are just as meritorious as foreign priorities.
Both sides have staked out seemingly intractable positions. Depending upon what, if any, accommodations are struck or who blinks first, the current stand-off could delay work on next year's spending bills. And depending upon how vitriolic the debate gets, any hopes for a relatively smooth and productive appropriations process could be dashed.