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Appropriations and Budget Update

House and Senate Budget Resolutions

On March 26, the House Budget Committee reported to the full House the FY 2010 Budget Resolution. It was reported out on a party line vote of 24-15 and totals $3.55 trillion. The Senate Budget Committee also approved its version of the Budget Resolution on Thursday, March 26 on a party line vote of 13-10.

While both the House and Senate Budget Committees have reduced spending totals as compared to the levels requested by the Obama Administration, both House and Senate Budget Resolutions preserve all of the Obama Administration’s priorities including health care reform and major initiatives in energy and education. The major issue of contention between the House and Senate is the question of whether to include reconciliation instructions. The House version includes reconciliation; the Senate version does not. Under reconciliation procedures, there is a strict limit on the number of hours dedicated for floor debate and only 51 votes are required for passage in the Senate.

Completion of FY 2009 Appropriations

On March 10, the Senate passed the $410 billion Omnibus appropriations bill for the remainder of FY 2009 and the President signed the bill into law on March 11. The Omnibus bill---which includes the nine separate FY 2009 appropriation bills not previously passed--- is 8% more than the total funding provided in the comparable FY 2008 spending bills.

Completion of the bill was delayed by amendments seeking to freeze spending at FY 2008 levels and to reduce and eliminate earmarks. No amendments were passed.

The House had originally passed the Omnibus appropriations bill by a vote of 245-178 on February 25, 2009.

Administration Releases FY 2010 Budget Outline

On February 26, President Obama released a general outline of his FY 2010 budget (with further details to be released in late April or early May). The budget requests $3.6 trillion in spending for FY 2010 and also includes projections for the next 10 fiscal years. Highlights of the budget plan follow:

  • The budget includes deficit reduction from reducing war costs; allowing tax cuts for high income earners to expire; closing corporate loopholes; undertaking program integrity initiatives; and eliminating non-performing programs. At the same time, the budget proposes to invest heavily in health care, energy, and education initiatives.
  • In view of recent bleak economic news, the Administration's projection of 3.2% growth in real GDP in 2010 is increasingly unrealistic. This may force the Administration to revise their budget projections when budget details are released in April or May.
  • The budget proposes to spend at least $634 billion over 10 years on health care reform aimed at controlling costs and expanding coverage. Health reform would be contingent on securing funding from: (1) placing a 28% cap on the tax deductions that upper-income earners can claim; and (2) making $316 billion in reforms to Medicare and Medicaid.
  • For the FY 2010 defense budget (excluding war costs), the budget proposes a 4% increase over FY 2009 levels.
  • The budget proposes to increase VA funding by $25 billion over the next 5 years.
  • The Obama Administration proposes selling carbon emission allowances through auction as part of a 'cap-and-trade' system to cut greenhouse gases dramatically by 2050. Sale of the emission allowances (estimated at $646 billion over 10 years) would be used to pay for $15 billion per year in renewable energy investments and offsetting the cost of making the stimulus bill's middle class tax cuts permanent.
  • For taxpayers with incomes over $250,000, the Bush tax cuts would be allowed to expire. The top rate would jump from 35% to 39.6%; the tax on capital gains would jump from 15% to 20%, and the tax on estates worth more than $3.5 million would be taxed at the current rate of 45%. Also, the earnings of hedge fund managers would be taxed as normal income, rather than the lower 15% capital gains rate. These provisions would generate more than $600 billion in revenues over 10 years.
  • For all other taxpayers, the budget would extend the Bush tax cuts--including the 10, 15, 25, and 28 percent brackets, the child tax credit, and marriage penalty relief--at a cost of more than $2 trillion over 10 years. The budget would also make permanent the stimulus bill's annual $800 per family tax cut at a cost of $526 billion over 10 years.

President Obama’s Healthcare Reform

With the rollout of the President's Budget and a White House Summit on Health Reform, a major push to (1) expand health coverage and (2) reduce the rapid growth of health care costs is under way.

Reducing the rapid rate of growth in health care costs is a fiscal policy imperative. Rapid cost growth is dramatically boosting government spending on Medicare, Medicaid, Veterans Health Care, TRICARE coverage for military families, and the Children's Health Insurance Program (SCHIP).

Earlier this year, Peter Orszag, current OMB Director, warned the Senate Budget Committee that 'over the long term, the federal budget is on an unsustainable path....the principal driver of our long-term deficits is rising health care costs....If costs per enrollee in our two main federal health programs, Medicare and Medicaid, grow at the same rate as they have for the past 40 years, those two programs will increase from about five percent of GDP to 20 percent by 2050. That's roughly the entire size of the federal government today.'

To begin the health reform process, President Obama's budget proposes to spend at least $634 billion over 10 years on health care reform aimed at making health coverage affordable, researching comparative effectiveness of treatments, investing in prevention and wellness, and improving quality of care. The initiatives would be contingent on securing funding from: (1) placing a 28% cap on the tax deductions that upper-income earners can claim; and (2) making $316 billion in reforms to Medicare and Medicaid.

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