Economy -- Bernanke Predicts Bank Failures: On the Hill a second straight day, Fed chair Ben Bernanke testified that "there probably will be some bank failures," as the econony slows but ruled out stagflation. Analysis: Bernanke and the Recession.

Housing -- As Senate Stymied on Housing Stimulus: Senate Republicans, lining up with President Bush, blocked a Democratic bill to let bankruptcy judges reduce the terms of foreclosed mortgages and expanded allowance for state housing finance authorities to issue mortgage revenue bonds. Story.

Social Security -- Disability Claims Boom(er) Times: Demographics may be causing the the Social Security Administration's 750,000-claimant backlog of eligibility disability benefit hearings, with average wait times of 500 days and 300,000 claims over a year old. Disability Determination Process.

Economy -- Bernanke Signals Further Rate Cuts: Fed Chair Ben Bernanke said yesterday in congressional testimony that in light of continuing "downside risks" from the housing slump, the Fed is prepared to make further rate cuts. Bernanke's testimony.

Budget Reconciliation -- Vehicle for Stimulus 2.0?: Senate Budget chief Kent Conrad said yesterday that he may include a $35 billion stimulus package including a UI extension, boost to food stamps and LIHEAP, perhaps added funding road or water infrastructure projects, but not additional Medicaid money, as the NGA requested this week.

Budget -- FDA Needs 7 Times Bush Funding Request: The FDA's Science Board has requested an additional $375 million for the FDA budget in 2009 to help restore the agency, more than seven times the increase of $51 million requested by President Bush. Story: Washington Times.

Medicare -- GAO Report on Plan Prices:The New York Times writes up a GAO report issued today indicating that private Medicare plans cost more to beneficiaries than traditional Medicare. See Report.

QUOTATION OF THE DAY:

If [President Bush] chooses, as he did last year, to say 'sorry, I'm not going to compromise on the numbers,' then there's very little incentive for this committee to do anything except say, 'well, the president's dealt himself out of the game and we will simply have to … wait until a new president is in office who will act like an adult when it comes to negotiating.

-- House Appropriations Chair Rep. David Obey

CongressDaily is reporting ($) that Senate Budget Committee Chair Kent Conrad (D-ND) may include another round of stimulus spending in the budget resolution.

The budget resolution will include a separate $35 billion economic-stimulus bill that will be made up of an unemployment insurance extension, a temporary increase in food stamps and low-income heating assistance. Conrad said the stimulus bill will not be offset. The budget resolution will designate the stimulus bill as emergency spending.

Budget Resolution (BR) -- Weapons of Instruction: Senate Budget Committee Chair Kent Conrad hasn't yet decided whether to separate the tax and spending reconciliation bills or include reconciliation instructions in the FY09 BR his committee is to mark up next week. (FY09 Instruction, see p. 44)

Among the instruction items under consideration:

• extending renewable energy tax credits
• money for state infrastructure
• delaying a June 30 Medicare physicians pay cut
• Medicare Advantage funding cuts
• education legislation
• a one-year offset AMT patch
• and, perhaps...

Earmarks -- DeMint Moratorium Amendment: Sen. Jim DeMint (R-SC) said yesterday that he would propose a one-year moratorium earmarks in all FY09 spending bills via amendment to or instruction in the budget resolution. Press Release.

Farm Bill -- Waiting for Paygo: Negotiations on a new five-year farm bill that would cost $10 billion more than current law are stalled until Congress's tax-writing committees to find a way to pay for it... Conrad has said offset would come from an increase in customs duties and user fees rather than tax increases... The 2002 farm bill expires Mar. 15. More from AgWeb.

Every year, the Bush administration's annual budget volume includes a section entitled Budget Process Reforms -- which sets out a series of initiatives similar one year to the next, generally self-serving to the executive branch, and not seriously pursued with the legislative branch (see, e.g., Budget Reform Proposals-in-Wonderland").

Proposed perennially and rarely taken (up) seriously in Congress, it is not often that debate is joined on these reform ideas, some of them familiar non-starters such as the line-item veto, some obscure and not objectionable at first blush, such as biennial budgeting.

Hats off, then, to Roll Call's Stan Collender, whose current column in Fiscal Fitness engages these ideas in good faith and on the merits, since they "supposedly would fix the budget problem," but is also appropriately dismissive, since "none of these proposed changes have any chance of being adopted this year."

Economy -- Wholesale Prices Highest Since 1981: The Labor Department said yesterday that wholesale prices rose 1 percent in January, a 7.4 percent jump from January 2007... The last time wholesale inflation over 12 months was higher than 7.4 percent: October 1981. Story.

