Federal Update for January 3, 2013
The 113th Congress, due to convene today, will take no break from battling over fiscal priorities with the opening weeks likely to be dominated by partisan fights over the size of a multibillion-dollar disaster aid package, how to raise the nation’s debt ceiling, and calls for spending cuts and an overhaul of the federal tax code.Facing bipartisan criticism for abruptly pulling a bill aimed at offering aid to those affected by Superstorm Sandy off the floor Tuesday night, House Republican leaders are making disaster aid a priority for the opening weeks of the new Congress, The House will vote Friday on an initial installment of aid for states by authorizing $9.7 billion in additional borrowing authority for the National Flood Insurance Program, and the chamber will vote on the $50 billion remainder of the Obama administration’s disaster relief request on Jan. 15. The move is likely to please House conservatives who have expressed support for the immediate aid, but have had reservations about additional funding, proposed by the administration and backed by the Senate, for longer-term mitigation projects aimed at limiting future storm damage. The Senate, which backed the White House’s full $60.4 billion request last month, likely would quickly clear both measures if they win House backing. FEMA, which manages the flood insurance program, notified Congress Wednesday afternoon that unless it receives more borrowing authority, it will run out of money to pay claims next week.With a fiscal cliff compromise reached, battle lines already are being drawn and important policy and economic implications measured for a coming showdown on the federal debt ceiling. The federal government is expected to run out of borrowing authority by the end of next month, and both parties are readying a high-stakes game of chicken, with Republicans hoping to leverage new spending cuts in return for a debt limit increase and Democrats promising to hold firm in opposition. Less than 30 minutes after the House cleared fiscal cliff legislation, President Barack Obama reiterated his vow not to bargain for an increase in the debt limit as he did in 2011 and warned that a government default would dwarf the threat of the just-averted tax and spending cliff. Stung by the view across much of his party that Republicans lost to the president in the cliff negotiations, Boehner, however, has said that everything, including raising the debt ceiling, comes with a price. “The president knows that,” Boehner aide Michael Steel said Wednesday. The office of Senate Minority Leader Mitch McConnell, R-Ky., in a statement Wednesday, agreed the debt ceiling is an “opportunity to curb out-of-control Washington spending.” The New Year’s cliff deal postponed the across-the-board spending cuts mandated by last year’s debt ceiling for two months until March 1, right around when Treasury will brush up against the debt ceiling. The latest continuing resolution to fund the government also expires on March 27. Republicans hope to seize on all these deadlines to win spending reductions or changes to entitlement programs, but the debt ceiling is surely the most powerful of hammers.
A pragmatic coalition of GOP chairmen and senior tax writers that helped Boehner pass the fiscal cliff legislation could play a crucial role in moving other big-ticket fiscal issues, including a tax overhaul, in the 113th Congress. While the 85 GOP supporters of the deal represented only about a third of Boehner’s 241-member caucus, they provided an easy margin for victory when coupled with 172 Democratic supporters. The House voted, 257-167, to clear the measure Jan. 1. Retiring Rules Chairman David Dreier of California said he believed the bipartisan coalition backing the bill could be a harbinger of “consensus-driven solutions” on other fiscal issues. Former House Budget Chairman Bill Frenzel of Minnesota, a scholar at the Brookings Institution, said he believed House Budget Chairman Paul Ryan’s (R-WI) support as a counterweight to Cantor and other leaders of the 164-member Republican Study Committee was critical to Boehner’s ability to win passage of the agreement. “Ryan was the key guy. He’s the budget guru and the thought leader on a whole lot of issues,” Frenzel said. He said Boehner’s coalition of supporters would provide some momentum to developing a bipartisan tax overhaul. “We will see a peaceful start to that debate. But it may come apart at the end,” Frenzel added.
Business groups offered tempered praised for the passage of the compromise and said the next Congress must do more to cut the deficit and reign in federal spending or risk hurting the economy. In a statement, the Business Roundtable said the deal “only just begins to address the scale of the fiscal and spending problems confronting out country and falls short as economic policy that could encourage a sustained and strong economic expansion.” The U.S. Chamber of Commerce also gave the deal a modest endorsement and urged Congress to bring deficits under control by cutting entitlement spending and overhauling the tax code. “This is the only formula that can reduce budget deficits and control our unsustainable national debt,” said Chamber President Thomas J. Donohue. Moody’s, the ratings agency which last year slapped a negative outlook on U.S. debt, also said Congress needed to find a way to reduce deficits in order to avoid a downgrade this year. Investors made it clear they were pleased with the deal Tuesday as Dow Jones Industrial Average jumped more than 300 points, or 2.4 percent, and the NASDAQ was even more upbeat, spiking upward 3.1 percent, part of a broad relief that financial markets expressed around the world that a sudden shock to the American economy had been averted.
The following is an initial summary of the provisions of most relevance to public universities in the “fiscal cliff” legislation:
Rep. Don Young, R-Alaska, was set to offer his amendment to allow some earmarks, just as he did in November, to House GOP rules, according to documents obtained by CQ Roll Call. His amendment would have exempted from the definition of earmarks any measure that funds a federal, state or local governmental entity as long the measure does not increase the appropriations amount allocated by the Budget Committee. Young pulled a similar amendment at the behest of leaders in November. His spokesman, Michael Anderson, said, “Congressman Young refiled the amendment before the deadline, but at this time will not be offering it at today’s conference meeting. However, he has spoken with [the speaker] about how to move forward on redefining earmarks to allow members to provide for their communities in a fiscally responsible manner.”
(CQ, APLU and the UW System Office of Federal Relations contributed to this report.)
- The bill delays the implementation of sequestration to March 27, the same day that the current six-month continuing resolution expires. The White House is required to release its sequestration report and order the cuts on March 1, however. The deal lowers the total amount of sequestration by $24 billion (from $1.2 trillion to $1.176 trillion), paying for half ($12 billion from changes to Roth Individual Retirement Accounts) via the increased revenues and the other half via cuts to the discretionary budget cuts set forth in the Budget Control Act of 2011. These discretionary cuts are spread out over two years ($4 billion from FY2013 and $8 billion from FY2014).
- The major focus in the compromise deal was on taxes. In addition to raising marginal income tax rates for high earners, the bill extends for five years the American Opportunity Tax Credit, while making permanent the employer-provided education assistance program (Section 127) and the student loan interest deductions. Coverdell educational accounts are also made permanent under the bill. The tuition tax deduction and the research and development tax credit are both extended through 2013. Provisions related to deductions for charitable donations remain unchanged.
- The bill includes a one-year Medicare “doc fix,” temporarily preventing a 26.5% cut in Medicare payments for doctors, and the package includes an extension of the Farm Bill through 2013. The cliff deal removes mandatory funding status for four National Institute of Food and Agriculture programs, and makes these programs subject to annual appropriations.