‘Tis the Season to be Spending

The world will little note nor long remember the year-end fiscal package that Congress is poised to pass tonight.  But it will get almost twice as many votes as impeachment and may be a more unambiguous win for Speaker Pelosi and congressional Democrats.

Once this $1.4 trillion tax and spending package is passed and signed, Congress will adjourn 2019.  Today, we look at the package — two minibuses, one with a set of policy riders authorizing tax extenders and corrections, retirement and miners benefits, and various bells, whistles, ribbons, and bandaids — befitting a holiday season on the Hill with something for everyone, save fiscal hawks who got $1.4 trillion lumps of coal.

Congratulations to our holiday party raffle winners last week, Mike Canning of the North American Securities Administrators Association and Paula Mead of Catholic Charities.  

Signing off here for the year.  Happy holidays to you and best wishes for a successful 2020 for all of us.  And don’t forget the Democratic presidential debate in Los Angeles tonight!

Best, 

Dana

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A Fast and Furious Finish

Last week, Congressional appropriators announced a deal to fund the government for fiscal year 2020. This Tuesday, the House passed the spending legislation in two packages, or “minibuses.” The first minibus, containing mainly domestic spending, passed the House 297-120. The second minibus, which contains four bills related to military and homeland security funding, passed 280-138. Statutory PAYGO requirements were waived.

The deal provides for $1.4 trillion in government funding — $738 billion for the military and $632 billion for non-defense. It also includes $50 billion in new spending. The sticking point around these bills was border wall funding in the homeland security appropriations bill. Both sides agreed to keep wall funding at $1.3 billion, the same figure they agreed on during the last negotiations. 

Congress had a bevy of fiscal items to get through before the end of the week. Negotiations wrapped up in the Senate, with Republicans focused on making corrections to their tax bill, and Democrats making a last-ditch effort to expand the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Below, we will look at the end of year policies discussed and the House and Senate riders tacked onto “must-pass” legislation.  

Policy Riders in a Legislative Storm

In November, we forecasted the focuses of the end of year legislative push. With the deal done, here’s where the chips fell:

  • TCJA corrections: The GOP sought to use the tax package as a vehicle for correcting drafting errors and other mistakes in their 2017 tax overhaul. Heading the list was fixing the changes made to “qualified improvement property” (QIP) and bonus depreciation.  Bipartisan legislation exists in the House and Senate to fix QIP but was not included in the package. Repeal of a controversial tax on fringe benefits for churches and nonprofits made it. So, too, did repeal of the “kiddie tax,” a levy on children’s unearned income. 
  • Extenders: The final spending package includes extension of a couple dozen temporary tax provisions known as “extenders.” Most extenders expired in FY17, having last been authorized in the March 2018 Bipartisan Budget Act. Many of the extenders will receive retroactive authorization, as well as future extension through 2020. Two of the more costly and politically salient extenders (the biodiesel and short-line railroad tax credits) received authorization through 2022. In total, extension of these expired tax provisions will cost about $40 billion over 10 years. 

The $40 billion figure is relatively small compared to other extenders packages, including the Tax Relief Extension Act of 2015 which reauthorized extenders that JCT estimated cost $97.1 billion over 10 years. The trajectory of the dollar figures between the 2015 extension and this extension clearly illustrate that less extenders are being considered. 

  • Retirement: Some on and off the Hill thought the bipartisan retirement package formerly known as RESA (now the SECURE Act) would languish yet again. But the bill in its entirety made it into the final agreement. Industry lobbied hard for the retirement legislation to be included, and SECURE encountered virtually no resistance from either side as it passed the House 417-3 back in May. 
  • Pensions: While a Butch Lewis-style MEP grant and loan program was a far reach for Democrats for the end of year spending package, Sen. Manchin’s American Miners Act was part of the deal. Manchin’s bill aims to stabilize the pensions and health benefits of retired coal miners and their widows by hiking transfer payments from Treasury to the coal miners’ failing pension plans. One down, 114 more failing multi-employer pension plans to go. 

No Tax Credit Left Behind

End-of-year fiscal discussions have included additional items that we didn’t discuss in our Nov. 1 update. Congressional leaders have turned to certain health care taxes — specifically those excise on “Cadillac” (high-cost) insurance plans, medical devices, and health insurers — for permanent repeal. In all three cases, there have been bipartisan efforts behind repeal; all three made it into the final package.

The Cadillac tax faced opposition from unions and businesses alike, pushing members to vote to delay its effect until 2022. In July, the House voted 419-6 for repeal. Though the health insurer tax has faced more criticism mostly from the GOP, with several newly-elected Democrats in 2018 from red districts, bipartisan support for repeal has grown. Sens. Sinema (D), Jones (D), and Gardner (R), led the repeal effort in the Senate. The medical device tax repeal has bipartisan support, especially in large medical device industrial manufacturing states. Sens. Klobuchar (D) and Toomey (R) have been leading the repeal effort this Congress.

Democrats made a push for expanding the EITC and CTC by trying to include the Economic Mobility Act into the final deal. The bill passed the House on partisan lines through the Ways and Means Committee in June. It would expand the CTC by making the credit fully refundable up to $2,000 per child for two years. It would also expand the EITC to childless workers under 25 and above the age of 65, and expands the max benefit for EITC from $529 to $1,464. The Economic Mobility Act did not make it into the final deal. 

A 21st Century Coalition

Both sides are touting the final appropriations package as a win. Democrats are highlighting the 3.1 percent average pay increase for federal workers, gun violence research funding, and holding the line on immigration enforcement funding. Republicans are also claiming victory on increased military spending and some TCJA corrections.

The laundry list of wins for the Democrats is much larger than the wins for Republicans. Speaker Nancy Pelosi and House Democrats’ boast a 21st Century New Deal Coalition that will continue to pass large domestic spending priorities and won’t be easily swayed to vote against Democratic priorities. 

The Senate passed the domestic spending bill earlier this afternoon with a vote of 71-23. The Senate approved the military spending bill 81-11. Congress will adjourn tomorrow. The bipartisan compromise will make its way to the desk of the President, where it will likely be signed before the funding deadline tomorrow. This won’t go off the rails but given the current occupant of the White House, there is a non-zero chance of a late-minute, wall-eyed veto, and another Christmas shutdown.

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