The Congressional Budget Office has prepared a report estimating the budgetary effects of the Finance Committee's reconciliation recommendations. The CBO found that, overall, the committee's recommendations would generate $819 million worth of "savings" in 2006. In 2007, however, because they suggest delaying Medicare payments one year, the proposal would actually end up costing over $4.5 billion. The net cuts from 2006-2010 are estimated to be $10 billion.

This is an impressive amount for lawmakers who are particularly worried about excessive government spending; however the amount is dwarfed by the amount the government is spending for the 2001 and 2003 tax cuts this year alone: $225 billion. It seems like it would make more sense to repeal some of this cost in looking for "savings," in government expenditures, rather than cut corners in programs that serve millions of people.

Sen. Ron Wyden (D-OR) is offering up a tax reform bill today which is intended to give equal tax treatment to people whose earnings are gained via work or wealth. It would also, according to Wyden, reduce the deficit by $100 billion over the next five years.

The plan would boost the tax on capital gains and dividends, which is currently 15 percent. It would also have three rates of income taxation -- 15 percent, 25 percent, and 35 percent. To promote simpicity it would require only a single-page tax return. Wyden said yesterday, "When you make the tax code simpler, flatter, and fairer, you free up money for real tax relief for middle-class people that are hurting." The bill coincides with the the near completion of the President's Advisory Committee on Federal Tax Reform's work.

With reconciliation moving full steam ahead, Sen. Kent Conrad (D-ND) of the finance committee commented, "I have never felt that a budget going through the Congress of the United States is more disconnected from reality than this budget." It truly is disconnected -- the Senate Budget Committee yesterday approved a spending blueprint which would cut $39 billion from mandatory programs over the next five years. Overall the bill would actually produce $71 billion in gross savings, but would put about $32 billion of those savings back into new spending.

The legislation will likely be considered on the House floor next week. House Republican leaders are currently still working to put together 218 votes for support for a larger $50 billion plan. Some Republicans, including Ways and Means Committee Chairman Bill Thomas (R-CA) have privately expressed frustration to House leaders over the increased spending cut targets. Ways and Means, for example, is now being pressured to cut $8 billion, which is up from $1 billion in the original FY06 budget resolution.

Even though the amendment the House was considering voting on last week to increase the budget cuts in reconciliation to $50 billion from $35 billion is off the table due to a lack of votes, many members of the House leadership are still focused on getting these budget cuts through the reconciliation spending bill. House Majority Whip Roy Blunt, who is temporarily serving as House Leader for Rep. Delay (R-TX), noted yesterday that House remains committed to approving $50 billion in cuts in the final package, saying.

These cuts, which were harmful at $35 billion, will cause significantly more damage at $50, and are unnecessary in the wake of Katrina, even though many lawmakers are saying otherwise.

President Bush announced today that Ben Bernanke will replace Alan Greenspan as Chairman of the Federal Reserve Board. Greenspans' term expires January 31 of next year.

Bernanke currently serves as Chairman of the White House Council of Economic Advisors and has sought to associate himself with the policies of Greenspan, particularly regarding keeping inflation down. Bernanke stated that his first priority would be "to maintain continuity with the policies and policy strategies established during the Greenspan years."

Washington Post: "Bush Selects White House Economist Bernanke to Replace Greenspan

Spending in the wake of Hurricane Katrina has elicited a lot of yelling and screaming from all sides, with worries ranging from how much we are spending, to how we will offset that spending, to whether or not tax and budget cuts are necessary or wise in the wake of the disaster. A new round of legitimate worries has gained more momentum recently, specifically over which giant corporations are getting government contracts, why they are getting those contracts, what their ultimate development goals are, and whether or not they are receiving too much money for the services they are providing (and thus wasting taxpayer dollars).

Halliburton has been the focus of much of this attention for receiving tens of millions of dollars from the Republican administration to work on rebuilding the Gulf Coast. Now, many are questioning the deal struck between the government and Carnival Cruise Lines, which is housing displaced hurricane victims on three of their cruise ships. The company is receiving $236 million for this six-month contract, to cover the costs of using the ships, and also to compensate for lost revenue Carnival would have received if the ships were stocked with paying vacationers.

