LEGISLATIVE BULLETIN | March 10, 2008

S. Con. Res. 70, the Fiscal Year 2009 Budget Resolution

Summary and Background

The Fiscal Year 2009 Senate Budget Resolution (S. Con. Res. 70), outlines the proposed federal budget for next year, as well as proposed budget levels for Fiscal Year 2008 and Fiscal Years 2010 through 2013. Upon adoption of the budget, the Budget Resolution will serve as a blueprint that guides subsequent congressional consideration of legislation. The Democratic Budget Resolution provides a fiscally responsible budget plan for our country, funds critical national priorities, and reaches balance without raising taxes.

The Budget Resolution would:

• Strengthen the economy and create jobs by making targeted investments in energy, education, and infrastructure priorities;
• Correct the misplaced priorities in President Bush’s budget by funding critical domestic programs; and
• Strengthen America’s security by supporting our troops, our veterans, and our law enforcement officers and first responders.

By carefully targeting and reallocating resources, the Budget Resolution would accomplish this without raising new taxes. In addition, Sen. Con. Res. 70 would achieve a balanced budget and a return to surplus in 2012 and 2013.

The Senate is expected to take floor action on S. Con. Res. 70 the week of March 10, 2008. This Legislative Bulletin provides a description of major provisions, anticipated amendments, legislative history, the Administration position, and related reading resources.

Major Provisions

Discretionary Spending

S. Con. Res. 70 provides $1,009.6 billion in budget authority and $1,109.5 billion in outlays for discretionary programs (excluding emergency and war funding) in 2009. Over the five-year period, total discretionary spending will fall from eight percent of GDP in 2009 to 6.2 percent in 2013.

The Budget Resolution enhances fiscal responsibility by establishing discretionary spending limits on budget authority and outlays for 2008 and 2009. For 2008, it provides a cap of $1,055.5 billion in budget authority and $1,093.3 billion in outlays. For 2009, it provides a cap of $1,008.5 billion in budget authority and $1,108.4 billion in outlays. For 2009, the Budget Resolution permits adjustments to this cap for certain program integrity efforts. These adjustments would bring funding, excluding emergency and war funding, up to the level assumed in the resolution.

Defense and War Costs. As it did last year, the Budget Resolution fully funds the President’s core defense budget request over the five-year budget window. It also fully funds the President’s request for $70 billion in additional war funding for 2009 and assumes the enactment of the President’s pending 2008 war funding request.

The Budget Resolution also:

• Provides for a 3.4 percent pay raise for military personnel;
• Again rejects the President’s proposals for new TRICARE enrollment fees and deductibles for military retirees under the age of 65;
• Addresses critical needs for National Guard equipment; and
• Assumes an increase of $500 million in funding for the Defense Environmental Cleanup account (charged with efficiently cleaning up the environmental damage resulting from 50 years of nuclear weapons production);

The Administration has unfortunately abandoned its earlier commitment to include war costs in its budget request and continues to seek war funding as an emergency, five years into the war in Iraq. The Armed Services and Foreign Relations Committees have indicated that they believe these costs should no longer be handled on an emergency basis. Therefore, the Budget Resolution includes a $70 billion cap adjustment provision that allows the Chairman to revise the discretionary spending cap for non-emergency appropriations related to the wars in Iraq and Afghanistan. The Budget Resolution’s levels of deficits and debt assume that this cap adjustment is fully used, but the existence of this cap adjustment does not require the provision of additional funds, nor does it prevent further war funding on an emergency basis if war costs exceed the allotted level.

Domestic Discretionary Spending

S. Con. Res. 70 provides $436.2 billion for overall domestic discretionary funding in 2009 (excluding emergencies and war costs). This represents an increase in an area badly underfunded by the Bush Administration. Specifically, the Budget Resolution provides for more funding than the President’s budget in key areas, including infrastructure, energy, education and training, veterans care, Community Oriented Policing Services, homeland security, Community Development, the Low Income Home Energy Assistance Program, Amtrak, housing assistance, community health centers and other health programs, environmental protection, and the Manufacturing Extension Program.

Mandatory Spending

S. Con. Res. 70 follows the paygo, or pay-as-you-go, principle for mandatory spending, with the requirement that new spending be done in a deficit-neutral manner or get 60 votes.

Children’s Health. The Budget Resolution rejects the inadequate funding level proposed by the President for the reauthorization of the State Children’s Health Insurance Program (CHIP) and once again provides a deficit-neutral reserve fund for up to $50 billion in order to expand coverage of the estimated six million children eligible but not enrolled in either CHIP or Medicaid, and maintain coverage for all currently-enrolled children.

