The halting progress on the FY24 appropriations bills since Speaker Mike Johnson’s election will itself likely come to a halt next week, with the current continuing resolution (CR) keeping the government open expiring at 12:01 am deadline next Saturday. With a CR extension or without one, this process will resume thereafter, but between now and the deadline, attention will turn to avoiding a shutdown.
Myriad but still vague CR proposals are under discussion in both the House and Senate. The current CR was clean, devoid of policy riders or emergency supplemental items, and spelled the end of the McCarthy speakership. The next one will no doubt be different. Below we discuss the status of the FY24 budget-making process, the jigsaw pieces comprising it, and any Christmas tree ornaments that might be attached to it.
Meanwhile, Sen. Joe Manchin announced yesterday that he will not seek re-election next year, meaning that, should his seat flip to a Republican successor as expected, Democrats cannot afford any net loss if they are to maintain control of the Senate in the next Congress.
Happy Veterans Day and good weekends, all…
Best,
Dana
Headline
Appropriations: Status as Another Shutdown Looms
Schumer Files Cloture Motion for a CR
The Senate struck first on Thursday night to avoid a government shutdown on November 17, as Majority Leader Chuck Schumer (D-NY) filed a cloture motion on a House bill which will likely be used to push through their proposal for a Continuing Resolution (CR). Against the wishes of House Republicans, this proposal may be similar to the current “clean” CR and extend government funding until sometime in December.
House CR: Ladder to Nowhere?
Speaker Johnson faces a huge test of his leadership as the House pushes to respond to the Senate. In a misguided attempt to simplify the FY 2024 appropriations process, Speaker Johnson proposed a “laddered” CR that would extend four bills until December and the remaining eight until January or beyond. This idea has not gained much traction outside of the House Republican Caucus and would likely further complicate an already contentious process.
Whether or not the proposal coming from the House is “laddered,” it is sure to differ from the “clean” CR passed at the end of September. What might it look like? It may include legislation for a fiscal commission to address the growing national deficit and stand-alone funding for Israel – provisions that Senate leadership has adamantly opposed. Speaker Johnson is expected to introduce a CR by Tuesday to give members ample time to review, but details may emerge about the specifics as early as this weekend.
In what was originally eyed as a vehicle to attach a CR, the Senate has been working behind the scenes this week on a response to the House supplemental bill that included $14.3 billion for Israel, offset by an equal cut to IRS funding. A stand-alone bill does not have enough support to pass the Senate, so funding for Israel would need to be packaged with other parts of President Biden’s supplemental request in the CR.
The Senate is struggling with Republican attempts to add policy riders to its funding package. Over the past few days, Senate Republicans have tried to add comprehensive immigration reform to the supplemental funding for border security. One bipartisan proposal would include extensions of corporate tax cuts from the Tax Cuts and Jobs Act (TCJA), paired with extensions of the Child Tax Credit (CTC), in the next funding bill, but the complexities may work to delay the passage of a CR and the approval of crucial international aid.
Compromise to avoid a shutdown at the end of September through the passage of a “clean” CR cost Representative Kevin McCarthy (R-CA) his former job as Speaker of the House. With only one week left until its expiration and a new Speaker in Mike Johnson (R-LA), Congress is facing the imminent threat of a government shutdown yet again. Both the House and Senate will need to move with a sense of urgency to pass a CR by November 17, regardless of the progress they have made in passing appropriations bills for FY 2024.
Hot Ornament: Fiscal Commission
After much talk over the past few weeks from Speaker Johnson about the creation of a fiscal commission and hints it may enter the CR fray, Senators Joe Manchin (D-WV) and Mitt Romney (R-UT) introduced the Fiscal Stability Act on Thursday. The bill serves as a companion to the Fiscal Commission Act of 2023, which was introduced in the House at the end of September. The Fiscal Stability Act calls for a 16-member bipartisan, bicameral commission that would consist of 12 members of Congress and four outside experts. The commission would have until May 1, 2025 to approve a report with majority support. It would primarily focus on:
- stabilizing debt to GDP within the next 15 years.
- improving the solvency of entitlement trust funds for the next 75 years.
Although there is shared concern about the national deficit from legislators and voters from both parties, many remain worried about the true intentions of a fiscal commission. Republicans have continued to signal their intention to focus on important programs like Social Security and Medicare to lower government spending instead of addressing revenues. But we could see provisions seeking to bolster revenue added to the mix before the end of next week.
Appropriations Stalled: No New Bills Pass This Week
Amidst behind-the-scenes work to put together a CR, the House returned this week intending to pass appropriations bills for Transportation, Housing, and Urban Development (THUD); Federal Services and General Government (FSGG); and Commerce, Justice, and Science (CJS). Although both THUD and FSGG were discussed on the House floor, final votes were ultimately pushed due to a lack of consensus within the Republican Party about some more extreme amendments. The House adjourned for the holiday weekend without passing any appropriations bills but is still expected to consider CJS and Labor/HHS next week as we approach the expiration of the current CR on November 17.
The Senate has yet to move forward with the appropriations process after passing their three-bill “minibus” last week. Original plans to put together three more “minibusses” have been met with a new proposal for a “maxi-bus” spending package that would include the remaining nine appropriations bills for FY24. As the CR deadline and multiple recesses for the holiday season loom, some senators believe that this will allow them to get the appropriations process back on track. The idea for a “maxi-bus” has been met with opposition by key appropriator, Senator Susan Collins (R-ME). However, she acknowledges the fact that all Senate funding bills have been unanimously approved by their respective committees.
