Concept_Budget

How the House Could Meet the Budget Resolution's Reconciliation Instructions

Jun 21, 2018 | Budgets & Projections

The FY 2019 House budget resolution calls for $6.5 trillion of policy savings over ten years, but the true action is in the reconciliation instructions. The budget instructs 11 different House committees to produce savings that combined must be at least $302 billion. These instructions present a good opportunity to produce much-needed deficit reduction, and there are several options for the committees to hit their targets.

Among the instructions, about half of the $302 billion ($150 billion) comes from the Ways and Means Committee, which has jurisdiction over the tax code as well as major programs like Medicare, Supplemental Security Income, unemployment insurance, and Temporary Assistance for Needy Families. Other committees with larger instructions (savings targets greater than $20 billion each) include Judiciary, Oversight and Government Reform, Financial Services, Energy and Commerce, and Education and the Workforce. The five remaining committees – Agriculture, Armed Services, Homeland Security, Natural Resources, and Veterans Affairs – have small instructions with savings targets of $5 billion or less.

These instructions contain about $100 billion more required savings than last year's budget. Almost the entire difference comes from the Ways and Means Committee, and this year's instructions shift about $10 billion of required savings from Agriculture to Financial Services. Other committees have the same amount of required savings as last year.

Reconciliation Instructions in the FY 2019 House Budget Resolution

Committee Minimum Target Major Programs Under Jurisdiction
Agriculture $1 billion Farm subsidies; SNAP (food stamps); food safety & other user fees
Armed Services $1 billion Military retirement; TRICARE
Education and the Workforce $20 billion Child nutrition programs; Pell grants; student loans; some PBGC
Energy and Commerce (E&C) $20 billion Medicaid; CHIP; some Medicare; spectrum; Strategic Petroleum Reserve
Financial Services $24 billion CFPB; Flood Insurance Program; SEC
Homeland Security $3 billion Aviation security fees; Terrorism Risk Insurance
Judiciary $45 billion Crime Victims Fund; liability law
Natural Resources $5 billion Federal lands; water projects; mineral resources
Oversight and Government Reform (OGR) $32 billion Federal employee retirement and health benefits
Veterans Affairs $1 billion Veterans health, disability, housing, pension, education, and readjustment benefits
Ways and Means (W&M) $150 billion Tax policy; EITC; some Medicare;  ACA subsidies; SSI; TANF; Unemployment; some PBGC
Total $302 billion  

Getting to $302 billion of savings over ten years should not be that difficult. In each of these committees, there are several options to meet their minimum savings targets. Many of these options have already been proposed in budgets from Presidents Trump and Obama or have been included in previous legislation. Ideally, lawmakers will not just focus on meeting the specific ten-year target but will focus on policies that will address the drivers of long-term debt and save growing amounts over time.

Below are a number of spending cut options that each Committee could consider and estimate of specific policies. Some of them could be dialed up or scaled back as necessary.

