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The Good, The Bad, and The Gimmicks, Part II: The House Reconciliation Act

by Demian Brady / /

The Senate did its job last week in passing the Deficit Reduction Omnibus Reconciliation Act, which would take a modest step toward reining in the budget. This week the House of Representatives is considering its own reconciliation package that, in some respects, takes a slightly more aggressive approach to deficit reduction. Its version contains a mix of savings and new spending that – when taken together – will result in $47.918 billion in deficit reduction. While some of these "savings" are not cuts that would actually reduce the size of the federal government – and there is no way to ensure that Congress won't just pass even larger appropriations in the coming years to refill in the gaps – many taxpayers are hoping that these savings will set the stage for a genuine return to fiscal restraint.

Against this backdrop, the following is an analysis of H.R. 4241, the Deficit Reduction Act (DRA) of 2005 and the impact it would have upon American taxpayers.

Good

  • The DRA contains provisions to reduce the deficit by a net of $47.918 billion over five years, including reductions in mandatory spending totaling $30.013 billion.
  • The legislation would reduce crop payments to certain farmers by 1 percent through 2009, thus saving taxpayers $211 million over five years. The bill would also rescind and limit funding for conservation programs run by the Department of Agriculture, yielding a savings to taxpayers of $635 million.[1]
  • A small portion of the Arctic National Wildlife Refuge (ANWR) would be open to oil and gas drilling. In addition, certain areas in the Outer Continental Shelf (OCS) will be made available for increased oil and gas leasing.
  • The bill raises premiums for defined benefit retirement plans insured by the federal Pension Benefit Guarantee Corporation (PBGC). Although the resulting $6.162 billion in offsetting receipts is not a "cut" per se, NTUF has long argued that PBGC provides a net taxpayer subsidy of billions of dollars annually to corporations that chronically underfund their defined benefit plans. This is a minor step toward reducing that subsidy.
  • Income requirements for Medicaid eligibility would be tightened to help ensure that applicants are not abusing the system.
  • The package closes a loophole whereby states first tax Medicaid providers, then use the revenues to increase Medicaid payments to those same providers, and as a result garner a higher match of federal dollars. Putting a stop to this practice would save $615 million over five years.
  • The DRA would reduce the portion of defaulted student loans for which lending institutions are reimbursed by the federal government. This would save $915 million over five years. An additional provision would establish a cap on administrative costs associated with operating student financial assistance programs, for a savings of $2.206 billion over five years.
  • This legislation would repeal the Continued Dumping and Subsidies Offset Act of 2000 (also known as the Byrd Amendment), which unwisely mandates the direct payment of antidumping and countervailing duties to U.S. companies that file or support dumping complaints. This policy creates incentives for companies to file such complaints, thereby harming America's worldwide leadership on free trade and perpetuating economic protectionism.

Bad

  • While the House reconciliation bill would produce more net savings than the Senate's version, it still falls short of the marks set in previous Congresses.

Table 1. Total Savings in Recent Reconciliation Acts

Act

5-Year Total Savings

5-Year Total Savings Adjusted for Inflation

Omnibus Budget Reconciliation Act of 1990

$75 billion

$114 billion

Omnibus Budget Reconciliation Act of 1993

$77 billion

$106 billion

Balanced Budget Act of 1995

$249 billion

$325 billion

Balanced Budget Act of 1997 and Taxpayer Relief Act of 1997

$107 billion

$133 billion

S. 1932, Deficit Reduction Omnibus Reconciliation Act of 2005 (as passed by the Senate)

$39 billion

N.A.

H.R. 4241, Deficit Reduction Act of 2005 (as proposed in the House)

$48 billion

N.A.

  • The President's Fiscal Year 2006 Budget forecast that spending over the FY 2006-FY 2010 period will total $13.893 trillion. The net reductions in this bill would trim just over a third of a percent from the federal budget over the next five years.
  • The Deficit Reduction Act, ironically, contains some 40-odd provisions that would increase spending by a five-year total of $17.354 billion.[2]
  • This package would increase federal deposit insurance coverage for individual accounts to $130,000 per account. Retirement accounts and in-state municipal deposits would be covered at even higher levels. The Congressional Budget Office estimates that this would increase spending to bail out failed banking institutions at a cost of $400 million over five years.
  • The DRA would direct $12 million annually between 2006 and 2010 to the Emergency Food Assistance Program. This program is one of hundreds of federal undertakings that should be funded at the state and local levels.

Gimmicks

  • The bill contains a total of $68.108 billion in deficit reductions over five years, but $37.157 billion of this amount is derived from increases in offsetting receipts, including revenue raised from the auction of digital spectrum, oil and gas leasing receipts from ANWR and OCS, increased lender and borrower rates in the direct student loan program, and other miscellaneous fees and duties. While some of these changes may bring financial stability to various federal programs, they do not reduce the overall size and burden of the federal government.
  • In some cases, the offsetting receipts provide an opportunity for new spending. Just as we saw in the Senate-passed bill, a significant amount of savings comes from sale of digital spectrum. The spectrum sale will result in an estimated $10 billion in gross receipts, with $1.53 billion of that money going to subsidize the purchase of digital converter boxes by consumers owning an analog television, issue grants to local "first responders," and enable other spending related to the transition to digital broadcast.
  • $938 million in deficit reduction results from shifting certain farmer and Supplemental Security Income payments beyond a 10-year budget window. These will be recorded as "savings" within the timeframe of the reconciliation package, but will not reduce federal outlays in the long term.

Conclusion

Each chamber's reconciliation bill contains many savings ideas that the other did not consider. Taxpayers will no doubt be watching to see if Representatives follow the lead of Senators and pass a bill that does not stray too far from its original level of savings. Then conferees from the House and the Senate could very well negotiate a final bill including provisions from each version that would maximize the amount of budget savings.

Notes

[1] These figures compute savings over current law. The Congressional Budget Office estimates that the savings would be higher if H.R. 2744, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, which funds these programs, becomes law.

[2] $3.728 billion of these funds would provide assistance to victims of hurricanes Katrina and Rita.


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