Medicaid Regulation Moratoria. The Budget Resolution includes the cost of extending the moratoria on several Medicaid regulations and the August 17, 2007 CHIP directive.

Medicare. The Budget Resolution provides $1.325 billion in Medicare savings in 2013, allowing for legislation to delay the Medicare trigger. The savings from this assumption could be achieved from changes in the Medicare Advantage program or in the traditional Medicare fee-for-service program.

Education and Training. The Budget Resolution provides a deficit-neutral reserve fund to facilitate legislation to rebuild crumbling schools, reauthorize the Higher Education Act, and expand and improve education-related tax credits and deductions.

Veterans. The Budget Resolution rejects the President’s proposal to charge additional fees on priority level 7 and 8 veterans for health care they have earned. The Veterans Administration has estimated that if the enrollment fee and the increase in pharmacy co-payments were enacted, over 111,000 veterans would leave the VA health care system.

Farm Bill. With the 2002 Farm Bill expiring, the Budget Resolution provides a deficit-neutral reserve fund for the reauthorization of agricultural programs. To address the needs of rural America and promote new sources of renewable energy from U.S. farm products, it would allow for a $15 billion increase in mandatory agriculture funding between 2008 and 2013, provided that this increase is fully paid for.

Arctic National Wildlife Refuge & Land Sales. The Budget Resolution rejects the President’s proposal to permit oil and gas leasing in the Arctic National Wildlife Refuge (ANWR) and does not assume savings from the proposal. The resolution also does not assume any savings from the President’s proposal to sell federal lands.

Revenues

S. Con. Res. 70 balances the budget without a tax increase. The Budget Resolution provides middle-class tax relief by ensuring that the Alternative Minimum Tax (AMT) does not hit more taxpayers in 2008. It also provides targeted tax relief to address the current crisis in the housing market, to make college more affordable, and to promote alternative energy technologies. At the same time, it raises enough revenue to meet the nation’s most urgent needs and to put the budget on a more sustainable long-term fiscal path. And it sets the stage for tax simplification and reform.

• AMT Relief for the Middle-Class. The Budget Resolution takes steps to prevent the spread of the Alternative Minimum Tax (AMT), so that it does not impose higher taxes on middle-class families. It provides AMT relief for 2008, as the President requested. Democrats agree with the President that “the longer term solution to the problems associated with the individual AMT is best addressed within the context of other reforms to the tax system.” Such reforms, as the Administration acknowledges, would be revenue neutral. Under the resolution, the number of taxpayers subject to the AMT would not be allowed to increase – protecting more than 21 million taxpayers from being subjected to the AMT in 2008.

• Housing. The Budget Resolution gives Congress the option to provide additional stimulus on top of the package passed last month (H.R. 5140), although details are up to the committees of jurisdiction. The Senate recently debated the Foreclosure Prevention Act (S. 2636). One provision would give states a one-year, $10 billion increase in mortgage revenue bond authority to refinance subprime loans, provide mortgages for first-time homebuyers, and provide multifamily rental housing. Interest earned on such bonds would also be exempted from the AMT in order to attract more investors. The other proposal would extend the carry back period for net operating losses (NOLs) from two years to five years for NOLs arising in taxable years beginning or ending in 2006, 2007, and 2008. This proposal would be especially helpful to industries like homebuilding, where the recent real estate downturn is resulting in reduced access to critical financing that builders need to run their business and keep people employed.

• Education, Energy, and Extenders. The Budget Resolution includes the effects of a variety of tax provisions that it expects Congress will address this year. These include:

• • Education – The resolution assumes Congress will provide tax relief to make a college education more affordable. The resolution could accommodate expansion and reform of the deduction for qualified education expenses and the HOPE tax credit. It could also provide for the extension and reform of other education tax provisions such as the deduction for teacher classroom expenses, the deduction for student loan interest, and bonding initiatives to modernize school facilities.
     
  • Energy – The resolution could accommodate energy tax provisions that encourage the development of renewable energy, reduce dependence on foreign energy supplies and bolster domestic supplies, support the use of alternative vehicles, and promote more conservation and energy efficiency.
     
  • Extenders – The resolution assumes that expiring tax provisions that have been routinely extended in the past will be extended. These provisions include, for instance, the research and experimentation tax credit and the deduction for state and local sales tax.

