Budget Conference Committee Chairs Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI), who met during the week of December 2, are considering replacing between $30 to $80 billion of sequester cuts in FY14 and FY15 with non-tax revenue. Revenue could be split evenly between the two fiscal years. The overall FY14 funding level would then be around $1 trillion, an amount between the House’s proposed FY14 budget resolution of $967 billion and the Senate’s proposed $1.058 trillion. It was not clear if the reversal of sequester cuts will be divided evenly between defense and non-defense spending, the position taken by Chair Murray and Democrats.
Revenues to offset the increased spending reportedly include changes to federal pension programs, the sale of federal assets, changes to the U.S. Postal Service, and new user fees. While the Chairs are attempting to identify revenue offsets that can garner bipartisan support, both Democrats and Republicans have already objected to the use of some of these offsets. For example, Democrats have objected to federal pension changes, while conservative Republican members of Congress have reportedly conveyed their general objection to increasing user fees because they are similar raising taxes.
Senate Committee on Banking, Housing and Urban Affairs Chair Tim Johnson (D-SD) and Ranking Member Michael Crapo (R-ID) sent a letter to the Chairs and Ranking Members of the House and
Senate Budget Committees in December 5 opposing the use of guarantee fees charged by Fannie Mae and Freddie Mac as offsets. The Senators wrote, “The guarantee fees are charged to cover losses incurred by Fannie Mae and Freddie Mac. Each time they are increased and diverted for unrelated spending, homeowners are charged more for their mortgages and taxpayers are exposed to additional risk. Also, each of these offsets makes reforming Fannie Mae and Freddie Mac more difficult because it increases the price tag of any legislation.”
Chair Murray and the Democratic members of the Conference Committee have advocated for closing tax loopholes as a source of revenue (see Memo, 11/8), but Chair Ryan and most Republican members of the Committee do not agree. On December 5, Representatives Rosa DeLauro (D-CT) and Lloyd Doggett (D-TX) introduced H.R. 3666, the Sequester Delay and Stop Tax Haven Abuse Act. The bill would eliminate FY14 and FY15 sequestration for discretionary programs and reduce the FY16 sequester amount by $38.6 billion. Offsetting revenues of $220 billion over ten years would be generated by providing the Department of Treasury with new tools to prevent foreign government and financial institution tax avoidance, and by changes to various tax provisions such as those that allow multinational companies to avoid U.S. taxes or encourage companies to move jobs overseas. NLIHC joined national and state organizations in signing a letter to members of Congress in support of H.R. 3666. “Raising revenue by closing unjustified offshore tax loopholes used by the wealthy and corporations should be at the top of every lawmaker’s list,” wrote the organizations.
Initially, it was expected that the Budget Conference Committee would attempt to craft an agreement that included instructions for tax reform that could contribute deficit reduction. However, as the deadline for producing an agreement grows closer, the proposals that the Chairs are considering do not include instructions for tax reform or broader policy issues.
Instead of attempting to replace sequestration, 19 Republican members of the House are urging House leaders to proceed with a Continuing Resolution (CR). They are circulating a letter to House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) that says Democrats are “desperate for another government shutdown,” and say they “are not interested in giving the Democrats that opportunity.” The letter continues, “We recognize that a clean CR would preserve the cuts called for in the sequester [and] that these cuts are inefficiently applied. What has become clear is that Democrats… are only interested in using the threat of the cuts as leverage to increase spending across the board, to increase our national debt, and to raise taxes and fees.”
Speaker Boehner has said that if the Budget Conference Committee did not come to agreement in December, he would introduce a CR to fund the government at $967 billion in FY14, the level proposed in the House budget resolution, one that many members find unsatisfactory. The Speaker’s announcement about the CR was quickly followed by reports of a potential budget proposal from the Conference Committee. While a budget agreement would likely not satisfy many constituencies in the House or Senate, it could be more palatable compared to a CR at the House budget resolution level.
Negotiations on the budget are expected to continue through the week of December 9 when the Senate returns from recess. If agreement is not reached by December 13, Congressional leadership will need to decide whether to continue negotiations or provide FY14 funding through a CR in lieu of an FY14 appropriations omnibus bill or individual bills.
As part of the agreement to reopen the government, Congress extended FY13 funding into the current year by a CR between the start of FY14 on October 1 through January 15, 2014, which is also the deadline to implement FY14’s sequestration. The period between December 13 and January 15 is intended to allow the House and Senate Committees on Appropriations to negotiate their 12 appropriations bills.