Congress Enacts Flurry of Legislation at Year's End

Congress tentatively adjourned for the year on Oct. 3 after passing a flurry of legislation to address the financial meltdown, extend expiring tax cuts, provide disaster relief funding, and fund the federal government through March 6, 2009. On the final day of the fiscal year (Sept. 30), President Bush signed the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act of 2009, a massive spending bill ensuring continued funding for the federal government through the spring of 2009.

The president's signature follows last-minute congressional action to finish the FY 2009 appropriations process. On Sept. 24, the House put together a $600.6 billion package of three appropriations bills (Defense, Homeland Security, and Military Construction-VA), along with a continuing resolution (CR) that will cover all the other sections of the government until March 6, 2009. The House passed the package by a vote of 370-58. The Senate passed the House proposal on Sept. 27 by a vote of 78-12.

The year-end appropriations package was assembled and passed in less than a week, with little transparency or time to review specific provisions, earmarks, and funding levels. The bill level-funds most government programs outside of the three individual security bills that were included and a few select programs and priorities in need of more immediate funding. These include the Low Income Home Energy Assistance Program (LIHEAP), which received a $5.1 billion increase. This is more than double the $2.5 billion appropriated for LIHEAP in FY 2008 and finally brings the program up to its authorized funding level. There is also $22.9 billion in emergency funding for disaster relief from recent hurricanes on the Gulf Coast and flooding in the Midwest, and $7.5 billion to support a $25 billion loan to the U.S. auto industry.

After finishing with appropriations legislation for the year, Congress turned immediately to attempts to pass a rescue package for the troubled financial sector. On Sept. 29, the House shockingly voted down — by a 205-228 margin — a modified version of the widely criticized administration bailout plan. This was an unexpected setback for leaders of both parties in the House, who were confident the rescue proposal would pass.

The Senate stepped in two days later and passed (74-25) a large legislative package that included the rescue legislation originally rejected by the House, a Senate-approved bill containing over $100 billion in tax cuts, and a temporary increase in the Federal Deposit Insurance Corporation's (FDIC) deposit limit (from $100,000 to $250,000). This increase will last through the end of 2009, and premium increases will be funded by the government. The additional proposals were added to the House legislation to help entice more House Republicans to vote for the rescue bill. This strategy was successful, as the House passed the Senate's proposal on Oct. 3 by a vote of 263-171.

The tax language in the Senate bill was the same as a tax package (H.R. 6049) passed earlier this year by the Senate that contains a patch to the Alternative Minimum Tax (AMT) and an extension of dozens of expiring tax cuts. These tax cuts would provide incentives for renewable energy production, including solar and wind power, extend the deduction for state and local taxes, qualified tuition expenses, and teaching supplies. The $17 billion in energy production tax cuts would be fully offset by ending tax cuts for oil and gas production. The legislation would also lower the income threshold to qualify for the child tax credit from $12,050 to $8,500 for the 2008 tax year, which would benefit 13 million children.

The passage of this bill ends a bitter stand-off between the House and Senate over how to pay for the cost of these tax cuts. Adherence to pay-as-you-go (PAYGO) rules by moderate House Democrats had thrown into doubt whether any of the tax cuts would be enacted this year. In the end, the Senate proposal was approved after being attached to higher-priority legislation House members felt they could not oppose.

While the cost of the tax provisions of this bill is straightforward, the total cost of the rescue/tax cuts legislation is difficult to determine. According to the Congressional Budget Office (CBO), the ten-year cost of the tax cuts would total $107.1 billion. The CBO, however, indicates that it is "impossible at this point to provide a meaningful estimate of the ultimate impact on the federal budget from enacting this [rescue] legislation," but would be "substantially smaller than $700 billion." Nor can CBO estimate the cost of increasing FDIC limits on insured deposits.

Budgetary Impact of Senate Financial Rescue Bill, HR 1424, Approved Oct. 1, 2008
(billions of dollars)
ProvisionCost
Division A
FDIC limit increase"difficult to predict"
$700 Wall Street Bailout"not currently possible to quantify," more than 0, but "substantially smaller than $700 billion"
Division B
Renewable energy tax cuts16.9
Offsets-17.0
Division C
AMT patch 64.1
Extension of miscellaneous tax cuts59.3
Disaster relief8.8
Offsets-25.2
Total package costAt least $107.1 billion, possibly more than $800 billion
Source: Letter to Honorable Christopher J. Dodd, Congressional Budget Office;
Joint Committee on Taxation: Estimated Budget Effects of the Tax Provisions Contained in an Amendment in the Nature of a Substitute to H.R. 1424

The recent legislative blitz in Congress has resulted in major tax and spending decisions in a very short amount of time. In less than a two-week period, Congress approved legislation that could potentially cost taxpayers approximately $1.85 trillion. While some of that spending has received significant review and oversight, much of it has not.

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