The Budget Resolution also assumes the Senate Finance Committee will develop an appropriate set of offsets so that these tax provisions are paid for.

Reserve Fund for Tax Relief. In general, the Budget Resolution allows for tax relief, including the extension of the expiring provisions, as long as the cost of these measures is offset. A reserve fund is included to ensure that such revenue-neutral tax measures do not face points of order, so long as they are paid for.

Closing the Tax Gap, Shutting Down Tax Shelters, and Addressing Offshore Tax Havens. The Budget Resolution calls for collecting taxes that are already due, while at the same time improving taxpayer services for honest citizens who need help complying with the code. The Budget Resolution assumes that Congress will take aggressive steps to close the “tax gap,” the amount of taxes owed under current law but not collected. According to the IRS’s latest estimate, the tax gap in 2001 was $345 billion. In the years since 2001, it is likely that the tax gap has grown even larger. And this total does not even include the billions of tax dollars lost to illegal tax shelters and offshore tax havens.

In addition to supporting steps to increase reporting and withholding requirements, the Budget Resolution fully funds the President’s budget request for the IRS and includes the President’s request for additional resources for IRS enforcement.

Setting the Stage for Tax Simplification and Reform. The revenue levels in the Budget Resolution assume that Congress will take steps to counter the effects of the expiration of tax cuts in 2010 in a manner that achieves the goal of balancing the budget in 2012 and 2013. Last year, the Senate overwhelmingly approved an amendment relating to middle-class tax cuts and reform of the estate tax. If a similar amendment were offered and adopted again this year, the resulting revenue levels in the resolution would be about 2.6 percent above revenues in the President’s budget over the next five years.

Long-Term Fiscal Challenges

Given that health care costs are rising much faster than wages and inflation, combined with the impending retirement of the baby boom generation, the United States faces a significant long-term imbalance between revenues and spending. While the Budget Resolution achieves the important near-term goal of returning the budget to balance by 2012, this represents only a first step in the difficult path of restoring our long-term fiscal security.

Accordingly, the Budget Resolution includes a number of measures to address our long-term fiscal challenges.

Comparative Effectiveness Reserve Fund. Given that excess growth in health care costs is the largest factor driving the spending growth in our health care entitlement programs, it is crucial that we take steps to control those costs. The Budget Resolution includes a Comparative Effectiveness Research Reserve Fund to generate objective and credible evidence for patients and health care providers about which health care treatments, services, and items are most clinically effective. Access to better evidence about what works best will help patients and health care providers make better-informed decisions, reducing unnecessary or ineffective care and potentially lowering health care costs.

The Budget Resolution also includes a discretionary cap adjustment to encourage appropriators to provide more funding for comparative effectiveness research that is already being conducted.

• Point of Order Against Long-Term Deficit Increases. Like last year’s resolution, the Budget Resolution includes a point of order against legislation that would increase the deficit over the long term – specifically, in the four decades beyond the next ten years (2019-2028, 2029-2038, 2039-2048, and 2049-2058). Under the Budget Resolution, the long-term point of order will apply against any net deficit increases (including changes in revenues and mandatory spending, but excluding debt service) in any of the four ten-year periods. The provision would sunset at the end of Fiscal Year 2017.

• Program Integrity. In an effort to achieve savings over the long term, reduce fraud, and encourage government efficiency, the Budget Resolution includes funding for important program integrity initiatives in programs, such as Medicare, Medicaid, unemployment insurance, tax collections, and Social Security. This could include the processing of additional Continuing Disability Reviews and Social Security Income redeterminations or enhanced Internal Revenue Service tax enforcement to address the tax gap.

Budget Enforcement

While budget process alone cannot replace a bipartisan commitment to fiscal discipline, there are a number of budget enforcement provisions that can help to put us back on a sound fiscal path. The Budget Resolution would reinstate or update the most important of these enforcement provisions, including:

Discretionary Spending Caps. The Budget Resolution would strengthen fiscal responsibility by establishing discretionary spending limits for 2008 and 2009, and enforce them with a point of order in the Senate that could only be waived with 60 votes. For 2008, it provides a cap of $1,055.478 billion in budget authority and $1,093.343 billion in outlays. For 2009, it sets a cap of $1,008.482 billion in budget authority and $1,108.449 billion in outlays.