Taxes/Energy Bill -- Vote Likely Tomorrow: H.R. 5351, the Renewable Energy and Energy Conservation Tax Act of 2008 (see 02-25-08 Report), featuring $18 billion in offset tax incentives intended to encourage the production and use of cleaner forms of energy, is expected to come to the House floor for a vote tomorrow. Bill analysis.

Health Care -- Report on Projected Spending Growth: The Centers for Medicare and Medicaid services has released a new report projecting spiraling health care spending growth due to medical prices, increased usage, and demographic changes... This growth will affect both public government programs and private sector health care costs, per the report.

Ethics -- Ashcroft Ducks Subpoena; Will Testify: The Washington Post reports today that former Attorney General John Ashcroft, facing a subpoena threat, has instead agreed to testify in the coming weeks before a House committee about his firm's multi-million dollar contract overseeing a medical equipment company... a contract allegedly awarded him by a former employee at the Justice Department.

Ahead This Week

Tax/Energy Bill -- PAYGO in Play: This week, the House will take up a package of tax incentives for alternative energy and energy conservation programs omitted from last December's energy bill... The House tax bill would cost about $18.1 billion over 11 years and would comply with PAYGO by denying or reducing tax benefits for big oil and gas companies.

Stimulus 2.0 -- Housing Sector: Meanwhile in the Senate, time permitting, the Democratic leadership will seek this week to bring a housing stimulus package of direct aid, tax breaks, and other initiatives to the floor.

Next Week

FY09 Budget -- Budget Resolution (BR):

• Spending Caps -- the House and Senate Budget Committees are expected to mark up budget blueprints next week... watch in particular for domestic discretionary spending topline alternatives to the Bush budget caps, which amount to a $20.5 billion cut in real terms
• AMT Patch -- the Committee chairs are working behind the scenes on instructions in the BR for a reconciliation bill to allow a one-year "patch" for the AMT that would be offset with -- tax increases... Senate Budget chair Conrad (D-ND) has expressed concern that suchinstructions could doom the BR in the Senate
• Deadline -- generally observed only in the breach, the statutory dealdine for BR passage is April 15

Economy -- Slow Growth Ahead Says Fed:

• The Federal Reserve yesterday revised growth estimates downward to the 1.3 to 2 percent range for this year, compared to its 1.8 to 2.5 percent estimate in October. Despite yesterday's CPI figures, a 50 bp rate cut at the Mar. 18 FMOC meeting "would likely not contribute to an increase in inflation pressures"...
• But yesterday's inflation figures pose a problem for the Fed which, on one hand, does not want to vitiate the effect of the stimulus package but, on the other, is on the lookout for... That '70s Look: Stagflation

Earmarks -- E.O Examined: CRS has issued a report, Earmarks Executive Order: Legal Issues reviewing the legality and impact of President Bush's Jan. 29 Executive Order 13,457 to reduce the number and cost of congressional earmarks and requiring them to be included in the text of bills... The report concludes that the E.O. "may prove to be more a matter of political rather than legal significance."

Stimulus -- Strategy and Skepticism: For a critical backward glance, see our Assessing the Stimulus and the New Yorker's The Stimulus Strategy:

It's not ideal in its targeting -— Congress omitted policies that are especially effective in generating spending, including the extension of unemployment benefits and food stamps—but it does limit the rebates to families with incomes under a hundred and seventy-four thousand dollars. Given that two-thirds of all income taxes in the United States are paid by households that earn more than that, this is a startlingly redistributive move from an Administration not known for such measures.

Economy -- CPI up 4.3 percent, Year-on-Year: Per the Washington Post this morning: On the day after oil closed at a record high of more than $100 a barrel, new federal data show that... The consumer price index was 4.3 percent higher last month compared to January a year ago.

Budget -- Discretionary Battle a War of Choice: After the battle of the Bush budget's maginot [top]line of $933 billion last year, Democrats will be deciding in the coming weeks whether or not to engage in another struggle to add funds to the president's FY09 discretionary cap of $990 billion... Markups in both House and Senate Budget committees are expected the week of March 3, with floor action in each chamber likely the following week.

Social/Insurance -- Does it Make a Difference? All the difference in the world, say Stuart Butler of the Heritage Foundation and Maya MacGuineas of the New America Foundation in Rethinking Social Insurance, a new idea whose time may have passed...

