Proposed 2018 Federal Budget Information

What is the process for producing a budget?

The president sends a budget request to congress in February for the fiscal year that begins on October 1st.

The House and Senate Budget Committees write and vote on their own budget resolutions. A joint conference is then held to iron out differences between the two versions, and the resulting reconciled version is then voted on again by each chamber.

The Appropriations Committees in both the House and the Senate are responsible for determining the allowed spending for all discretionary programs, within the constraints of the budget. The spending proposals work their way from 12 subcommittees of the Appropriations Committee to the full Committee.

The full House and Senate vote on appropriations bills from each of the 12 subcommittees. The president must sign each of the twelve appropriations bills. (Rarely is the work finished for all twelve bills by October 1st.)

Where are we currently at in the budget process?

A full budget is expected from the White House on May 23, 2017. The House will hold a hearing on this budget on May 24, and the Senate will hold a hearing on May 25.

What are the 12 subcommittees of the appropriations committee?

1) Agriculture, Rural Development, FDA

2) Commerce, Justice, Science

3) Defense

4) Energy and Water Development

5) Financial Services and General Government

6) Homeland Security

7) Interior, Environment

8) Labor, Health & Human Services, Education

9) Legislative Branch

10) Military Construction, Veterans Affairs

11) State, Foreign Operations

12) Transportation, HUD

Who is on the appropriations/budget committees?

Dick Durbin is on the Senate’s Defense subcommittee. Mike Quigley is on the House’s subcommittee on Financial Services and General Government. Jan Schakowsky is on the House Budget Committee.

For a list of the Senate Budget Committee members, click here.

For a list of the House Budget Committee members, click here.

For a list of the Senate Appropriations Committee members, click here.

For a list of the House Appropriations Committee members, click here.

What was the budget for 2016-2017?

On September 28, 2016, Congress passed a continuing resolution which extended funding at previous years levels up to December 9, 2016. The continuing resolution avoided a government shutdown and directed funding specifically for protection against the Zika virus and flood relief in Louisiana. The resolution did not include funding some members of Congress requested for the lead crisis in Flint, Michigan. The continuing resolution was named as the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriation Act, 2017, and Zika Response and Preparedness Act.

In November 2016, shortly after the 2016 presidential election, the incoming Trump administration advocated for a second continuing resolution funding the government only until the end of March, to allow the incoming administration influence over the 2017 budget. The House Republican leadership acceded to this plan, although some lawmakers expressed concern that delaying the final appropriations legislation would distract Congress from other priorities during the beginning of Trump’s administration. The final bill, the Further Continuing and Security Assistance Appropriations Act, 2017, extended funding through April 28, 2017. It was passed by the House and Senate on December 8 and 9, 2016, respectively. The passage of the bill in the Senate was delayed after Democrats objected to the fact that an extension of health benefits for retired miners would not last until the end of the year, but a compromise was made to take up the matter in January.

On January 12, 2017, the Senate voted 51 to 48 to pass a FY2017 budget resolution, S.Con.Res. 3, that contained language allowing the repeal of the Affordable Care Act through the budget reconciliation process, which disallows a filibuster in the Senate. The resulting bill, the American Health Care Act of 2017 was initially publicly released by House Republicans on March 6, 2017.

The bill was initially withdrawn on March 24 after it failed to gain sufficient House Republican support to pass it, but continuing attempts at compromise led to a new attempt to pass it in early May.

On April 28, 2017, Congress passed a one-week continuing resolution that extended funding through May 5, 2017. On May 1, a bipartisan agreement was announced on the Consolidated Appropriations Act, 2017, which included all of the remaining appropriations bills. (Source: Wikipedia)

What is the proposed budget for 2017-2018?

The Trump administration released its preliminary 2018 federal budget request on March 16, 2017. The budget also proposed changes to the BCA spending caps for FY2017, with defense spending increasing by $25 billion (from $551 to $576 billion), and non-defense spending decreasing by $15 billion (from $519 billion to $504 billion).