The disconnect here, however, is that Carnival Cruise Lines is possibly making significantly more money than they should be, and thus wasting disaster-relief funds which are badly needed in many areas. The cruise line earned $150 million in revenue over a 6 month period (the data came from 2002), which is significantly lower than the $236 million being allocated to the company. (A spokeswoman for Carnival noted that revenue was down because it was the year following the September 11 attacks, but did not provide data to back up this statement). On top of this, many of the cruise line's entertainment services and staff -- a big chunk of their expenditures, no doubt -- will not be needed or used by the company over the next six months, thus arguably bringing costs even lower than $150 million.

Rep. Henry Waxman (D-CA) is a key lawmaker investigating this issue, and he sent a letter to Dept. of Homeland Security Secretary Chertoff yesterday demanding more accountability and transparency in federal contracting. The letter asks DHS to provide the following information:

In a time when lawmakers are calling for harsh budget cuts to offset the costs of Katrina-related spending, it is imperative that funds are not wasted through excessive government handouts to these major corporations. Lawmakers, who are responsible for these contracts, should know what the cost estimates for certain contracts should be and not be duped into paying more than what is necessary.

Senators have been working this week through a number of amendments related to the appropriations bill to provide funding for treasury, transportation, housing, and judiciary programs for FY 2006 (H.R. 3058), and on Wednesday the White House issued a handful of veto threats against the bill.

According to BNA, in the Statement of Administration Policy issued by the White House, veto threats "were levied against transportation programs, an easing of sanctions against Cuba, and the lack of a ban for the use of certain federal dollars to carry out abortions." Specifically relating to transportation, the White House threatened a possible veto if:

In related news, the White House may flag the Finance Committee's Medicare proposal, which would cut more than $10 billion from Medicare and Medicaid. The White House is unenthusiastic about the proposal mostly because of the committee's decision to save about $5.4 billion by draining a fund which provides incentives to private health plans. Insurance planners also said the move was unfair in that it changes "the rules governing how private plans interact with Medicare before the new drug benefit kicks in." The committee, however, chose to make a cut in this fund to avoid some having to make more politically difficult cuts that would directly affect Medicare beneficiaries.

The Senate Finance Committee, after days of deliberation, agreed today to $10 billion in Medicare and Medicaid cuts, to take place over the next five years. The cuts will come primarily from Medicare, as the measure would cut $18.6 billion from the Medicare and $7.7 billion from Medicaid. It also, however, would boost spending on various Medicaid and Medicare programs. They will markup the measure early on Monday, which will pave the way for the bill to be included in the Senate Budget Committee's reconciliation package, slated to be put together October 26.

The Agriculture Committee in the Senate is required under the FY06 budget reconciliation instructions to cut to cut $3 billion from mandatory agriculture programs. One of the programs at risk of being cut was the food stamp program, however today Senate Ag Committee Chairman Saxby Chambliss (R-GA) dropped plans to cut the program by $574 million. They would have achieved their savings in the food stamp program by requiring families receiving non-cash state welfare assistance -- who are currently automatically eligible for food stamps -- to apply separately. This would have brought down the number of families who use the program.

Instead, he will reduce the amount of money farmers can get in certain farm subsidy payments that are made in advance. According to CongressDaily,

"The change in the percentage of direct payments a farmer can get early in the year raises the savings from $518 million in Chambliss' first plan to almost $1.1 billion. The impact is to deny farmers the use of that money during the production season. Farmers will continue to get the full direct payment promised under the 2002 farm bill minus a 2.5 percent reduction in all farm programs, but making the payment later in the year creates budget savings."

NY Times Coverage

CongressDaily reported this morning that House GOP leaders have decided to drop plans for now to include across-the-board cuts to FY 2006 discretionary spending as part of an amendment to the budget resolution which was passed last April. Although across-the-board cuts have been dropped, the amendment is still expected to call for $50 billion in entitlement cuts, which is an increase from the $35 billion designated in the original FY06 budget blueprint. This amendment could be on the floor as early as Thursday.

The cuts were dropped partly because of the belief that committing so soon to them would hamper negotiations with the Senate on FY06 spending bills, said GOP Conference Chairwoman Deborah Pryce of Ohio.