Social Mobility Study -- Brookings' Getting Ahead or Losing Ground: Mobility in America, released yesterday, concludes that "a growing difference in education levels between income and racial groups, especially in college degrees, implies that mobility will be lower in the future than it is today."

Economy -- Sector for Stimulus 2.0?

• Housing Hardball -- Why not go to the slowdown's source, some legislators ask? With foreclosures skyrocketing in certain parts of the country and home values falling almost everywhere, some in Washington are pushing a follow-up stimulus package aimed at shoring up the housing sector...
  • Per Lawmakers Plan Another Housing-Related Stimulus Bill in yesterday's WSJ, the National Association of Home Builders support one idea floated by Senate Democrats, a tax break allowing companies with operating losses this year or the two previous years to apply them to past years for a refund...

  • A provision backed by the president would allot an additional $10 billion in bond authority so housing-finance agencies can give more help to people refinancing subprime loans or first-time buyers.

• Energy and the Economy -- Last week, Sen. Amy Klobuchar (D-MN) along with co-sponsors Sens. Olympia Snowe (R-ME) and Susan Collins (R-ME) introduced the American Renewable Energy Act. The bill would create tax incentives for private sector investment in renewable energy resources and technology by extending tax incentives, such as the production tax credit, for 5 years. "Of course, this covers wind, solar, geothermal, hydro, and other forms of renewable energy, and making sure that is in place so we can spur the kind of investment that will create jobs"... A solar "panel" was very nearly attached to the Senate version of the stimulus package earlier this month, to the surprise of many...

Rebate: How Much will you Get? -- Kiplinger offers this calculator.

Budget: The Medicare "Trigger" -- The Center on Budget has this analysis and commentary on the 45 percent Medicare "trigger' which provides that, if the Medicare trustees' reports issued in two consecutive years estimate that the 45-percent limit will be exceeded within the next six years, a "Medicare Funding Warning" is issued, and the President must submit — and Congress must consider — proposals to prevent the limit from being exceeded.

The Bush administration is pursuing or has achieved several policy goals that work to cut social support services by reducing federal funding for Medicaid programs. The Center for Medicare and Medicaid Services (CMS) has released all of these policies — three proposed rules, one interim final rule, and two final rules — in the past nine months.

Two recent reports (one by the Center for Budget and Policy Priorities and one by the Kaiser Family Foundation) link the policies together to show a uniform attack by the Bush administration on federal support of state Medicaid programs. From the Kaiser report:

The Administration views these regulatory changes as promoting the purposes of Medicaid by enhancing the integrity of the program. However, states argue that many of the regulations could limit flexibility in administering the program and could impede the ability of the Medicaid program to fulfill some of its critical roles in the health care system such as providing support to safety-net providers or providing long-term care supports in the least restrictive settings.

Basically, the new rules undermine Medicaid benefits by placing an increasing burden on the states. "Each of the regulations is expected to reduce federal Medicaid spending by directly limiting the level of provider reimbursement, restricting the scope of services eligible for federal match and by limiting states' ability to finance their Medicaid programs," according to the Kaiser report. By reducing federal spending, states would be forced to either cut benefits or pick up the slack financially.

Some of these rules represent efforts by the Bush administration to circumvent Congress. For example, one of the proposed rules would limit the ability of state governments to provide rehabilitation services (such as transitions to independent housing) for people with mental illnesses or developmental disabilities. According to the Kaiser report, the Bush administration proposed this limitation as a legislative provision in 2006, but Congress rejected it.

These are exactly the kind of administrative changes we should expect the Bush administration to pursue in its waning days of power. Confronted by a Democratically-controlled Congress and election-year politics, the administration will try to accomplish administratively what it cannot accomplish legislatively.

Economy -- Ben Bernanke Bearish: In testimony before the Senate Banking Committee yesterday, Fed Chair Ben Bernanke offered a bearish outloook on the economy... Asked about how to assess the efficacy of the recently-signed $152 billion stimulus package, Bernanke said it would be "a warning bell" if financial markets or credit conditions were to worsen... On his prediction of a "sluggish" economy over the next six months, the Dow dropped 200 points in afternoon trading.

Budget -- Ways & Means & Views & Estimates: The House Ways and Means Committee has cionveyed its official "Views & Estimates" letter to the House Budget Committee outlining its preparatory to the drafting of a budget resolution.... The panel's letter signals its intent to finance legislation in compliance with the House's PAYGO budgeting rules... Many doubt how much progress Congress will make this year on an FY09 budget, doubts expressed this way by House Appropriatations chair David Obey (D-WI):

We don't have a whole lot that we agree with in terms of the administration's budget policies. That was demonstrated by the fact that the president vetoed the bill produced by this subcommittee last year... I don't particularly see any sense in chewing the same cud twice, as we say in farm country, so I really regard this year and our actions during it as being preparatory to the new administration, whichever party it is.