Spending Options for Committees to Meet Reconciliation Targets

Committee(s) Policy Ten-Year Savings Source
Agriculture Require states to establish duplicative enrollment database for SNAP $1 billion House Farm Bill
Agriculture Cap SNAP household benefits at six people $1 billion Trump Budget
Agriculture Enact user fees for food safety, animal and plant health, and grain inspections $5 billion Trump and Obama Budgets
Agriculture Limit SNAP work requirement waivers to high unemployment areas $30 billion Trump Budget
Agriculture Restrict categorical eligibility for SNAP to TANF cash assistance $10 billion Trump Budget
Agriculture Eliminate Standard Utility Allowance for SNAP benefits $10 billion Trump Budget
Agriculture Eliminate Conservation Stewardship Program $15 billion Trump Budget/House Farm Bill
Agriculture Reduce crop insurance subsidies $15 billion Trump Budget
Armed Services Increase annual premiums for TRICARE-for-Life enrollment $1 billion CBO Budget Option
Armed Services Increase TRICARE pharmacy copays $2 to $3 billion Obama Budget
Armed Services Introduce minimum out-of-pocket payment for TRICARE-for-Life $25 billion CBO Budget Option
Ed & Workforce Increase origination fees for student loans from 1 to 4 percent $20 billion N/A
Ed & Workforce Eliminate Public Service Loan Forgiveness $20 billion Trump Budget
Ed & Workforce Eliminate in-school interest subsidy for student loans $20 billion Trump Budget
Ed & Workforce Consolidate income-based repayment plans into a single program $25 to $60 billion Trump and Obama Budgets
Energy & Commerce Enact spectrum license user fee $5 billion Trump Budget
Energy & Commerce Modify Medicare Part B drug reimbursements $10 billion Obama Budget
Energy & Commerce Encourage use of generic drugs by low-income Medicare beneficiaries $15 billion Obama Budget
Energy & Commerce Pay hospital outpatient physician departments at physician payment rates $15 billion Trump Budget
Energy & Commerce Exclude manufacturer discounts in donut hole from calculation of beneficiary out-of-pocket costs in Part D $60 billion Trump Budget
Energy & Commerce Relax formulary requirements for Part D plans $5 billion Trump Budget
Energy & Commerce Accelerate manufacturer discounts for brand name drugs $15 billion Obama Budget
Energy & Commerce Expand Medicare and Medicaid drug rebates Up to $150 billion Obama Budget
Energy & Commerce Modify biosimilar regulatory pathway and prohibit pay-for-delay agreements for generic drugs $5 billion Obama Budget
Energy & Commerce Correct Medicaid drug rebate for new drug formulations and exempt abuse deterrent formulations $5 billion Obama Budget
Energy & Commerce Extend Medicaid DSH reductions to 2028 $5 billion Trump and Obama Budgets
Energy & Commerce Extend medical loss ratio rules to Medicaid and CHIP managed care $5 billion Obama Budget
Financial Services Restructure the Consumer Financial Protection Bureau $5 billion Trump Budget
Financial Services Eliminate Orderly Liquidation Fund $15 billion N/A
Homeland Security Extend CBP user fees and increase customs fees $10 billion Trump Budget
Judiciary Rescind money from the Crime Victims Fund $15 billion Trump Budget
Natural Resources Repeal Gulf of Mexico Energy Security Act payments to states $5 billion Trump Budget
Natural Resources Repeal borrowing authority for Western Area Power Administration $1 billion Trump Budget
Natural Resources Divest Bonneville Power Administration transmission assets $10 billion Trump Budget
Natural Resources Divest Tennessee Valley Authority (TVA) transmission assets $5 billion Trump Budget
Natural Resources Reform offshore revenue provisions $5 billion Obama Budget
OGR Peg G-Fund interest rate to 3-month Treasuries $30 billion Trump Budget
OGR Reduce federal retirement benefits and cost-of-living adjustments (COLAs) $60 billion Trump Budget
OGR Increase federal employees' retirement contributions $110 billion Trump Budget
Veterans Affairs Extend round-down of COLAs for veterans' benefits $1 billion Trump Budget
Veterans Affairs Eliminate Individual Unemployability benefits for those 62 and over $45 billion CBO Budget Option
Veterans Affairs Reduce VA housing allowances to DoD levels $5 billion N/A
Veterans Affairs Modify rules for education benefits transferred to dependents under Post-9/11 GI bill  $1 billion N/A
Ways & Means Reduce SSI benefit for each additional child $10 billion Trump Budget
Ways & Means Increase Customs Merchandise Processing Fee $10 billion N/A
Ways & Means Eliminate the Social Services Block Grant $15 billion Trump Budget
Ways & Means Reform and reduce payments for graduate medical education $10 billion to $30 billion Trump and Obama Budgets
Ways & Means Reform and reduce Medicare hospice payments $10 billion Obama Budget
Ed & Workforce and W&M Increase PBGC premiums to ensure solvency (multi-committee) $5-10 billion Trump and Obama Budgets
E&C and W&M Restrict medigap plan coverage (multi-committee) up to $45 billion CBO Budget Option
E&C and W&M Expand bundled payments and promote new payment models (multi-committee) $10 to $50 billion Obama Budget/CBO Budget Option
E&C and W&M Reduce Medicare coverage of bad debts (multi-committee) $35 to $55 billion Trump and Obama Budgets
E&C and W&M Reduce payments to post-acute providers (multi-committee) $55 to $70 billion Trump and Obama Budgets
E&C and W&M Adopt competitive bidding for Medicare Advantage (multi-committee) $25 to $50 billion Obama Budget
E&C and W&M Extend Medicare sequester to 2028 $10 billion Trump Budget
E&C and Judiciary Limit medical malpractice claims (multi-committee) $10 to $70 billion Trump Budget

Sources: Congressional Budget Office.

Importantly, reconciliation instructions can also be met with revenue. While many revenue options exist, policymakers could easily meet a large share of these instructions simply by making improvements to the Tax Cuts and Jobs Act or incorporating policies already supported in the House. For example, lawmakers could close loopholes the current law inadvertently creates with the state and local tax deduction limit and deduction for pass-through businesses, or they could incorporate House proposals to repeal and reform tax breaks in an earlier version of the then-proposed tax bill. Some options are listed below.

Revenue Options for Ways and Means Committee to Meet Reconciliation Target

Policy Ten-Year Savings Source
Consolidate higher education tax preferences $50 to $65 billion House Tax Bill
End the tax-free status of private activity bonds $40 billion House Tax Bill
Reduce mortgage interest deduction limit from $750,000 to $500,000 Unknown House Tax Bill
Phase out exclusion for home sales gain for high-income taxpayers $20 billion House Tax Bill
Repeal exclusions for employee achievement awards $5 billion House Tax Bill
Repeal the rehabilitation tax credit $5 billion House Tax Bill
Repeal work opportunity tax credit $5 billion House Tax Bill
Eliminate rather than reduce the orphan drug tax credit $25 billion House Tax Bill
Reform treatment of life insurance $25 billion House Tax Bill
Repeal the low-income housing tax credit $35 billion House Tax Bill
Eliminate inflation adjustment for renewable electricity production tax credit $10 billion House Tax Bill
Limit state SALT workarounds by defining charitable giving as net of any tax breaks Unknown N/A
Limit state SALT workarounds by counting tax credits against payroll tax payments as taxable income Unknown N/A
Limit state SALT workarounds by applying SALT limit to corporate and business income -$250 billion N/A
Limit inappropriate use of business deduction by applying it only to returns on capital investment and offering an alternative simplified deduction Unknown Tax Foundation
Limit inappropriate use of business deduction by applying TCJA restrictions at all income levels Unknown N/A
Limit inappropriate use of business deduction through stronger worker classification and S-Corp Reasonable Compensation Rules Unknown N/A

Source: Joint Committee on Taxation, CRFB calculations.

These options and others would get the committees to their targets. $302 billion over ten years is a very doable amount of deficit reduction and is much needed after lawmakers increased deficits by a much greater amount with recent legislation. Ideally, the House committees will aim much higher than their targets and focus on policies that will substantially reduce the growth of debt over the long term.