Note: The Budget Control Act of 2011 (BCA) had established spending caps on defense and non-defense spending, which were first applied in FY2013.

How will that affect key agencies?

FDA: Budget “doesn’t say much about the FDA” (per NBC news), but doubles user fees paid by pharmaceutical companies to speed approvals.

EPA: 40% cut in staff, 35% cut in the Superfund, cuts in grants to states for doing things like restoring the Great Lakes and cleaning and redeveloping former industrial sites. Click here for more information.

CDC/NIH: NIH budget reduced by $6 Billion. Note that the budget was raised by $32 billion in December 2016. Fogarty International Center, which coordinates international medical research, is eliminated.

NOAA/NASA: Includes cuts to coastal research programs at the National Oceanic and Atmospheric Administration. Cuts funding for earth science programs and missions, and eliminates the Office of Education.

NSA: A spending request for nonmilitary spy agencies, such as the CIA and the National Security Agency, will likely be released “later in the spring,” says an intelligence official, who says the process is taking longer than usual due to the change in administrations. The delay “often happens in transition years,” the official says.

State Department: Eliminates funding for United Nations programs, including peacekeeping and climate change mitigation.

Department of Education: Cuts programs and grants for teacher training, after-school and summer care, and aid to low-income students. Eliminates $1.2 from the 21st Century Community Learning Center program and cuts $732 million from the Federal Supplemental Educational Opportunity Grant.

Department of Energy: Largest cuts go to the Office of Science; ARPA-E eliminated.

Synopsis

The proposed 2018 budget includes $54 billion in cuts to federal departments, and a corresponding increase in defense and military spending. For a synopsis on which departments will lose or gain funds, click here

The $971 million budget for arts and cultural agencies, including the Corporation for Public Broadcasting, National Endowment for the Arts, and National Endowment for the Humanities, would be eliminated entirely.

Why is an increase in the military budget being proposed?

Replace aging systems, increase staffing levels, undo cuts done during Obama administration.

Sources

http://www.nationalreview.com/corner/445287/yes-its-time-increase-defense-spending http://www.cnn.com/2015/03/26/opinions/rubio-cotton-defense-cuts/ http://www.npr.org/2016/04/29/476048024/fact-check-has-president-obama-depleted-themilitary http://www.cnbc.com/2017/03/16/how-trump-can-gut-156-billion-in-defense-spendingcommentary. html 

What is the debt ceiling, and what bearing does it have on the budget process?

Prior to 1917, the United States did not have a debt ceiling, with Congress either authorizing specific loans or allowing Treasury to issue certain debt instruments and individual debt issues for specific purposes. Sometimes Congress gave Treasury discretion over what type of debt instrument would be issued.

Between 1788 and 1917 Congress would authorise each bond issue by the United States Treasury by passing a legislative act that approved the issue and the amount.

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling. The 1917 legislation set limits on the aggregate amount of debt that could be accumulated through individual categories of debt (such as bonds and bills)

Prior to the Budget and Impoundment Control Act of 1974, the debt ceiling played an important role since Congress had few opportunities to hold hearings and debates on the budget.[8] James Surowiecki argued that the debt ceiling lost its usefulness after these reforms to the budget process.

In 1979, noting the potential problems of hitting a default, Dick Gephardt imposed the “Gephardt Rule,” a parliamentary rule that deemed the debt ceiling raised when a budget was passed. This resolved the contradiction in voting for appropriations but not voting to fund them. The rule stood until it was repealed by Congress in 1995, in an effort to force President Clinton to accept spending cuts. (Source: Wikipedia)

What changes to the tax code are being proposed?

Proposals affecting individuals

On the individual side, the focus is on expanding the tax base and lowering the tax rates to support the expressed goals of tax simplification and tax relief. These would be accomplished primarily by eliminating deductions currently available and reducing the top tax rate and number of brackets.

Lower tax rates on ordinary income.

