RECAP ACA RepealandReplace Shifting Spending Priorities from NonDefense to Defense Tax Reform Corporate and Individual Infrastructure Investment Raising the Debt Ceiling Charles S Konigsberg ID: 583154
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Key Themes of the FY 2018 Trump BudgetRE-CAP: ACA Repeal-and-Replace Shifting Spending Priorities from Non-Defense to DefenseTax Reform: Corporate and Individual Infrastructure InvestmentRaising the Debt Ceiling
Charles S. Konigsberg
Publisher,
FedWeb.com
Assistant OMB Director, Clinton Administration
General Counsel & Chief Health Counsel, U.S. Senate Finance Committee
Counsel, Senate Budget and Rules Committees
March 30, 2017Slide2
Repeal and Replace the Affordable Care Act
Key Priority of Trump Administration and GOP congressional leaders was to repeal & replace the Affordable Care Act.
Congress adopted in January an FY 2017 Budget Resolution, including enabling language for a
filibuster-proof Budget Reconciliation bill
to advance “repeal-and-replace” legislation drafted by the House Ways & Means and Energy & Commerce Committees.
The Budget Reconciliation process was utilized because Reconciliation bills cannot be filibustered.Slide3
Budget
Reconciliation
Background on Reconciliation:
The Senate typically allows
unlimited debate
and measures are not voted on until all debate is concluded.
A
filibuster
is simply a tactic to prevent a vote on a bill or amendment by extending debate.
Under Senate Rules,
60 votes
are required to end a filibuster in a procedure called cloture.
With increased partisanship, Senators are increasingly
presuming
that all major legislation will be filibustered, and that 60 votes are necessary to invoke cloture and reach a final vote.Slide4
Budget
Reconciliation
(continued)
However, because debate time on Reconciliation Bills is limited by statute, it
cannot be filibustered
and requires only
50 votes
for passage (w/ VP breaking a tie).
Because this is a radical departure from the Senate’s general rule of unlimited debate, the
Senate’s “Byrd Rule” strictly limits
Reconciliation bills to provisions that are “budgetary” in nature.
Also, Reconciliation bills
cannot increase outyear budget deficits
– which is a key factor for tax reform.
The ACA repeal-and-replace bill was therefore advanced as a filibuster-proof Budget Reconciliation Bill. Slide5
House Withdrew the Repeal-and-Replace Reconciliation Bill March 24Affordable Care Act (current law)ACA expanded Medicaid to cover all Americans up to 138% of poverty (32 States opted in)Current Medicaid program guarantees federal payments to States for all covered servicesACA provides need-based subsidies
to purchase private health insurance for people up to 400% of poverty and
caps out-of-pocket expenses
.
Bars denial of coverage due to pre-existing conditions
or
lifetime benefit caps
, and requires coverage of children
up to age 26
Caps premiums for
older (3X
young adults)
Requires non-grandfathered plans to provide
essential benefits
New taxes:
increase in payroll taxes for high-income and surcharge on investment income
Individual and employer mandates to fund broader coverage (tax penalty for violation)
American Health Care Act (withdrawn)
Phased out
Medicaid expansion
Capped
underlying Medicaid program with annual per-enrollee payments to States (cutting Medicaid by
$800 billion over 10 yrs
)
Subsidies replaced with
flat, age-based
tax credits ($2000-$4000) and no cap on out-of-pocket or adjustment for area premiums
Same
Premiums up to 5x
Allows less comprehensive, less expensive plans
Repealed new taxes and delayed Cadillac tax on expensive plans to 2025
($883 billion)
Mandates replaced with “continuous coverage” requirement (30% premium penalty)Slide6
Health
Care Legislation Withdrawn
Reconciliation Bill
withdrawn
on March 24
Opposition from conservatives
to the new tax credits and the “slow” phaseout of Medicaid expansion
Opposition from GOP moderates
and governors to Medicaid cuts, affordability of insurance under the new tax credits, and repeal of essential benefits
Opposition from doctors, hospitals, nurses, AARP to increases in uninsured (14 million in 2018 and 24 million by 2026) and higher premiums for older
Fight Over? No – expect continuing fights over HHS administration of the ACA, appropriations for HHS, and ways to stabilize exchanges in areas that lack insurers or sufficient competitionSlide7
Shifting Priorities from Non-Defense
Programs
into Defense
President Trump’s discretionary spending budget, released on March 16, calls for a
dramatic shift in federal spending
from
non
-defense discretionary spending to defense discretionary spending.
The President’s request would
shift $54 billion from
non
-defense into defense spending.
The funding levels are the President's
requested
funding. Congress writes the appropriations bills (following adoption of a Congressional Budget Resolution) and can
accept, ignore, or change
the requested funding for each program.
Appropriations
bills effectively need
60 votes
in the Senate (to overcome a potential filibuster), requiring
bipartisan agreement
(unlike the ACA repeal-and-replace legislation which needed only 50 votes due to the fast-track Budget Reconciliation process).Slide8
“Discretionary spending” – about 30% of the budget – is set by Congress in detailed annual appropriations bills. Non-defense discretionary includes broad spectrum of govt. functions: law enforcement, veterans health care, homeland security, education, prisons, NASA, disease and epidemic control, highways & bridges, food and drug inspection, disaster relief, airports, health research, housing assistance, and environmental protection. “Mandatory spending,” the other 70% of the budget, is principally entitlement programs that spend out according to benefit formulas
and
eligibility requirements
in federal law.
