By Catherine Hubbard, Jeff Carlson and Sarah Borchersen-Keto, CCH Washington Staff Writers
Picking up where they left off back in December, Congress has returned to its budgetary duties, addressing spending and tax initiatives that weren't settled prior to their holiday break. After finishing work on spending first, Congress hopes to get to tax issues the following week.
Deficit Reduction Bill
The House of Representatives on February 1, 2006, approved a five-year, $40 billion spending cut package that would save a net $6.4 billion in projected spending from Medicare and a net $4.7 billion from Medicaid by slowing their rate of growth and increasing some fees. The Senate approved the Conference Report for this bill on December 21, with Vice President Dick Cheney casting a tie-breaking vote. Due to technical changes to the bill, the House was required to vote a second time and its tally, 216-214, also was close.
Under the conference report, which trims government entitlements costs for the first time since 1997, state Medicaid programs would pay pharmacists for prescriptions based on average wholesale price rather than average manufacturer price. In addition, states would be able to charge beneficiaries with family incomes over 150 percent of poverty co-payments up to 20 percent of the cost of medical services. The bill also would allow higher co-payments for nonemergency services provided in an emergency room and increased cost sharing for non-preferred drugs, according to the Henry J. Kaiser Family Foundation.
Rep. Robert Wexler (D-Fla.) opposed the more than $28 billion in Medicaid cuts over 10 years, saying they will increase out-of-pocket costs. He said the bill includes a $42 billion windfall to the pharmaceutical and managed care industries and creates "a perverse incentive for pharmacists to dispense name brand drugs at a much higher price than their generic alternatives."
Meanwhile, Senate Budget Committee Chairman Judd Gregg (R-N.H.) has called for more entitlements cuts for fiscal 2007 budget. President Bush is expected to include such cuts in the budget he plans to release on February 6.
Also included in the bill, which is expected to be signed into law within days, are reforms to modernize the Federal Deposit Insurance system, including raising the deposit insurance limit on certain retirement accounts to $250,000, and indexing that limit to inflation.
Diane Casey-Landry, president and CEO of America's Community Bankers, called the new changes "the most important improvement in the deposit insurance system since it was created in 1933." Provisions in the legislation would merge the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a new Deposit Insurance Fund (DIF). The legislation would also require the FDIC and the National Credit Union Administration boards, starting in 2010 and every succeeding five years, to consider raising the standard maximum deposit insurance if warranted. It also adjusts certain financial ratios that the Federal Reserve uses to dictate minimum reserves to its member banks.
Tax Reconciliation Bill
Meanwhile, in the Senate, lawmakers hope to finish work on a tax relief measure that also stalled in late December. But political maneuvering by both parties is making for a slow start.
Senate Democratic leaders played stall ball in the chamber February 1, leaving their Republican counterparts guessing as to their plans regarding amendments to the tax reconciliation bill, and possibly putting off until the week of February 6 the naming of Senate conferees to work with the House on unifying their differing versions of the measure.
The Senate could have simply taken up and passed the House-passed bill, the Tax Relief Extension Reconciliation Act of 2005, after inserting Senate language from its own bill, thus laying the groundwork for beginning a conference, but Democrats objected and opened up the door to 20 hours of debate. And that created another dilemma.
The initial $60 billion Senate tax reconciliation bill contained approximately $8 billion for Katrina relief, but the provisions eventually moved as a separate measure. In addition, passage in the House of a deficit reduction bill makes another $10 billion available to the tax reconciliation package. With nearly $18 billion up for grabs, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) decided to create a manager's substitute amendment to his original bill that would extend certain expiring tax provisions and bring the total cost of the bill up to $70 billion, leaving no room for Democratic amendments outside of the reconciliation process.
According to Grassley, the additional provisions, which have yet to be determined, are of no significance because details of the final bill ultimately will be worked out in conference. "It's more procedural," he said. "The main purpose is to make sure the money is available for committee purposes."
A number of critical provisions, including protection from the alternative minimum tax (AMT) and extension of business tax credits, such as the research and development tax credit and the work opportunity tax credit, expire on December 31. Lawmakers typically, however, make those measures retroactive in order to provide a seamless extension. Most contentious are provisions in the House-approved tax reconciliation bill that extend reduced tax rates for capital gains and dividend income.
Grassley chastised the Democrats for the parliamentary maneuvering, saying the Senate had already fully debated the Tax Relief Act of 2005 and passed it on November 18, 2005.
"I . . . thought of the popular film titled Groundhog Day starring Bill Murray, in which a man relives the same day, Groundhog Day, over and over again," said Grassley in a speech on the Senate floor. "This film has taken on greater significance for me as I seem to be in a similar situation."
"This exercise is really unnecessary," Senate Republican Policy Chairman Jon Kyl (R-Ariz.) told reporters. "It's a waste of time when the outcome is virtually the same." He said there would most likely be Democratic amendments to instruct conferees--a parliamentary option rarely used.
Democrats are ostensibly stalling in order to make a case for further relief from the alternative minimum tax, but more likely to further publicize Republican demands that the conference adopt a two-year extension of tax breaks on capital gains and dividends; or as Democrats have repeatedly claimed, a giveaway to the wealthy.
But a Democratic amendment to instruct conferees, if approved, could delay the naming of Senate conferees into the week of February 6 because that would require sending the bill back to the House, according to Grassley. With no game plan as to how the Senate will proceed, and the House setting aside further legislative activity until February 7 in order to hold leadership elections, the Senate would have to wait until the House again acts on the Senate bill.
Further clouding the picture is an inquiry to the Senate parliamentarian by the ranking member of the Senate Finance committee Max Baucus (D-Mont.) as to whether out-year expenses related to the two-year extension of capital gains and dividends tax breaks violate budget rules. In a release from Baucus' office, he states that the Senate parliamentarian agreed that capital gains and dividends tax cut extensions currently included in House-passed tax reconciliation legislation will violate Senate budget rules by incurring costs with no offsets in years beyond the life of the bill.
"Not only is it premature to extend capital gains and dividends tax breaks now, but we now know it's a violation of Senate rules to do it as the House suggests," said Baucus.
Grassley, however, said he did not believe the ruling would affect the final outcome of the conference report, nor the final vote in the Senate. Instead, the senior lawmaker said he would craft his substitute amendment to pre-empt the point of order over the House bill.
The parliamentarian ruling could require that a conference report with an extension of capital gains and dividends tax cuts is paid for with spending cuts or tax increases, and 60 votes in the Senate votes in order to pass.
- Related items:
- IRS Programs Come Under Fire
- New Tax Year Means Many Tax Changes to Consider
- Permanent AMT Fix Poses Difficult Choices
- Congress Ends 2005 Session; Tax Reconciliation Conference Ahead in 2006
- Congress Finalizes Katrina Tax Relief, Turns to Reconstruction Funding
- Congress Wraps Up More Economic Gifts: New Tax Relief
- Tax Reform Panel Releases Final Report
- IRS Still Trying to Deliver 2005 Refunds
- AMT Negates Tax Relief for High Earners
- Tax Rate Projections for 2006
- IRS Temporarily Raises Standard Mileage Rate
- Sales Tax Holidays Offer Consumer Savings and Business Opportunities
- New Reforms of Flexible Spending Accounts Will Benefit Employees
- National Tax Reform Panel Listens to Options, Obstacles
- CEA Report Examines Tax Reform Options, Predicts Sustained U.S. Economic Growth
- Over $2 Billion In Unclaimed Refunds From 2001 Faces Looming Deadline
Added to the news on February 7, 2006.
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