The Senate does not have plans to consider a similar budget amendment, and members are currently focused on the reconciliation process, which begins today. Senate Republicans are looking for additional budget cuts, but the Finance Committee, last night, was unable to coalesce around a plan to cut at least $10 billion from the Medicare and Medicaid programs. The deadline for the committee to finish work on the package is quickly approaching, and because Finance Committee rules require 48 hours' notice before a markup can take place, Grassley has convened a meeting this morning in the hopes of reaching an agreement. The Budget Committee is supposed to mark up a reconciliation bill incorporating bills from all committees by Oct. 26. If they do not do so, it could open the door to procedural hang-ups, and according to Finance Committee ranking member Max Bauuus (D-MT), "presumably any senator could offer a motion to recommit."

Also on Monday, Senate Finance Committee Chair Charles Grassley (R-IA) acknowledged that the committee might not be able to produce enough revenue-raising offsets to extend all tax cuts expiring this year under the budget reconciliation process. He did insist, however, that Congress would be able to pass a tax cut reconciliation package this fall, saying, "We can do the $70 billion without any problem."

It seems the most "fiscal conservatives" in the House, the extremely right-wing Republican Study Committee, has gained the upper hand in their push for increased budget cuts in reconciliation. This week House GOP lawmakers will begin taking steps to cut as much as $50 billion from the FY 2006 budget. These cuts will effect areas such as health care programs for the poor, food stamps, and farm supports, and may also include across-the-board cuts in other programs.

A month ago, when the RSC first called for stepped-up budget cuts in the wake of Hurricane Katrina, House leaders tried to terminate their efforts behind closed doors. However, now House leaders are embracing this call for extensive budget cuts. With the leadership in turmoil because of Majority Leader Tom Delay's (R-TX) indictment, leaders, according to the Washington Post, "had no choice but to firm up support with their conservative base... according to lawmakers and leadership aides."

Part of what is driving the Republican Study Commitee, which is headed by Rep. Mike Pence (R-IN), is a concern regarding spending in the wake of Hurricane Katrina, which is projected to possibly exceed $200 billion. This group has, on occasion, criticized the administration and their Congressional colleagues for participating in what they call run-away spending. Since Bush came to office, federal spending has increased by approximately one-third, from $1.86 trillion to $2.47 trillion, and deficits have risen. What does not add up is that this same group supports the tax cut measure slated for passage in reconciliation, which amounts to $70 billion in un-offset federal spending. They also support the extension of Bush's 2001 and 2003 tax cut provisions, which would cost over $1 trillion in lost revenue over a decade.

It seems that the $200 billion cost of Katrina - a one-time expenditure that will not add to the deficit for more than one year, is nothing but an excuse for these members to gain some traction for their real goal: shrinking the size of government significantly by defunding public programs which serve to help millions of people every year. It is a push for cold-hearted disinvestment in our country during a time when so many people -- both Katrina victims and others -- are in need. And it is masked in the cloak of "fiscal responsiblity." In reality, it would be difficult for the RSC's definition of fiscal responsibility to be any less responsible, both in regards in to the well-being of citizens and in regards to future deficit projections.

The Congressional Budget Office released a report titled Long-Term Economic Effects of Chronically Large Federal Deficits yesterday. The report discusses how deficits affect national saving, financial markets, and capital inflows.

The report points out that while temporary deficits (such as those brought about by unanticipated spending for events such as Hurricane Katrina) can serve to support economic activity, large federal deficits (such as those created by chronic tax cutting) serve to reduce future living standards by "slowing the accumulation of national wealth as they lower national saving.... by shifting resources into public and private consumption through increases in federal spending cuts in federal taxes." The report also notes that policies which increase the deficit but also "provide incentives for people to work, acquire more skills and education, undertake research and development, invest, innovate, or use resources more efficiently may do less harm to future living standards than policies that increase the deficit without providing such incentives."

CongressDaily, a publication of the National Journal, reported this morning that 65 House members sent a letter to President Bush urging him to exclude gambling interests in tax cuts designed to spur reconstruction and renewal on the Gulf Coast.

Lead by Rep. Frank Wolf (R-VA), the letter was signed by both Republicans and 14 Democrats and was sent in response to press reports that the administration was considering allowing casinos to qualify for tax breaks in the wake of Hurricane Katrina. The letter concluded, "We trust you will do the right thing and make sure federal resources go to the poor, the needy and the vulnerable and not the gambling interests who already have insurance to cover catastrophic events like hurricanes."

It's nice to see rational and moderate Republicans (and Democrats) speaking out for the right priorities in the wake of Katrina. Now if only they would apply this philosophy across the board and oppose the extension of more tax cuts for the superwealthy paid for by budget cuts to programs for low-income Americans.

