On May 20, House and Senate negotiators reached agreement on a congressional budget plan for fiscal year 2009 (S.Con.Res. 70), which the House and Senate plan to vote on by the end of this week. This paper provides a brief analysis of the plan and how it compares with the budget President Bush submitted earlier this year.
Current policy projections of federal spending and revenues show sizable surpluses in 2012 and 2013 primarily because the large tax cuts enacted in 2001 and 2003 are scheduled to expire at the end of 2010 under current law (and relief from the Alternative Minimum Tax ends under current law).[i] Both the congressional budget plan and the President’s budget assume enactment of legislation that will largely consume these projected surpluses, but the legislation assumed in the congressional plan differs substantially from what the President’s budget proposes.
The revenue and spending figures in the budget resolution conference agreement reflect the extension of some expiring tax cuts, which would reduce revenues by $340 billion below CBO’s baseline projections for 2008 through 2013,without offsetting these costs. At the same time, however, the conference agreement does not exempt legislation extending the tax cuts from House and Senate Pay-As-You-Go rules that require such offsets.
The conference agreement also establishes two additional hurdles that legislation to institute unpaid for tax cuts would have to surmount. First, the conference agreement retains the “trigger” mechanism included in last year’s congressional budget plan, under which the House is barred from considering legislation containing certain unpaid-for tax cuts unless that legislation stipulates that the tax cuts will take effect only upon a future determination being made that there would still be a budget surplus in 2012 and 2013.a Second, the conference agreement establishes a new prohibition in the Senate against considering any legislation that would increase the deficit by $10 billion in any year through 2013, unless that increase is fully offset over the 2008-2013 period as a whole. As is the case with the Pay-As-You-Go rule in the Senate, the new Senate rule could be waived if 60 Senators voted to do so. The House prohibition could be waived if a “rule” to waive it were approved by the Rules Committee and adopted by the full House.
In short, the conference agreement assumes that some expiring tax cuts will be extended without offsets, but decisions regarding whether to remove procedural hurdles against considering such legislation would be left to the future.
a. For a more detailed description of the “Tax Cut Trigger” in last year’s budget resolution, see the box on page 3 in James Horney, Richard Kogan, and Matt Fiedler, “The congressional Budget Plan: A Brief Analysis of the Conference Agreement,” Revised May 29, 2007. The procedure in this year’s conference agreement works the same way, except that under this year’s agreement, the cost of the tax cuts through 2013 cannot exceed the lesser of $340 billion or 80 percent of the combined surpluses projected for 2012 and 2013 (excluding the effect of the proposed tax cuts) at the time the tax-cut legislation is considered.
The congressional budget plan and the President’s budget are identical with respect to regular defense funding and supplemental funding for the wars and Katrina relief, but differ substantially in other respects, as Table 1 indicates. The President’s budget assumes much deeper tax cuts — $797 billion over six years, compared with Congress’s $340 billion. In addition, the President would cut entitlement programs — primarily health care benefits and payments in Medicare, Medicaid, and the children’s health insurance program — by $183 billion over six years, while the congressional plan does not include these cuts. Finally, the President proposes $128 billion in expenditure reductions over six years resulting from funding cuts in non-defense appropriated (or “discretionary”) programs, while Congress assumes a $59 billion increase for these programs. The differences between the levels of discretionary funding that the congressional plan and the President’s budget propose for fiscal year 2009 are discussed below.
For fiscal year 2009, the congressional budget plan proposes total discretionary funding of $1.016 trillion (excluding emergency funding the President has requested), which is a little less than $25 billion above the amount the President proposed.[ii] (See Table 2 below.) Since the congressional budget plan assumes $1.8 billion more in discretionary funding for defense, international, and veterans programs than the President proposed for those programs, most of the difference in the overall 2009 discretionary funding level between the
congressional plan and the President’s budget is in the level of funding for domestic programs other than veterans' programs. The President proposes to cut 2009 funding for those programs $17 billion below the level appropriated in 2008, adjusted for inflation; the congressional plan proposes a $6 billion increase.[iii] (The funding that the congressional plan proposes for domestic programs other than veterans programs is $4 billion above the level in the Senate-passed budget plan and $1 billion below the amount in the House-passed plan.)