Earmarks -- The ire of the anti-earmark associates in the House was provoked by Minority Leader John Boehner's award of an Appropriations Committee seat to Rep. Jo Bonner (R-AL). Bonner is regarded an able enabler of earmark lucre for Alabama.... the seat assignment must still be confirmed by the entire GOP House conference, probably soon after next week's recess.

When asked by Senate Budget Committee Chair Kent Conrad (D-ND) to analyze the massive growth in war spending, CBO could point to general expensing areas of supplemental budget requests, but because of lack of detail in such requests, it could not provide a detailed accounting. However, CBO did find a slew of expenses, like acquiring next-generation aircraft, that the Defense Department would undertake in the absence of the wars.

When federal agencies request funding during the normal appropriations process, they submit what are known as "budget justification" documents, which explain an agency's budget request in quite some detail (see e.g., the Education Dept.'s FY 2008 budget request justification materials). However, the emergency supplemental requests made by the administration for war spending do not include similarly detailed documents. Although the detail in such documents improved in 2007, specific data on war spending for earlier years is simply not available, severely limiting the ability of CBO to analyze and report on war spending.

The supplemental budget requests submitted between 2002 and 2006 contained little detailed information on war expenses. DoD provided detailed justification materials for its regular budget request but did not submit similarly detailed information for its war-related expenses. In February 2007, DoD expanded the quantity of justification material submitted with its requests for war funding. In addition to providing more informative summary material, it prepared budget justification materials for each appropriation, similar to those provided for the regular budget....[B]ecause similarly detailed information is not available for 2005 or for earlier years, a detailed analysis of the changing patterns of spending is impossible.

Budget -- Down on the Farm: House Agriculture Chair Collin Peterson (D-MN) and the panel's ranking member, Robert W. Goodlatte (R-VA) have sent to conference a farm bill that cuts out commodity price supports for such crops corn, wheat and rice in the ninth year of the bill's ten-year provisions... Farmers who earn more than $900,000 a year and make most of their income from farming would be ineligible for farm payments... The White House praised the bill but Sen. Charles Grassley (R-IA) recommended it be "thrown in the trash barrel."

Taxes -- Makes you Long for Carried Interest: Senate Finance Committee tax counsel Ellen McCarthy said yesterday that a bill introduced last year to tax as corporations all publicly traded partnerships deriving income from investment adviser or asset management services is a "live issue" in an environment where revenue raisers are scarce and that there is "bipartisan support in the Senate"... As we noted last fall, "estimates put 10-year revenue figures for the carried interest proposal somewhere in the $50 billion ballpark while PTP reform is thought to add a small fraction of that figure." Small fraction is charitable: JCT puts 10-year revenues from PTP in the $1 billion ballpark.

Earmarks -- The Color of Pork: CQ has analyzed the distribution of pork to members of Congress on partisan, racial, and gender bases and finds that "Black and Hispanic lawmakers in the House lag significantly behind their white counterparts in the distribution of appropriations earmarks" by a roughly 2-to-1 ratio... The analysis covers $18.3 billion allotted to 12,881 projects during the FY08 budget process... By another measure, minorities faired well: three of the five top-ranked earmark recipients in the House were white male GOP members; in the Senate, that figure was four out of five.

Budget --

Rough Patch for AMT?: Senate Budget Committee Chairman Kent Conrad (D-ND) said yesterday that he'd probably leave an AMT patch provision (est. cost $75 bn.) out of budget reconciliation instructions this year in order to facilitate both PAYGO compliance with a patch and passage of a budget... By putting tax reconciliation instructions that could be used for an AMT patch into budget resolution, a later bill to patch the AMT with offsets would require only 51 votes to pass, rather than the usual 60 votes required to avoid a filibuster.

State of Anxiety, Pt. I: Here's where the recession meets the road. More than half of the states now anticipate budget problems, according to a Center on Budget analysis of state fiscal conditions. The analysis shows that 20 states project budget gaps for 2009. The combined budget shortfall for these 20 states in 2009 is at least $34 billion.