Largest entitlements are Social Security, Medicare, and Medicaid; others are veterans benefits, military & civilian retirement, food stamps, EITC, unemployment benefits, SSI, TANF, child nutrition, and farm programs.
Background: 2 types of federal spending:
Discretionary spending
Mandatory spendingSlide9
History of the
Discretionary
Spending
Caps
In order to reduce projected deficits, the Budget Control Act of 2011 placed
caps
on total defense and non-defense discretionary spending for each year through 2021.
Discretionary Caps were automatically reduced much further when Congress’ special Joint Committee failed to address entitlement and tax reform.
However, in 2013 and again in 2015, Congress eased the defense and non-defense caps.
The
caps for FY 2018
remain at very tight levels (lower than 2017 and no accommodations for inflation, a growing & aging population, security or infrastructure needs):
Defense Discretionary Cap: $549 b
Non-Defense Discretionary Cap: $515 bSlide10
Trump
Budget
would shift
$54 billion
into
Defense Programs
10% increase
in current defense cap: $549 billion
Advocates
point to a general downward trend in defense expenditures
as a percent of the economy
: currently 3.3% of GDP (Gross Domestic Product)
compared to
4.7% in 2010, 4.5% in 2011, 4.2% in 2012, 3.8% in 2013, and 3.5% in 2014.
Opponents
point out i
n dollar terms,
the U.S. spends more than one-third of global defense spendingSlide11
Most Striking about the Administration Budget Plan
The decision to fund massive increases in defense spending through
major cuts in domestic
and other non-defense spending, rather than new revenues or entitlement reforms.
Reduction
in foreign aid and development assistance (sometimes called "
soft power
") in favor of defense spending ("hard power").
Heavy emphasis on eliminating ineffective programs in the domestic budget but the
absence of similar scrutiny on the defense side. Slide12
Most Striking about the Administration Budget Plan
(continued)
Scaling back
federal support for
health research, environmental protection, job training, education, rural programs, low-income energy and housing assistance.
No indication of how the
infrastructure initiative or the border wall
will be financed without increasing the debt.
Elimination of numerous programs
with small budgets but high-impact results including Appalachian Regional Commission; AmeriCorps; the Corporation for Public Broadcasting; the Legal Services Corporation; the Overseas Private Investment Corporation; and the United States Interagency Council on Homelessness.Slide13
Increases Requested for:Defense: 10%, $54 bHomeland Security: 7%, $3bVeterans: 6%, $4.4b
Largest Decreases
Proposed for:
EPA:
31%
, $2.6b
State Dept-USAID
:
28%
, $10b
Agriculture
:
21%
, $4.7b
Labor
: 21%, $2.5bHHS: 18%
, $15bEnergy (non-nuclear): 18%, $3bEducation
:
13.5%
, $9b
Transportation
:
13%
, $2.4b
Interior
:
12%
, $1.5b
Proposes cuts in federal workforce,
although
it is already smallest since 1966Slide14
Tax Reform:
Corporate
and
Individual
Tax Reform is
more likely to succeed than in previous Congresses
:
One-party (GOP) control of the White House and Congress;
The intention of the President and GOP congressional leaders to use the filibuster-proof
FY 2018 Budget Reconciliation process
to enact tax reform; and
Similar tax reform goals:
House GOP Tax Reform Blueprint released on June 24, 2016; and
Trump tax proposals laid out in three speeches last year (August 8, September 13, and September 15, 2016).Slide15
House GOP Tax Plan v. Candidate Trump Tax Proposals (2016)Both plans reduce individual brackets from 7 to 3.Both plans would reduce the individual
top rate
from 39.6% to 33%.
Both plans would eliminate the alternative minimum tax (
AMT
).
Both plans would repeal the
estate and gift
tax (impacting the top 0.2% of taxpayers since more than 99% are already exempt).
Both plans would increase the
standard deduction
and repeal personal exemptions.
Both plans would limit
itemized
deductions with the House plan repealing all but charitable and mortgage interest and the Trump plan capping all itemized deductions.
Proposals in the Trump plan also include eliminating
carried interest
which allows some fund managers to treat investment income as capital gains; increasing the Earned Income Tax Credit (
EITC
); and creating a new credit for
child care
.
Both plans would cut the
corporate tax rate
from 35% — Trump to 15% and House to 20%;Slide16
House GOP Tax Plan v. Candidate Trump Tax Proposals (2016)Both plans would have reduced rate for businesses taxed as pass-throughs:Trump 15%; House 25%.
House plan includes a
destination-based, border-adjusted cash flow tax (BAT)
and Trump has hinted at support for a BAT.
Under the BAT,
all
goods destined for domestic consumption are taxed and goods produced for foreign consumption would not be taxed — so that
off-shoring business operations becomes irrelevant
. (However, the BAT is highly contentious, with retailers and other importers strongly opposed.)