Read the letter send to President Bush.

The President's Advisory Panel on Tax Reform met yesterday in anticipation of their November 1 deadline for submitting tax code recommendations to the Treasury Department. In the meeting the panel referenced some loose conclusions they have come to regarding tax reform, mainly concerning the alternative minimum tax as well as deductions for homeownership and employer-provided health insurance.

While the panel still has a few weeks before they will be submitting formal recommendations (which Bush may or may not choose to consider), they have basically come to a consensus that it would be a good idea to cap both the employee income exclusion for employer provided health care as well as the mortgage interest deduction for homeowners. There was discussion of capping employer-provided health insurance at $11,000 per employee, and mortgage interest deduction at $350,000 (for a couple filing jointly). Former GOP Senator and Chairman of the Panel Connie Mack said that the deductions as they currently exist are not shared equally, and that by pursuing caps in both areas it would result in "shifting some of the benefit to middle-income Americans."

Much of the reason why the panel is interested in pursuing these reforms is because the decreased deductions would help to offset the cost of repealing the Alternative Minimum Tax (AMT), which was created to ensure that all extremely wealthy individuals would pay some taxes, but is increasingly ensnaring upper- and middle-income Americans. AMT repeal, which would cost about $11.3 trillion over ten years, was deemed to be a necessary reform by the panel months ago, however it was only at yesterday's meeting that they laid out any sort of options to offset to the cost of repeal.

At yesterday's meeting the panel also recommended expanding tax breaks for charitable donations, and rejected the idea of replacing the income tax with a sales tax or a value added tax, both of which would unnecessarily complicate the tax code while placing a disproportionate financial burden on low-income families.

The panel will meet once more publicly on October 18, and meet later in the month via teleconference before submitting their recommendations. They are slated to disband November 15.

New York Times: "Tax Panel Says Popular Breaks Should Be Cut"

Yesterday the Congressional Budget Office revised their deficit estimate for FY 2005, stating that the deficit will be $317 billion. As Sen. Conrad (D-ND) said in a statement on the deficit figure, when the Social Security and other trust fund surpluses also being spent are added in, the debt in 2005 will actually increase by $575 billion. Also, while the cost of the hurricanes will not add a lot to the deficit in 2005, we can expect the 2006 deficit to increase significantly because of disaster-related spending.

As the Center on Budget and Policy Priorities points out, while this figure is down from last year, it is largely due to an increase in tax collections from last year. And without the 2003 tax cuts revenues would be higher, and deficits smaller. To read more on the CBO's calculations, see their Monthly Budget Review.

Posted by Becky Lewis, 01:45:22 PM



Budget and Tax Cuts Will Hurt Most Vulnerable

Yesterday the Coalition on Human Needs sent a sign-on letter to Congress, requesting that lawmakers focus on addressing human needs issues in the wake of the natural disasters, rather than focus on cutting both entitlement spending and taxes. The letter was endorsed by approximately 750 groups; at least one from every state.

President Bush recently acknowledged what he called a "diminished appetite" among lawmakers for taking up social security reform. Many are now arguing that attention could swing from addressing social security concerns to addressing tax reform proposals.

The President's Advisory Panel on Tax Reform will be submitting their recommendations to the Treasury on November 1, allowing for the Treasury to work the recommendations into proposals that Bush can launch in the January 2006 State of the Union address. The tax panel is supposed to be figuring out how to make the tax code, simpler, fairer, and more pro-growth. The impacts they will actually have though, are still unknown.

The tax panel will be holding two meetings this month in Washington, D.C., which are open to the public. On October 11 they will be meeting at 10:00 in the Renaissance Hotel (999 Ninth St., NW) and on October 18 they will be meeting at 9:00 in the Ronald Reagan Building (1300 Pennsylvania Ave).

A week after a hearing of the Senate Finance committee cast doubt on the usefulness of tax cuts in relief efforts to help individuals and businesses on the Gulf Coast, additional economists and expert analysts have supported that position. The New York Times reported this morning that economists from the very conservative Heritage Foundation to the more centrist Tax Policy Center have confirmed that President Bush's tax incentive proposal will do less for individuals who live in the affected areas and more for rich investors and businesses from other parts of the country. The Times article quoted William Beach, chief economist at the Heritage Foundation as saying, "People in the area obviously won't have tax liabilities for some time. What we're talking about is getting very wealthy people from around the United States to invest in New Orleans."

