Lame Duck To-Do (and Don't) List
With the 2014 midterm elections mostly in the books, the current Congress will return from weeks of campaigning to finish some remaining items before the end of the year and the swearing in of the new Congress. This year's lame duck session will likely to be less busy than some years, but there are still a few key things to get done before the 114th Congress begins.
The current continuing resolution funding the government will expire on December 11, so policymakers will have to either extend it, enact appropriations bills, or cause a shutdown. This is the most important to-do list item for the lame duck Congress. Prior to the recess, appropriators indicated they wanted to get an omnibus appropriations bill done instead of a CR extending funding into the next Congress, and the chances of that look good -- thanks to the Murray-Ryan agreement setting defense and non-defense spending levels, House and Senate funding allocations are relatively close. Key questions that remain include whether lawmakers will provide supplemental funding for Ebola or ISIS and also what level of war spending they will provide (hopefully below the current level -- see "to-don't" list below).
For background on the appropriations process, see our Appropriations 101 document.
Pass Defense Authorization
Somewhat related to appropriations, lawmakers will also have to pass a defense authorization bill. For the budget world, this may be important to see if Congress will consider codifying a strict definition of war spending -- as the House budget resolution and an amendment to the House defense appropriations bill did -- or consider personnel savings policies that the Pentagon has long called for. Doing either of those things may help policymakers stay within the defense spending caps in the future and better ensure the integrity of those caps.
Address Tax Extenders
We have closely followed the many legislative developments regarding the fate of the tax extenders, a collection of temporary tax breaks that expired at the end of last year. Despite having been expired for ten months, they have frequently been brought back from the dead, as was the case in 2012. The House and Senate have taken different approaches to the extenders, both of which would add to the deficit. The House would permanently extend and expand certain provisions related to investment, research, and small businesses ($1 trillion of costs for provisions passed by the Ways and Means Committee), while the Senate would extend almost all of the extenders for two years -- retroactively for 2014 and forward to 2015 -- at a cost of $85 billion. Many observers thought that the Senate approach was more likely; however, recent reports have suggested permanent extensions of the R&E credit and small business expensing in exchange for a permanent extension of the 2009 refundable credit expansions along with temporary extensions of everything else may be a possibility. All of these approaches are fiscally irresponsible to varying degrees; there is no reason extenders shouldn't be fully offset. Further, any action on extenders should come with a process for tax reform.
For background on the tax extenders, see our Tax Break-Down.
Avoid Sustainable Growth Rate (SGR) Cuts
Although it is not an issue that lawmakers have to deal with until next spring, there has been discussion of enacting a permanent physician payment bill in the lame duck session. If left unaddressed, the SGR would cut physician payments by 24 percent at the end of March. Lawmakers want to address the SGR now to take advantage of the progress they've made in this Congress on a replacement, especially since some of the architects of the agreement are retiring. However, there is no bipartisan agreement on what the offsets would be, so there is the danger that Congress would pass a bill through with no offsets, which would add between $130 billion and $170 billion to deficits over the next ten years depending on what was included. Alternatively, temporarily extending the current doc fix and the smaller "health extenders," as lawmakers have done in the past, through the end of the year would cost around $15 billion. With no shortage of health care options, lawmakers should offset the cost of any SGR bill, as they have for almost every temporary patch before.
For more on the SGR and "doc fixes," click here.
Possibly Address Medicaid Primary Care Physician Payments
A lesser-known cliff, which we warned about a few years ago, at the end of the year is the expiration of a temporary payment increase for Medicaid primary care physician (PCP) payments in the Affordable Care Act. In effect for 2013 and 2014, the policy requires Medicaid to pay PCPs at Medicare rates, and the federal government funds the entire difference between that and each state's payment rate as of July 2009. Once that expires, the federal government will match, at an average of 57 percent, payments for previously-eligible Medicaid beneficiaries but still at 100 percent for payments related to newly-eligible beneficiaries under ACA (a percentage that phases down to 90 percent by 2020). The impact of this expiration is unclear. The Medicaid and CHIP Payment and Access Commission estimated that state primary care payment rates were only 58 percent of Medicare's rates in 2012. However, a Kaiser Family Foundation survey indicated that 15 states would continue at least in part the increased payment rates while 12 others were undecided. However, even if states don't extend the policy, payment rates would just go back to recent levels, so it would not be as disruptive as the SGR.
So far, there has been essentially no discussion of extending the provision, and its origin in the ACA may make it unlikely to be extended. If the provision does come up, based on the House-passed health care reform bill, an extension could cost about $5 billion per year. Federal lawmakers will have to decide whether to keep the full matching for the higher payments or let it expire.
For more on the Medicaid payment increase, click here.
Don't Add to Deficits
Lawmakers should not pass any tax extenders or SGR relief without legitimate offsetting savings. And they certainly should not pass any permanent extensions of either policy without offsets, as that would also lower the bar for tax reform efforts, break with the precedent of offsetting doc fixes, and permanently increase deficits in the baseline. Lawmakers should also not use the lame duck as an opportunity to quickly get other deficit-increasing legislation through Congress.
Don't Continue War Spending at FY 2014 Levels
Despite a Pentagon request that was $26 billion lower, the CR continued war spending at FY 2014 levels, leaving the Pentagon with excess resources in the meantime. Congress should align their numbers with the Pentagon's request (updated for ISIS funding if necessary), rather than provide much more spending than is necessary so that other operations or budget items can be funded without proper oversight or accountability.
For more on the current war spending amount, click here.
Don't Backfill Defense Budget Through War Spending Designation
On a related note, policymakers should not explicitly fund non-war spending through the war designation to avoid the budget caps. Both the Defense Department and Congress have apparently done this in the past, and the Pentagon's war request this year included items that were not directly related to the efforts in Afghanistan and Iraq. Congress could codify a definition of war spending both for themselves and the Pentagon to limit funds for the war efforts instead of funding long-term goals.
For more on this gimmick, click here.
Don't Use Gimmicks to Meet the FY 2015 Spending Caps
Lawmakers should not use gimmicks to meet the FY 2015 spending cap for appropriations or another CR. The main way they could do this would be to offset increased spending by rescinding budget authority that is not expected to be spent. This would offset real costs by cutting funds that weren't expected to actually be spent anyway. We noted a gimmick in the current CR which offset savings from the previous FY 2014 omnibus with a rescission in the Children's Health Insurance Program that was not expected to be spent. If lawmakers are going to increase spending in certain areas, they should use real offsets.