State of Anxiety, Pt. II: The Bush administration is poised to issue a slew of new Medicaid rules that would up the $12 billion in costs for the program to the states — and there may be little that the financially strapped states can do about it... Under consideration, for example, is a plan to curtail federal reimbursement for ancillary services states provide to Medicaid patients under case-management plans, such as assistance finding housing or paying utility bills. The administration says some services — many non-medical in nature — are outside the scope of Medicaid.

Expect some push-back from the Senate and, ultimately, a compromise bill.

Earmarks --

May He who is without Sin: President Bush cast aspersions on Congress in his State of the Union speech for its apparent failure on earmarks and added a veto threat:

Last year, I asked you to voluntarily cut the number and cost of earmarks in half. I also asked you to stop slipping earmarks into committee reports that never even come to a vote. Unfortunately, neither goal was met. So this time, if you send me an appropriations bill that does not cut the number and cost of earmarks in half, I'll send it back to you with my veto.

But, as the New York Times points out, in his new budget, Bush has requested money for thousands of similar projects, including $6.5 million for research in Wyoming on the "fundamental properties of asphalt... The White House defines 'earmarks' in a way that applies only to projects designated by Congress, not to those requested by the administration.

Budget:

Funding is Fundamental -- Bush's budget for FY09 recommends ending 103 domestic social programs (listed here), among them the $25 million (read: tiny) Reading is Fundamental (RIF) program... Treasury's explanation: "The White House doesn't quarrel with the program's goals. But it says the funds should be awarded under a competitive, merit-based process rather than automatically given to one non-profit group." OK, but do you need to kill the program first?

One thing you can say about the move -- no nepotism is involved: RIF mentors include the first lady, who once served on its advisory council, and former first lady Barbara Bush, who served on its board of directors. Source: USA Today

Earmarks:

Barely discernible above the din of the stimulus and the budget is the clamoring among "House conservatives [who] continue to push for a unilateral GOP earmark moratorium," per Roll Call today. But some stalwart conservatives are not on board. Rep. Mike Simpson (R-ID) has ridiculed an idea circulating for a unilateral GOP earmarks moratorium:

I think that would be stupid... You don't unilaterally disarm yourself... What bothers me is all the rhetoric ... everyone is talking about. They've now convinced people that earmarks equal wasteful spending. A very small amount are wasteful spending.

Economy:

Recession? Wait, wait, don't tell me.. In his annual economic report, President Bush's forecast of 2.7 percent GDP growth for 2008 is the same as the assumptions in his FY09 budget... But chairman of the president's Council of Economic Advisers Council of Economic Advisors Edward Lazear said:

... the 2.7 percent that you're referring to comes from November. Obviously there have been new data since that point that might alter our forecast that you'll see coming next time... I don't want to foreshadow that or tell you where it's going to be because, obviously, we don't know where we'll be at that point... I don't think we are in a recession right now, and we are not forecasting a recession. "

Inspires confidence...

Writing in The Wall Street Journal, Jesse Drucker notes($) that the full cost of the recently-passed economic stimulus package is slightly underestimated by the Joint Committee on Taxation's score:

A round of business tax cuts in Congress's economic-stimulus package passed Thursday will cost nearly triple the official government estimate, tax experts said.

The tax breaks in the package will cost more than $22 billion over the next 11 years, or roughly $15 billion more than the government's long-term estimate of $7.5 billion. To put that additional $1.4 billion cost a year into context, it is the same as the annual budget of the federal National Institute of Mental Health.

...

...the U.S. Treasury must borrow to make up for the lost revenue. These interest costs over the next decade will triple the estimated long-term cost of the proposed business tax cuts, according to an analysis done by tax experts at the request of The Wall Street Journal.

And as interest expense on the national debt is the fastest growing component of the federal budget, prominent mention of interest expenses in spending and taxation debates would portray a much clearer picture of the nation's finances. So, we've put together a proposal that would impose a statutory requirement on the Joint Committee on Taxation to include interest expenses in its scorings, with the belief that budgetary decision making would be much improved when legislators have ready access to information on the interest expense of any budgetary legislation.