Point of Order Against Long-Term Deficit Increases. The Budget Resolution includes a point of order in the Senate against legislation that would cause a net deficit increase (including changes in revenues and mandatory spending, but excluding debt service) in any of the four consecutive ten-year periods beginning with the first fiscal year that is ten years after the budget year (for 2009 these time periods will be 2019-2028, 2029-2038, 2039-2048, and 2049-2058). The point of order can be waived with 60 votes and it sunsets at the end of 2017.

The strong paygo, or pay-as-you-go, rule that was reestablished in the Fiscal Year 2008 Budget Resolution (S. Con. Res. 21), remains in effect. Paygo requires that new mandatory spending and tax cuts be offset or get 60 votes. Paygo does not prohibit new mandatory spending or new tax cuts; the rule simply says that they should be paid for so that the deficit does not increase, or have 60 votes to waive the point of order. The resolution also continues the rule that reconciliation be used for deficit reduction only.

Other Reserve Funds

S. Con. Res. 70 includes a number of other reserve funds not mentioned above. They allow the Chairman of the Senate Committee on the Budget to revise committee allocations, budgetary aggregates, and other levels in the resolution for deficit-neutral legislation that could:

Strengthen and stimulate the American economy and provide economic relief to American families through the provision of tax relief; revitalization of the manufacturing sector; housing assistance or an affordable housing fund; trade policy changes; economic relief for families; flood insurance reform and modernization; or reauthorization of agricultural programs;

Improve education by making higher education more accessible or more affordable; modernizing school facilities through renovation or construction bonds; reducing the cost to teachers of out-of-pocket expenses for school supplies; or providing tax incentives for highly-qualified teachers to serve in high-needs schools;

Invest in America’s infrastructure with investments in transit, housing, energy, water, highways, bridges, or other important infrastructure projects;

Invest in clean energy, preserve the environment, and provide for certain settlements;

Provide for America’s veterans and wounded servicemembers and for a post-9/11 G.I. bill;

Improve America’s health through legislation that would reauthorize, expand, or maintain the State Children’s Health Insurance Program; make Medicare improvements; increase healthcare quality, effectiveness, efficiency, and transparency; establish a comparative effectiveness research initiative; improve the health care system; improve the Food and Drug Administration and Medicaid; or make other improvements in health; and

Authorize salary adjustments for justices and judges of the United States or increases the number of federal judgeships.

Legislative History

S. Con. Res. 70 was approved by the Senate Committee on the Budget by a party line vote of 12-10 on Thursday, March 6, 2008, and reported as an original measure by the Chairman Conrad in the Senate on March 7, 2008.

The Budget Act of 1974 provides special expedited provisions for Senate consideration of a Budget Resolution. Debate on a Budget Resolution is limited to 50 hours, equally divided between the majority and minority leaders or their designees (customarily the Budget Committee Chair and Ranking Member are designated as managers of the resolution).

Amendments and motions can be offered and voted upon after the 50 hours has expired. However, no debate is permitted at that point. In recent years, the Senate has agreed by unanimous consent to provide time for very brief discussion of amendments or motions immediately prior to votes taking place after time has expired.

Amendments are subject to strict germaneness requirements.

Amendments

Senator Baucus is expected to offer an amendment that would use surplus budget funds to provide tax relief to America’s working families, including our nation’s military men and women. Tax relief in the Baucus amendment may include, but would not be limited to:

Extensions of middle-class tax relief provisions such as marriage penalty relief, the refundable child tax credit, the adoption credit, the 10 percent tax bracket, reform of the estate tax in order to provide certainty for families, small business, and farmers; and others; and

Substantial tax relief for military families similar to that included in the Baucus-Grassley Defenders of Freedom Tax Relief Act of 2007.

Housing-related tax relief and other measures are also under consideration. The DPC will distribute information on additional amendments as it becomes available.

Administration Position

As a concurrent resolution – a special legislative vehicle that applies only to the operations of the House and Senate – the Budget Resolution is not presented to the President for signature and does not have the force of law. Although the resolution does not require the President’s signature, the Budget Resolution provides a blueprint for later congressional action and helps shape legislation that will be sent to the President.

Related Reading

Senate Committee on the Budget, Chairman's Mark: FY 2009 Senate Budget Resolution (March 5, 2008), available here.

Senate Committee on the Budget, Charts Used in Markup of FY 2009 Senate Budget Resolution (March 5, 2008), available here.

Senate Committee on the Budget, Summary of FY 2009 Senate Budget Resolution (March 5, 2008), available here.

Democratic Policy Committee, The Democratic Budget: Strengthening the Economy and the American Middle Class (March 10, 2008), available here.

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