Bills Bills Bills: Extenders and Supplementals

May 13, 2010 | Health Care| Taxes| Other Spending

Next week, House Democrats intend to introduce a package of aid to states, extended unemployement benefits, and tax break extensions. This "must-pass" bill is also seen as a possible vehicle for other difficult pieces of legislation -- namely a five-year doc fix and/or a solution to the currently expired estate tax (the Bush tax cuts called for the estate tax to sunset in 2010 before returning in 2010 at pre-2001 levels, which have fairly widespread bipartisan opposition).

The statutory PAYGO law passed in February 2010 technically would exempt this doc fix for five years or about $88.5 billion, even as PAYGO rules do not. CRFB, of course, strongly opposes these exemptions, and believes we'll pay a price of them in the bond markets. As CRFB President Maya MacGuineas said, “Considering that we face untenable levels of borrowing, an obvious first step would be to stop adding to the debt by paying for any and all policies. Many of these priorities are critical—but no more critical than the need to pay for them.”

The House, last year, did pass a permanent extension of the doc fix. And though that specific vote is now not possible thanks to the PAYGO law enacted in February, some Congressmen are stating that this fix should be a generous one. Others, particularly some Blue Dogs, are growing increasingly uneasy about an expensive and un-offset doc fix.

The estate tax is also affected by statutory PAYGO law as well, which only allows a two year fix to be deficit-financed. According to the JCT, the 10-year cost of extending the estate tax at 2009 levels is just over $250 billion; and the estate tax reform currently being considered is even more generous than that.

While we have yet to see whether the extenders bill will include a five year doc fix or a change to the estate tax, we do know that it will include a number of other provisions, including between $30-35 billion of tax relief, as well as an extension of unemployment benefits, COBRA health subsidies, Medicaid reimbursements to states, and other provisions. Below is a chart of some of the provisions that could potentially be included in this extenders bill. Sander Levin, Chairman of the Ways and Means Committee, has expressed interest in a number of revenue-raiser options to offset the costs of the bill. These include changes to the biofuel tax credit and changes to the way we tax the “carried interest” earned by private equity managers and venture capitalists and real estate investors.

According the reports, Senators Kyl and Lincoln are working on finding offsets to cover the costs of estate tax reform.

Potential Provisions within Tax Extenders Bill
Cost
Tax Extenders$31 billion
Doc fix$88.5 billion
Unemployment benefits, COBRA, and Medicaid reimbursements$80 billion
Settlement for African American farmers and American Indians$4 billion
Estate tax reform*$300-$400 billion
Unspecified OffsetsUnknown

*Details of the Lincoln-Kyl plan may have changed somewhat recently. Our estimate of $300-$400 billion is based both upon looking at the CBO Options and Tax Policy Center estimates.

Along with the extenders bill, Congress is working on a war and disasters supplemental funding bill, to be completed at the end of this month. Because this is discretionary spending, it is not subject to PAYGO. And although they should, we doubt Congress will make any effort to pay for these costs. The breakdown is below:

Provisions within Supplemental Spending BillCost
Funding for Iraq and Afghanistan $33 billion
FEMA Disaster Relief $5.1 billion
State Department and Foreign Aid $4.5 billion
Aid for Haiti $2.8 billion
Summer jobs programs $600 million