Congressional Endgame

Congress is preparing to leave for the holidays and desperately wants to finish all of the work they put off for a year or more.  This is nothing new. If Congress had done their work on time, they could have left in October as originally scheduled.

Rather than do their work in an orderly fashion, they wait until the last minute to create artificial, self-imposed crises to try to force compromises. Because these agreements are slapped together at the last possible minute, the accounting used to justify everything would make Enron executives proud.

After you compound the budget gimmickry and smoke and mirrors over decades, you can begin to understand why we have such a fiscal mess in Washington.

Congress is trying to move two enormous pieces of legislation before they leave for Christmas. The first bill is an omnibus appropriations bill to fund most of the government for the rest of fiscal year 2012, which is almost three months old already. (The bill passed the House on Friday. The Senate is expected to pass it on Saturday.)

The second bill is a package that includes provisions to:

• extend the payroll tax holiday for another year;
• continue extended unemployment insurance benefits;
• provide a two-year patch for the “doc fix” and other Medicare extenders;
• approve the permits for the Keystone Pipeline;
• block the implementation of the proposed Boiler MACT rule that would cost billions of dollars and many jobs; and
• make a number of reforms to many different programs that are hitching a ride on this vehicle.

All of this should have been done weeks ago. The legislation funding the government should have been passed before the fiscal year began on October 1.  The other items could have been done earlier too. Congress was hoping most of those goodies would have been rolled into the package that the super committee was going to approve before Thanksgiving.

That didn’t happen. The super committee failed.

One problem left on the roadside by the super committee was the doc fix.  In fact, the doc fix was supposed to be corrected in the Obamacare bill. At least that is what President Obama and the Democrats promised the American Medical Association (AMA) in order to get their support for the giant government takeover of medicine legislation. But a funny thing happened on the way to the Forum.  The doc fix was stripped out of the Obamacare bill at the last minute to make room for more spending and never got fixed.  The AMA is still looking like a forlorn Charlie Brown as Lucy walks away with the football.

Fixing the phantom cuts to Medicare for reimbursements to doctors is a provision that keeps getting kicked down the road with temporary patches that creates a larger problem in the future.  It is a budget gimmick of the past that has come back to haunt Congress every year as the problem grows.

Another problem is that President Obama wants to extend the payroll tax holiday that was enacted last year.  Since almost half of America pays no income tax anymore, the only way he could give these people a tax cut rather than a welfare check was to cut the payroll tax.  Last year, the tax cut wasn’t paid for.  That would have made the already insolvent Social Security Trust Fund go broke even sooner.  Instead, Congress used an accounting trick and assumed the money lost from the tax cut would be transferred from the Treasury to the Social Security Trust Fund.  Unfortunately, that money is all gone too so they just put a heap of IOUs in the account and called it a day.

This year, the House passed the package to extend for one year the payroll tax holiday and paid for it with a variety of spending cuts and user fee increases spread out over the next ten years.

President Obama and the Senate Democrats are trying to pay for it by a tax increase on the very highest income earners.

At this point, the Democrats can’t figure out any way to actually pass legislation to impose this special tax on millionaires.  But they want some other compromise to pay for all of this.

Get ready for more budget gimmickry.  Lurking in the weeds is a budget gimmick that was set up this summer with the passage of the Budget Control Act (BCA) which raised the debt limit and created the failed super committee.

The Congressional Budget Office (CBO) has estimated that the federal government will spend about $1.1 trillion over the next decade on the operations in Afghanistan and Iraq.  That money is built into the baseline.

However, President Obama has already announced that he will be removing combat troops from Afghanistan and Iraq.  The CBO will count that as over $490 billion in spending reductions available to use as offsets from what CBO calls Overseas Contingency Operations (OCO).

It is possible to claim this credit as an offset for other spending or deficit reduction in one piece of legislation.  Later, all of the money could be restored in a separate bill if Congress and the president decide we need to stay in Afghanistan and Iraq by simply designating it as an emergency.  No offsets would be required to restore the funding and all would just be added to the debt.

That’s a way of having your cake and eating it too.

The final weekend of this session of Congress will be interesting and may be very costly.

Keep a close eye out to see if the Senate tries to insert this offset into a compromise bill to allow even more spending in the payroll tax extension bill than the almost $200 billion included now.