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Category: Budget

Two Things We Learned this Week

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1. Republicans are on a collision course over DoD spending: The long-brewing squabble between GOP defense hawks and fiscal hawks over defense spending is coming to a head, with the House Budget Committee planning to move a budget resolution that sets base defense spending next fiscal year $35 billion below what the Pentagon requested. But the defense hawks are lobbying furiously to avoid that outcome, and Senate Armed Services Chairman John McCain (R-AZ) is even vowing to personally oppose a budget resolution that doesn’t increase military spending above what’s allowed under the Budget Control Act of 2011. Sequester? What sequester?

And on the House side, Armed Services Chairman Mac Thornberry (R-TX) is asking the House Budget Committee to boost defense spending, which would bust the BCA caps by more than $50 billion. In a letter he plans to send to the Budget panel today, Thornberry will seek $577 billion in defense spending for the House’s budget resolution and argue that “the lowest acceptable level is $566 billion, the amount identified for 2016 in last year’s House budget,” the aide said.

Thornberry’s request of $577 billion is the amount that was projected for the Pentagon in FY2016 before the 2011 Budget Control Act was approved and sequestration took effect. It’s higher than President Barack Obama’s FY2016 request of $561 billion, which includes base Pentagon funding as well as other spending considered part of the “national security” budget. The GOP aide said that Thornberry’s letter is signed by 31 of the 36 Republicans on the Armed Services panel.

2. Government shutdowns are still a thing: Shortly after the November midterm elections that gave Republicans control of the Senate, then-incoming Majority Leader Mitch McConnell said, “We will not be shutting the government down.” Now here we are, just three months later – with the Department of Homeland Security set to run out of funds at midnight. And House and Senate leaders remain at an impasse over whether to pass a “clean” DHS spending bill or continue pushing to tie DHS funding to the president’s executive order on immigration. 

House leaders are now looking at staving off a shutdown by passing a three-week continuing spending resolution for DHS. Read more here.

Source: Politico

It’s Budget Day!

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President Obama will release his FY2016 budget today and it will push for tens of billions of dollars more in federal spending by arguing the deficit has been cut and the economy is much improved since he first took office six years ago. His fiscal 2016 budget plan will flip that by making the case that the economy has turned around, which should allow for more federal spending to ensure the improving conditions benefit everyone.

Obama will propose a mix of tax increases and changes in spending programs that, besides paying for the repeal of the sequester, would reduce cumulative deficits by $1.8 trillion over 10 years according to an administration fact sheet.

The administration said the increases would be more than offset by other spending cuts and closing of tax breaks. The plan also proposes repealing the post-sequester discretionary caps through their scheduled end in 2021, raising both defense and non-defense spending on a dollar for dollar basis. The increases would total $74 billion in spending above sequester caps — raising defense spending by $38 billion, to $561 billion, and non-defense accounts by $37 billion, to $530 billion. Obama has suggested the non-defense increase will go toward more infrastructure spending, new research into precision medicine, education programs, and foreign aid for Central American nations to combat child migration. To be sure, the White House also views entitlement spending as an investment and is not expected to make any significant calls for scaling back Social Security, Medicare or Medicaid.

The budget debate will play out over the next several months as appropriators write the annual spending bills and focus on whether to raise the sequester caps. Congress has found ways around those caps three out of the past four years, but that was when Democrats controlled the Senate. The latest sequester proposal seeks Republican support by calling for equal increases between defense and non-defense spending.

Additional reading:

Obama’s Budget: Five Things to Watch

Obama to unveil $4 trillion budget that busts spending limits

Join Bloomberg Government for a rapid response webinar tomorrow, February 3, as they analyze the numbers behind the FY2016 budget request.

President to Propose an End to Sequestration

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President Obama will advocate for an end to sequestration by proposing equal budget increases in both defense and non-defense discretionary spending in his FY2016 budget to be released on Monday. Obama is giving a ‘sneak peak’ of his budget to House Democrats at their  retreat in Philadelphia today. According to a White House source, the proposal would reverse cuts for domestic priorities and match those investments dollar-for-dollar with the resources our troops need to keep America safe.