Budget --

• Last week saw several congressional hearings on the FY09 budget that Bush submitted on Feb. 4, as OMB Director Jim Nussle and Treasury Secretary Paulson testfied... A particularly testy exchange occurred on Feb. 5 when Nussle was questioned Nussle closely ("raked over the coals" -- Congress Daily) by Senate Budget Committee Chair Kent Conrad (D-ND) regarding the "indefensible" assumptions and projections in the budget that shows a balanced budget by 2012... Criticism came from both sides of the aisle, with Sen. Judd Gregg (R-NH) remarking that "it's not a serious budget"
• Secretary of Defense Robert Gates testified on Feb. 5 that 2009 war costs would be upwards of $170 billion, but Gates "quickly cautioned that he has 'no confidence in that figure,'" per Gov Exec
• Within the next month, the House and Senate Budget Committees will seek to develop budgets of their own, preliminary to a budget resolution.... The key to watch: how the Democrats achieve a balanced budget by 2012

Stimulus --

President Bush plans to sign the fiscal stimulus package approved last week by Congress this Wednesday, Feb. 13.

• For a thorough account of its contents, see the JCT's Technical Explanation
• For an excellent editorial assessing the stimulus value of the package, see WaPo's Easy Stimulus

President Bush will try one last time to distract from his fiscal legacy of the enormous and enduring additional $3.5 trillion in national debt incurred on his watch by provoking another veto-spitball fight with Congress over something like $10-20 billion in discretionary spending in FY09. This morning, Bush said:

Last week, I proposed a budget that terminates or substantially reduces 151 wasteful or bloated programs. Those programs total more than $18 billion. And if Congress sends me appropriations bills that exceed the reasonable limits I have set, I will veto the bills.

It already seems like last week, doesn't it? Or last year, for that matter.

Just one little problem. What if Congress exceeds the unreasonable limits you have set? For example, which of these program cuts is reasonable?

• Prevent Alcohol Abuse
• Teacher Quality Enhancement
• Increase Family Literacy
• Mentor Children
• Reading is Fundamental
• Community Connect (Broadband) Grants
• Resource Conservation and Development Program
• Technology Innovation Program
• Career and Technical Education State Grants
• Special Olympics Education Programs
• CDC/Preventive Health Services Block Grant

Of course, the "cuts" here equal 100 percent cuts, aka, program elimination. For a look at the whole list, see here and see if Congress can be excused for finding any of these cuts unreasonable.

SUDDENLY, STIMULUS: Congress must have surprised even itself yesterday, moving with alacrity to complete work on and adopt the biggest stimulus package ever and send it to the president. Of course, the package wasn't paid for so there wasn't much heavy lifting. The legislative process took less than a month...

NO UI... Conspicuously absent from the package is a stimulus staple -- extension of unemployment insurance (UI) benefits. The UI proposal could have gone either way. It would have cost very little -- nothing at all in FY08 and $3.6 billion over ten years. And it's pure stimulus -- almost no other kind of spending gets, well, spent so fully and fast. But, as Secretary Paulson likes to point out, the unemployment rate is 4.9 percent right now, a low point. But have a look at the chart (shaded areas indicate periods of recession; click on image to enlarge).

Look at what happens right after these low points. (Now, what was your point again, Mr. Paulson?)

BELATED BUDGET: Not so fast on the budget front. "My gut tells me that for the average politician in this town, whether it's the president's budget or Congress' budget, it will be looked upon as a holding pattern and let's wait to next year," G. William Hoagland, a longtime GOP budget aide, told CQ ($).

OMB Director Jim Nussle put a smiley face on this year's budget process, testifying at a House Budget Committee hearing this week:

It would be obviously concerning that again the process may deteriorate as it did last year, to either the last minute or a train wreck or however you want to call it... I'm a Chicago Cubs fan, but I'm not that pessimistic.

There was agreement on one point. Nussle acknowledged during the hearing that the administration's tax reform proposals were "fairly dead on arrival" with Congress...

Once again this year, the president's budget includes a set of budget reform proposals, not substantially changed from the proposals put forth in the same space in years past (evaluated here). Among the highlights:

• Joint Budget Resolution: The President's budget advocates a joint budget resolution requiring the President's signature. Of course, this would give the Budget Resolution the force of law, meaning that Congress would effectively set the level of appropriations bills.
• Line-Item Veto: George Will has the last word...

  The word "veto" is not in the Constitution. It says "every bill" passed by both houses of Congress must be "presented" to the president, who must sign "it" or return "it" to Congress. The antecedent of the pronoun is the entire bill, not bits of it. As President George Washington understood: "I must approve all the parts of a bill, or reject it in toto."