The proposal calls for reducing the number of tax brackets on ordinary income from seven (ranging from 10% to 39.6%) to three tax brackets of 10%, 25% and 35%. The range of income subject to tax in each bracket was not specified. Observation: The proposal did not indicate if the Head of Household filing status would remain. It would have been eliminated in a prior proposal.

Tax rate on capital gains and dividends.

The proposal did not specify the tax rate for capital gains and dividends. In the press briefing, National Economic Council Director Gary Cohn commented that it would be 20%.

Increased standard deduction.

The standard deduction would be increased to $12,700 for single filers and to $25,400 for married filing jointly. This would reduce the number of taxpayers who would currently itemize their deductions.

Eliminate targeted tax breaks.

The proposal would eliminate “targeted tax breaks that mainly benefit the wealthiest taxpayers.” It did not provide any specifics on which breaks would survive. However, Treasury Secretary Steven Mnuchin and Cohn provided the following insights in the press briefing.

Itemized deductions.

The proposal would eliminate all itemized deductions except those for home mortgage interest and charitable contributions. Observation: There was no mention of capping total itemized deductions at $200,000 for married filing jointly and $100,000 for single filers (as in a prior proposal). Cohn indicated that the deduction for state and local income taxes would be eliminated.

Retirement savings.

Although not addressed in the proposal, Cohn indicated support for continuing deductions for retirement savings.

Repeal the alternative minimum tax (AMT).

The Trump proposal would repeal the alternative minimum tax. Originally designed to ensure wealthy individuals do not avoid paying tax, it creates a dual tax system that adds significant complexity to complying with the tax rules.

Repeal the 3.8% tax on net investment income.

The 3.8% tax on net investment income was enacted as part of the Affordable Care Act. It would be repealed under the Trump proposal.

Child and dependent care expenses.

The proposal indicates there would be tax relief for families with child and dependent care expenses. No details were provided. Observation: A prior Trump proposal would have provided an above-the-line deduction for children under age 13, a refundable credit of up to $1,200 a year for childcare expenses, and a savings account for child and dependent care and tuition.

Repeal the estate tax.

The proposal calls for the repeal of the estate tax. Observation: No mention is made of a prior provision that would tax unrealized appreciation on assets held at death to the extent the gains exceeded $10 million.

Proposals affecting businesses

The business tax proposals continue the approach of broadening the base and lowering tax rates in support of the goals to simplify the tax structure and grow the economy. They also call for a switch to a territorial tax system that would “level the playing field for American companies.”

15% tax rate on businesses.

The proposal calls for lowering the corporate tax rate to 15% (the current maximum corporate rate is 35%). The 15% rate would also apply to pass-through businesses, such as partnerships, S corporations, and multi-owner limited liability companies (LLCs), that choose to be treated as partnerships (as most LLCs do) and sole proprietorships (including single-owner LLCs treated as proprietorships). Currently income from these businesses is taxed to the owner at individual rates (maximum rate of 39.6%).

Eliminate tax breaks for special interests.

The proposal calls for the elimination of special tax breaks. No details of specific deductions or credits targeted for elimination were provided. Observation: Prior proposals would eliminate depreciation and allow immediate expensing of asset acquisitions. They also retained the Research and Development credit. In addition, prior proposals called for taxing income from carried interest arrangements,such as hedge fund manager participation, at ordinary income tax rates, as opposed to capital gain rates under current law.

Territorial tax system.

One of the major shifts from prior proposals is the switch to a territorial tax system. Currently, U.S. businesses are taxed on their worldwide income. Under the latest proposal, U.S. businesses would be taxed on their domestic U.S. income. Income earned abroad would be exempt.

One-time tax on repatriated earnings.

The proposal calls for a one-time tax on untaxed earnings held abroad. The rate of this tax was not specified.

Sources

https://tax.thomsonreuters.com/blog/trump-administrations-principles-for-tax-reform/ http://www.foxbusiness.com/politics/2017/05/19/house-gops-tax-plan-draws-fire.html

http://www.npr.org/2017/02/28/517523714/what-we-know-about-the-trump-house-gop-taxplans- so-far