Both plans are estimated by the nonpartisan Tax Policy Center (TPC) to have high revenue costs
House plan-- $2.2 trillion
in second decade
Trump -- $8.9 trillion
in second decade
In the first year, the
top 1 percent
of taxpayers would receive 76% of benefits under the House plan and 47% under the Trump plan.
In
dollar terms
, under the
House plan
, in the first year, the
middle quintile
of taxpayers would see an average tax cut of $260, and the top 0.1 percent getting over $1.2 million; and
Under the
Trump proposals
, the middle quintile gets an average cut of $1,010, with the top 0.1 percent getting cuts over
$1 million.Slide17
Tax Reform:
Timing
and
Challenges
FY 2018 Budget Resolution must be adopted
Ways & Means and Finance Committees mark-up Reconciliation legislation
Tax Reform Legislation is
extremely complex
–
technically
(tax law is inherently complex);
fiscally
(finding offsets is very difficult)
economically
(economic implications of tax changes are highly complex and include effects on the value of the dollar);
politically
(with different economic sectors locking horns on each provision and repeal of ObamaCare taxes now adding to the political load); and
internationally
(due to potential implications of existing trade agreements on tax provisions that
directly
impact imports and exports).
Expect a lengthy, contentious, and complex process.Slide18
Infrastructure
Investment
March 9, 2017:
Quadrennial
2017 Infrastructure Report Card
released by
American Society of Civil Engineers
giving the U.S. a cumulative grade of
D+ (poor, strong risk of failure)
“We can no longer afford to defer investment in our nation’s infrastructure. To close the
$2.0 trillion 10-year
investment gap
, meet future needs, and restore our global competitive advantage, we must increase investment from all levels of government and the private sector from 2.5% to 3.5% of U.S. Gross Domestic Product (GDP) by 2025.”
State Budget Officers: In the 1960s, we spent 3.5% of GDP on infrastructure.Slide19
2017 U.S. Infrastructure Grades (Civil Engineers) A: Fit for the Future D: Poor, Strong Risk of Failure B: Adequate for Now F: Failing, Unfit for Use
C: Mediocre, Requires Attention
Roads:
D
Bridges: C+
Ports: C+
Dams:
D
Wastewater:
D+
Public Parks:
D+
Solid Waste: C+
Levees:
D
Schools:
D+Drinking Water:
DTransit: D-Energy:
D+
Hazardous Waste:
D+
Inland Waterways:
D
Rail: B
Aviation:
DSlide20
Compare how Feds and States Budget for InfrastructureFederal GovernmentUnified Budget: all expenditures – immediate, near-term & long-term – are included in the same budgetCongress is hyper-focused on balancing annual budgets that cannot be balanced because they include long-term investmentsConsider running a business w/o budgeting for long-term investment
Result: massive under-funding of U.S. infrastructure
States
Separate Operating and Capital Budgets
(nearly all States)
States are able to balance their annual operating budgets, because most have
separate capital investment budgets
funded by bonds for roads, schools, etc.Slide21
President has called for a
$1 trillion investment in infrastructure over 10 years
Roadblock:
short-term thinking, Congress focused on annual budgets subject to tight spending caps
Result: the
unified budget is a fiscal straightjacket
preventing long-term infrastructure investments
Policymakers are now looking for ways to
leverage private investment
in public infrastructure
This would distort
public policy decisions by limiting new infrastructure to projects that can
deliver cash flow to investors
.
Some Members of Congress have proposed using one-time revenues from
taxation on repatriated corporate assets Slide22
March 15, 2017:
The new
federal
Debt Ceiling
The statutory limit on the public debt, often called the “debt ceiling,” is a legal limit on the Treasury’s ability to borrow funds necessary to finance
already incurred obligations
of the United States.
If Congress passes spending measures that exceed incoming revenues, but prevents the Treasury from borrowing funds to cover the deficit, the nation would
default on its legal obligations
to lenders, Social Security beneficiaries, veterans, Medicare providers and all others to whom payments are legally owed.
Default has never occurred and would have
catastrophic effects
on the ability of the U.S. Treasury to issue bonds in the future, as well as destabilizing global financial markets.
In the Balanced Budget Act of 2015, Congress suspended the debt ceiling through last week (March 15, 2017), at which time the statutory limit was automatically re-set at the current debt level.Slide23
Extraordinary
Measures
available
to the
Treasury Department
Treasury can take
extraordinary measures
that allow it to continue borrowing for several months before hitting the new debt ceiling, including:
Suspending investments of the Thrift Savings Plan’s G Fund.
Suspending investments of the Exchange Stabilization Fund.
Suspend the issuance of new securities to the Civil Service Retirement and Disability Fund (CSRDF) and Postal Service Retiree Health Benefits Fund (PSRHBF).
Redeem, in advance, securities held by the CSRDF and the PSRHBF in amounts equal in value to benefit payments due in the near future.
Suspend the issuance of new State and Local Government Series (SLGS) securities and savings bonds.
Exchange Federal Financing Bank securities,
which do not count against the debt limit,
for an equal amount of Treasury securities held by the CSRDF.