In addition to growing concensus among private economists that tax cuts are not the best option for relief and reconstruction efforts in the Gulf Coast, the highly respected Congressional Research Service released a report last week that found little evidence of the positive impact of tax incentives such as the "opportunity zones" proposed by President Bush in growth and employment in those areas. Nonetheless, Congress continues to explore writing yet another tax cut bill under the guise of "Katrina relief." Treasury Secretary John Snow was the lead witness today at another Senate Finance Committee hearing to promote the president's tax proposals for reconstruction of the Gulf Coast and spent most of his time defending the proposals against attacks from skeptical Senators.

Division in Congress appear to be widening over plans to offset emergency spending in the wake of Hurricane Katrina. The House seems intent on instituting an across the board cut to discretionary spending in addition to finding 10 percent more cuts in the reconciliation spending bill this fall, while the Senate has rejected the across the board cut and is focusing on the reconciliation bills and appropriations pork projects.

Yet neither chamber is being realistic or genuine in their quest to pay for Katrina spending. Even the most generous estimates of the total cuts Congress could enact to the budget would only pay for approximately 10 to 15 percent of expected Katrina costs. And while the justification for these cuts has been concerns about the deficit, the GOP is insisting on continuing with plans to pass $70 billion in unpaid-for new tax cuts this fall through the reconciliation process. This tax cut bill will actually increase the deficit, despite severe cuts to the budget that will leave Americans less secure, and is conterproductive to other efforts to find offsets for Katrina.

If Congress is truly concerned about dealing with the deficit in light of Katrina costs, it needs to address both the spending and revenue side of the equation. There is evidence some Republicans in the Senate are somewhat tuned into this reality, such as Sens. Lincoln Chafee (RI), George Voinovich (OH), and Susan Collins (ME). But it will take a more genuine effort by GOP leaders to revisit the necessity of tax cuts for the most well off in our society in order to change course this fall.

The White House and many Congressional GOP leaders continue to oppose the Grassley/Baucus Medicaid bill to expand Medicaid eligibility for displaced Hurricane Katrina victims. Sens. Charles Grassley (R-IA) and Max Baucus (D-MT) of the Finance Committee have encountered resistance to their bill from conservatives who object to its cost. However, Grassley noted yesterday that "some of the very same people that are impediments" to the bill will be looking to him for help extending the capital gains tax cut this year.

Last friday Sen. John Sununu (R-N.H.) blocked Grassley's attempt to bring the Medicaid bill up for an unanimous consent vote in the Senate. In response, Grassley warned that there might not be a reconciliation bill for spending or tax cuts if key conservatives continue to oppose his Medicaid bill.



Posted by Becky Lewis, 03:13:31 PM



Bush and GOP Leaders Call for More Budget Cuts

In a news conference yesterday, President Bush put pressure on Congress to pay for as much of the hurricane relief as possible by cutting spending. He urged that funding be cut in both non-defense discretionary spending and entitlement spending. His comments prompted House Budget Committee Chairman Jim Nussle (R-IA) to claim that he will seek even more cuts in entitlement expenditures than those laid out in April's budget resolution. Currently the resolution instructs that entitlement spending be cut by $35 million over the next five years.

Nussle said in an interview that Gulf Coast reconstruction costs should be partly offset through across-the-board reductions in discretionary spending, beginning with a 2 percent "haircut" from the $843 billion agreed to under the FY06 budget." The Coalition on Human Needs has an analysis highlighting how those cuts will affect human needs programs. One has to wonder where these gestures of fiscal responsibility were when Congress passed trillions of dollars worth of tax cuts in 2001 and 2003, which were not offset by any spending cuts. That Congress also wants to push ahead with extending reduced rates for capital gains and dividends taxes -- tax breaks which benefit primarily the wealthy -- further serves to illustrate that these spending cuts could be avoided.

Bush also asserted yesterday that even though Congress has a "diminished appetite" for overhauling Social Security, he has not taken the issue off the table. Bush said, "Social Security for me is never off. It's a long-term problem that's going to need to be addressed." However, the solutions he claimed to support a few months ago would lower guarenteed benefits and cost $700 billion over the next decade. Not exactly a great way to cut down federal spending.