Other Developments
SAG-AFTRA Agreement to End Actors’ Strike
On Wednesday evening, after 118 days, SAG-AFTRA officially ended the longest strike in the union’s history after reaching a tentative agreement with the Alliance of Motion Picture and Television Producers, which represents Hollywood’s major studios. While SAG-AFTRA stated that it will not reveal the exact terms of the deal until it is reviewed and approved by the union’s board, what it has revealed indicates that the union got much of what it wanted:
- A 7 percent increase in minimum compensation.
- Greater contributions to actor health care.
- Protections against the use of AI to digitally replicate actors without their permission.
SAG-AFTRA did need to back down from its demand for a percentage of streaming service revenue for its actors in the face of opposition from Netflix, settling instead for a residual for streaming programs based on performance metrics.
The agreement must now be ratified by SAG-AFTRA’s 160,000 members before it takes effect. If ratified, the agreement will end a labor dispute which – combined with the Writers Guild of America strike – brought Hollywood screeching to a halt and resulted in at least $5 billion in economic damage, according to economists. A big question going forward is: what bearing will the resolution to these strikes have on the already struggling movie and television industry? The industry is continuing to deal with the transition to streaming and depressed post-pandemic ticket sales.
Hearings
Senate Appropriations on President’s HHS Supplemental
On Wednesday, the Senate Committee on Appropriations held a hearing titled “A Review of the President’s Supplemental Request for the Departments of Health and Human Services and Homeland Security.” This hearing discussed the President’s supplemental request for $56 billion for domestic programs. Secretary of the Department of Homeland Security Alejandro Mayorkas emphasized that this funding would enable the Department to effectively manage unprecedented migration and encounters at the border.
GOP senators made clear their views that the Biden Administration’s border strategy is failing. When Secretary Mayorkas stated the need for a complete overhaul of the immigration system, which has not been updated since the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, GOP Committee members pushed back. In return, they pressed the Secretary to identify some policy changes that would fix this “border problem,” asserting that achieving incremental progress is preferable to no improvement. Senate Republicans have echoed these sentiments in recent attempts to use the supplemental funding package to push significant immigration reform.
Receiving less attention by the Committee, Secretary of the Department of Health and Human Services Xavier Becerra discussed the importance of the proposed funding to make childcare more affordable, address the spread of opioids in many communities, and provide support for communities, first responders and survivors of tragedy through DHHS.
Senate Budget Committee Discusses Wealthy Tax Cheats
On Wednesday, the Senate Committee on the Budget held a hearing titled “Fairness and Fiscal Responsibility: Cracking Down on Wealthy Tax Cheats,” to discuss the fiscal impact of tax avoidance by wealthy Americans and the role that the IRS can play in enforcing tax obligations given adequate funding. The Committee considered the issue amidst continued attempts by Republican legislators to further cut IRS funding provided through the Inflation Reduction Act (IRA).
Witnesses and Senators discussed the disproportionate role wealthy Americans play in contributing to the tax gap, which measures the difference between taxes owed to the government and taxes actually paid. The tax gap rose to $688 billion in 2021. Dr. Natasha Sarin (Yale Law School) estimated that the wealthiest one percent of Americans are responsible for 30 percent of the tax gap. Tax avoidance by wealthy Americans specifically presents a challenge when it comes to enforcement, as it is more research and time-intensive to conduct audits on wealthier individuals.
Although all parties at the hearing agreed that cuts to IRS funding do not lead to added revenue, there was some disagreement about whether or not increased enforcement as a product of IRA funding is beneficial. Dr. Natasha Sarin and Dr. Nathaniel Hendren (MIT) said that funding used for enforcement provides extremely high rates of revenue return. A study conducted by Dr. Hendren and his research team found that audits conducted on the wealthiest 10 percent of Americans have a 12-1 rate of return. Although scores from the CBO have much lower estimates for the revenue potential of increased audits, Dr. Hendren’s estimates take into account the long-term compliance associated with an initial audit.
Senate Finance Eyes Tax Loopholes for Super-Wealthy
Senate Democrats continued their focus on ensuring the wealthy pay their fair share on Thursday when the Senate Finance Committee held a hearing titled “Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies” to discuss the various strategies wealthy individuals use to avoid paying federal taxes and ways that these strategies can be addressed through changes to the tax code.
Chairman Ron Wyden (D-OR) opened by focusing on a common way wealthy Americans avoid paying taxes, which he referred to as: “Buy, Borrow, Die.” Wealthy individuals are not required to pay taxes on unrealized gains. When they purchase an asset, they can often borrow against its growing value, without ever realizing the gains and paying associated taxes. They can ultimately pass these assets on when they die, at which point the unrealized gains are often not, and will never be, taxed. Effectively, as Morris Pearl (Patriotic Millionaires) noted, the wealthy can choose when or if they pay taxes while most middle and lower-class workers must pay taxes on every paycheck. Chye-Ching Huang (Tax Law Center and NYU), estimated that the failure to tax capital gains cost the government $200 billion last year, noting the fiscal impact of loopholes in the tax code that are used by wealthy individuals to avoid payment have a significant impact on revenue.
Look Ahead
Tuesday, November 14
- October CPI report
- Senate Banking Committee hearing: Oversight of Financial Regulators: Protecting Main Street Not Wall Street
Wednesday, November 15
- House Financial Services Committee hearing: Oversight of Prudential Regulators
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