• One-Way PAYGO: Any increase in the cost of entitlement programs, such as Medicaid, Medicare, or Food Stamps, would have to be paid for by cuts in other services. The rules would prohibit financing improvements in these programs by raising revenue—for example, by closing tax loopholes; meanwhile, the cost of new tax cuts would not have to be paid for
• Selective Sequestration: Discretionary spending levels would be frozen at the levels proposed in the FY09 budget, resulting in real cuts in spending in the outyears; legislation enacted that exceeds this cap, would trigger a "sequester," or an automatic reduction, in non-exempt discretionary programs

Don't expect any of these proposals to go anywhere. The administration made only token efforts to lobby for them in Congress over the years, even when Republicans ruled the roost there.

The FY09 budget proposal submitted Monday by President Bush is the talk of the town (leaving the the Super Bowl and Super Tuesday results and aftermath aside). Not so much because it is likely to be enacted, but because it provides talking points opportunities for everyone. Below are figures from the Senate Budget Committee that express the president's broad priorites in stark terms. The defense figure is the highest in real terms since World War II; the domestic cuts belie the administration's concerns about a recession...

... which should be obvious from the $146 billion stimulus package they signed off on with the House last week. A one-vote loss in the Senate last night on a much more generous package approved by the Senate Finance Committee probably prevented a protracted House-Senate conference on the two packages. Although Senate Majority Leader Reid (D-NV) threatened to force repeated votes on on the Finance Committee plan, he and Minority Leader McConnell (R-KY) reached a compromise today on a bill that would expand tax rebate eligibility for low-income senior citizens, disabled veterans and widows of veterans, McConnell's precise terms once he saw that the House bill wouldn't fly in the Senate. "We forced McConnell to cry uncle," Finance Committee Chair Max Baucus (D-MT) crowed...

The House GOP minority -- or at least a bare majority of it -- seems to have an equally strong purchase on reason and logic. This afternoon, the House voted down H. Con. Res. 263, which called for a six-month moratorium on earmarks. That's kinda like what the Democrats did last year, though you would never know it from the rhetoric used in support of the resolution, frinstance:

The words "$400 billion deficit" - unveiled Monday in President Bush's 2009 budget - should be all the motivation Congress needs to end its abuse of earmarks. Earmarks are an inefficient, corrupting and often wasteful use of taxpayers' money. Now reform proposals have come from an unlikely source - House Republicans, who from 1995 to 2006 elevated earmarks to an art form and national outrage.

-- Riverside (CA) Press-Enterprise, 2/7/08 (an "excellent oped," per Bill Green, Office of the House Minority Leader)

Unlikely source, indeed, Mr. Green. Some, perhaps including Mr. Green, are still suffering from the misapprehension that banishing all earmarks forever would reduce the deficit, when earmarks only allocate spending, not increase it.

---------

Discretionary Spending in 2009

($billions)

Defense 536.8 +4.6%

Domestic* 413.4 -3.0%

Total 989.8 +1.6%

* includes Homeland Security

Source: Senate Budget Committee

More reactions and analysis of the president's budget have emerged since our first round-up post on Tuesday:

• CBPP: President's Budget and Medicare "Trigger"
  
• NWLC: Budget Woes: President's FY 2009 Budget
  
• Committee for a Responsible Federal Budget: The President's FY 2009 Budget
  
• The Workforce Alliance: FY 2009 Federal Funding Analyses

There have also been a number of statements and analyses circulated from Capitol Hill:

• Senate Budget Committee Dems: Brief Analysis of Bush FY 2009 Budget
  
• Sen. Conrad (D-ND): Statement on FY 2009 Budget Release
  
• Majority Leader Hoyer (D-MD): Bush's Legacy: Fiscal Meltdown, Weak Economy
  
• House Budget Committee: State-by-State Analysis of President's FY 2009 Budget Request
  
• Speaker Pelosi (D-CA): Statement on President Bush's FY 2009 Budget
  
• Majority Leader Hoyer: Statement on Bush's Release of Another Fiscally Irresponsible Budget
  
• Sen. Gregg (R-NH): Statement on FY 2009 Budget Release
• Senate Budget Committee Repubs: Overview of President's Budget

Since the president's FY 2009 budget request was mostly a rehash of old policies and proposals we've already spent time debunking in previous years, we've been looking for some new angles with which to view the president's budget. As I was sitting at my desk looking at the budget books in my office, the actual length of the main budget volume released this year jumped out at me. Or I should say, it didn't jump out at me.

Turns out the main budget book for the FY 2009 budget is the shortest one ever released by the president. At 170 pages, it is more than 45 percent shorter than the average length of the budget book released each year by President Bush (which came in at 311 pages.