Spending caps for FY2016 are due to be set at $1.016 trillion as required the 2011 Budget Control Act (PL 112-25), which exchanged an increase in the deficit for a decade’s worth of strict spending caps, and across-the-board cuts if Congress does not adhere to the caps.

Both Republican and Democrats have expressed a desire for raising some spending levels, but Obama’s proposal is not likely to gain support among Republicans because of how he plans to pay for them. Obama’s plan would be fully paid for with cuts elsewhere and closing tax loopholes. But any tax increase will be a non-starter with Republicans, who have rejected similar proposals before. Obama is probably hoping that his proposal for increased defense spending will help draw the GOP into negotiations.

State of The Union

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Tonight at 9 pm Eastern, 6 pm Pacific, President Obama is scheduled to give his 6th State of the Union address to Congress. The White House has been previewing certain initiatives, such as two years of free community college and paid sick leave, in advance of the speech tonight.

Tonight, however, the crux of his speech is expected to center around his economic proposals to promote the middle class and make a case for increasing federal spending on education and technology priorities. It is unclear, however, how his proposal to handle the largest funding issue confronting this last two years in office, the return of the Sequester spending cuts, will be received. The President is expected to propose increasing federal spending above the Budget Control Act levels in part by increasing taxes for the rich – his starting position in negotiations with Republicans that will ultimately determine the size of the budget for FY16.

Obama is unlikely to call for specific increases in stringent sequesters spending caps that start again in 2016, but he could call for ways to re-direct funds within those caps or come up with new revenues. As a remedy for past sequesters, the President has suggested maintaining funding for his priorities by increasing corporate taxes mainly by closing loopholes. That plan now would almost certainly be a non-starter on Capitol Hill with Republicans controlling both chambers.

The President did preview his tax increase proposals over the weekend, which included imposing a fee on financial institutions, closing the capital gains tax loophole on inherited assets, and raising the top rate of capital gains and dividends back to the Reagan rate of 28% among others. Additionally, Obama will propose increased and streamlined tax credits for the middle class for child care, two-earner families, and retirement savings.

For higher education, the President will propose consolidating the six overlapping education provisions into just two, while improving the American Opportunity Tax Credit (AOTC) to provide more students up to $2,500 each year over five years as they work toward a college degree. This move would likley make the AOTC permanent, index it to inflation, increase refundability, and resolve a significant problem of coordination with Pell grants that disadvantages low-income students. However, it is unclear how the  Lifetime Learning Credit would be handled and the impact on graduate students.

Read more about the President’s tax proposal here.

Watch the State of the Union at 9pm EST, 6 pm Pacific on most television stations tonight.

 

 

Welcome 114th Congress! Oh, and it’s Snowing!

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Photo of White House covered in snow earlier this morning, taken by Peter Alexander of NBC.

The 114th Congress convenes today under a blanket of snow in Washington, DC. While the snow is expected to taper off by midday, disagreements over budget priorities that have stymied Congress in recent years won’t go away so soon and are likely to lead to the first vetoes of appropriations bills in nearly a decade. This is largely due to the change in leadership as Republicans regain control of both the House and Senate for the first time in eight years. But today they will work through the usual ceremonial chores of swearing in new members while trying to unify support for GOP leadership and their legislative agenda.

As they do at the beginning of each Congress, House lawmakers will vote today on procedural parameters for the next two years, adopting a rules package Republicans are using to advance their desires for tax scoring. House GOP leaders have proposed a controversial “dynamic scoring” mandate that would require congressional budget analyst to account for overall economic impacts of tax or spending changes when considering major legislation. This will have a huge impact on any tax reform legislation proposed this Congress, as well as any bill that requires new funding.

Quickly after the controversial rules vote, the House will consider legislation that would exempt veterans from the employee quota used to determine which companies are required to provide health care to their workers under the Affordable Care Act (ACA). This bill is intended to both erode part of the 2010 health care law and open jobs for veterans. The legislation is expected to receive wildly bipartisan support, as it did last spring when it passed the House 406-1 before floundering in the Senate.

It is shaping up to be a busy and controversial session of Congress. With both chambers under Republican control, we are likely to see many more bills move through the legislative process than in previous years. However, much of that legislation will be ripe for a veto by the President.