Not sure what one can make of this change, particularly since the FY 2008 budget is also much shorter than the Bush average. This particular part of the president's budget proposal has evolved during the Bush administration to be a fancy, glossy, picture-filed advertisement for the administration's achievements and priorities, with little hard budgetary information. It is developed, I suppose, to help the administration put the best spin on their budget proposal and successes.

I wonder if the Bush administration is tired of actively selling their misguided priorities, particularly in this final year and that is the reason for the shorter volume? Or perhaps they have realized they really don't have many budget achievements that they should be bragging about?

The reviews have been swift and harsh. The FY09 budget proposal submitted yesterday by President Bush might serve better as wallpaper or fish wrapping than as a policy blueprint. The New York Times editorialized in Lame-Duck Budget thusly:

President Bush's 2009 budget is a grim guided tour through his misplaced priorities, failed fiscal policies and the disastrous legacy that he will leave for the next president... accept[ing] the White House's optimistic accounting... would be foolish in the extreme.... The [tax policy] would be fiscally catastrophic...

The budget bashing was not limited to those on the left. The ranking Republican on the Senate Budget Committee, Judd Gregg (NH), was as dismissive as anyone:

"This budget must have been viewed by them more as an academic exercise than a serious exercise because it's not a serious budget" (Reuters, 2/4/08). "It's almost a pro forma exercise. I don't think they even worked very hard at it" (New York Times, 2/5/08).

With its manifold deceptive economic assumptions, DOA entitlement-slashing proposals, the highest-ever post-WWII levels of Pentagon spending, and record-territory deficit projections, Bush's final budget stands as a sorry symbol of his fiscal fecklessness, destined to be disregarded and consigned to the dustbin.

(click on image to enlarge)

Had the president used realistic assumptions about economic growth in 2008, yesterday's headlines covering the FY 2009 budget request would have been: "Record Deficit Projected." Instead, the president chose to use a somewhat optimistic GDP growth rate of 2.7 percent, which produces a higher revenue forecast and subsequently lower deficit of $410 billion. If, on the other hand, the president chose to employ the CBO's numbers (GDP growth of 1.7%), the projected deficit for 2008 would have been a jaw-dropping $426.4 billion, significantly surpassing 2004's $413 billion deficit.

There are, however, mitigating circumstances for the president's numbers. In the economic assumptions section, the analytical perspectives volume states (p171):

The [Administration's economic] assumptions are based on information available as of mid-November 2007 and are close to those of the Congressional Budget Office and a consensus of private-sector forecasters...

But that begs the question: The CBO and Blue Chip (i.e. private-sector forecasters) figures reported in the budget documents (table S-10) are from January, so why not use economic forecasts based on the same set of relevant economic data?

So what were the economic experts saying when OMB were making their assumptions for the FY 2009 budget request? In testimony before Congress on Dec. 5^th, CBO Director Peter Orszag told Congress that the Blue Chip forecast was for 2.4 percent GDP growth in 2008 and that the Federal Reserve Board were predicting growth of 1.8 to 2.5 percent. Applying the administration's economic sensitivity data (p177) - a 1 percentage point reduction in GDP growth results in a $13.8 billion drop in revenue and a $2.6 billion increase in spending - to the Fed's high-end 2.5 percent estimate, the projected deficit would be $413.3 billion in 2008 - a tie for largest nominal deficit.

A budget that predicts a record-high deficit would be terribly inconvenient for a president who wishes to be remembered as "fiscally-responsible."

The FY09 budget proposal released this morning by the White House is replete with interesting and important budget facts. First and foremost of these is the big picture -- the status and story of the national debt.

The most salient (and shocking) facts are these:

Since 2002, the debt has reached the limit five times... The debt limit was increased to $6,400 billion on June 28, 2002, to $7,384 billion on May 27, 2003, to $8,184 billion on November 19, 2004, to $8,965 billion on March 20, 2006, and to $9,815 billion on September 29, 2007. The debt subject to limit is estimated to increase to $9,625 billion by the end of 2008.

At the end of 2007, foreign holdings of Treasury debt were $2,240 billion, which was 44 percent of the total debt held by the public. Foreign central banks owned 69 percent of the Federal debt.

The $9 trillion national debt includes $430 billion interest, of which $237 billion was paid out in FY 2007 (Treasury is not required to make immediately interest expense payments on amounts borrowed from the government, e.g., from trusts funds such as the Social Security trust fund). The corresponding figures for FY 2009 (est.) are $487 billion and $260 billion. See Table 3.2 on p. 73. Interest expense continues to be the fast-growing part of the federal budget.

For the full debt story as described in the budget proposal, click here.