Update 779: FAA, Entitlements Lead Week in Review

September 23, 2024 | Update, Weekly Round Up | By

Update 779 — FAA Bill Poised for Liftoff,
Entitlement Reprieve, Other Developments

Last night, the Senate re-authorized funding for the Federal Aviation Administration (FAA) for five years, though notably without amendment for critical items such as the Child Tax Credit (CTC). Odds continue to look long for the tax package — including partial restoration of the expanded CTC — which cleared the House by 357-70 on January 31 but could not move in the Senate. Next week, the House will return to consider the reauthorization, with passage before the extended deadline of midnight on Friday, May 17 expected. 

The Social Security and Medicare program solvency saw marginal reprieves as the entitlements’ Trustees Reports this week projected extensions in the programs’ ability to pay full benefits by one and five years respectively. More on this report, the FAA bill, and key economic policy developments of the week below.

Good weekends, all…

Best,

Dana

Headline

Senate Sends FAA Bill to House without Tax Package

On Thursday evening, the Senate passed the five-year reauthorization of the Federal Aviation Administration (FAA) in a bipartisan vote of 88-4. Today’s deadline was extended by both chambers to next Friday at midnight, allowing the House to take up the bill when it convenes next week.

Amendments were the principal source of disagreement as Senators hoped to add their priorities to this reauthorization, which may turn out to be the last must-pass legislation before the election. Finance Chairman Ron Wyden (D-OR) offered an amendment to include the House-passed bipartisan tax package in this vehicle. The $80 billion tax package pairs three business-friendly tax provisions with an expansion of the Child Tax Credit and has widespread bipartisan support. The tax package includes an expansion for the Child Tax Credit and business tax provisions (bonus depreciation, R&D amortization, and the Section 13(J) interest limitation). 

In the end, the Senate reached an agreement barring the inclusion of amendments outside the scope of FAA to move forward without further disagreement and delay. The reauthorization may have been the last chance for the tax package to pass for the foreseeable future as it is unlikely that leadership will bring the tax package to the floor as stand-alone legislation this work period or even beyond. 

Advocates have been pressuring leadership to bring the bill to the floor to put members on the record regarding their support of/opposition to the tax package. Such a vote would bring to light the Republican effort, led by Senate Finance Chair Mike Crapo (R-ID), to postpone the legislation that would lift millions of families out of poverty until the next Congress. This year if possible, next if necessary, Congress needs to find a way to pass this temporary stop-gap to help address child poverty. But in 2025, Congress will confront a slew of tax priorities beyond the CTC. 

Other Developments

Projections for Marginally Improved Entitlement Solvency 

This week, the Medicare and Social Security Boards of Trustees released their annual reports on the current and projected financial status of the two programs. Though the future finances of Social Security and Medicare remain a reason for concern, conditions have improved since last year; trustees pushed projections for insolvency – the point at which program revenues will be insufficient to cover promised benefits – by one year to 2035 for Social Security and by five years to 2036 for Medicare. As the programs don’t have the authority to borrow money or increase the payroll taxes that fund them, Social Security and Medicare would be forced to cut benefits to balance revenues and outlays if reforms are not enacted. 

  • Social Security

Social Security comprises the Old-Age Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. Even though their finances are separate as each is funded by independent portions of the FICA payroll tax, they are often combined into one measure (OASDI) that gives a better sense of Social Security as a whole. While the OASI Trust Fund is still expected to reach insolvency in 2033 which would result in a 21 percent reduction in benefits for retirees and their survivors, increased expectations for labor productivity and a lower projection for the long-term disability incidence rate pushed the combined OASDI projection for insolvency from 2034 to 2035, at which point Social Security benefits will be cut by 17 percent. 

  • Medicare

The two main trust funds that fund Medicare are the Hospital Insurance (HI) Trust Fund (Part A) and the Supplementary Medical Insurance (SMI) Trust Fund (Part B). The SMI Trust Fund has no risk of insolvency as it is funded by fixed premiums and general revenues. However, the HI Trust Fund is expected to reach insolvency in 2035, triggering an 11 percent cut in benefits. This projection was pushed by five years in the 2024 trustees report due to a change to the way medical education expenses are accounted for in Medicare Advantage rates starting in 2024, higher payroll tax revenue attributable to the stronger-than-expected economy, and 2023 expenditures that were below previous expectations. 

Though extensions to the projections for insolvency for Social Security and Medicare are better than reversals, we must keep in mind that every year that passes without action results in greater difficulty in reforming the programs’ finances as budget gaps increase and the timeline shortens. For example, extending the solvency of Social Security would require a 21 percent cut in benefits or an increase in payroll taxes of 3.3 percentage points if action was taken this year. However, delaying reform for another 10 years would necessitate a higher 25 percent cut in benefits or an increase in payroll taxes of 4 percentage points. 

While Congress can fix funding shortfalls using general revenues, it would be preferable to boost program revenues by increasing the share that wealthy individuals pay to maintain benefits at current levels. Such a solution is best accomplished via the payroll tax that funds Social Security, which currently only applies to the first $168,600 of earned income. The Biden administration has proposed reinstating the FICA tax for Social Security and increasing the payroll rate for both programs on income over $400,000, which could go a long way in ensuring both Social Security and Medicare can pay the scheduled benefits Americans have earned through years of contributions. 

Compensation for Bank Exec Risk-Taking Ban Advances

On Monday, four federal agencies proposed a long-overdue rule to ban executive compensation plans that incentivize inappropriate risk-taking at financial institutions.

After the 2008 financial crisis, Congress mandated that the bank executives’ compensation packages should not incentivize them to make reckless decisions that could risk the safety and soundness of the firms they lead. Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required that six federal regulators jointly prescribe regulations or guidelines concerning incentive-based compensation practices at certain financial institutions. These agencies were the:

  • Federal Deposit Insurance Corporation (FDIC)
  • Office of the Comptroller of the Currency (OCC)
  • National Credit Union Administration (NCUA)
  • Federal Housing Finance Agency (FHFA)
  • U.S. Securities and Exchange Commission (SEC) 
  • Board of Governors of the Federal Reserve System (Fed)

The May 2011 deadline set by Congress passed almost fourteen years ago. Most recently, the six agencies proposed such a rule in 2016. 

On Monday, all six agencies except the Fed and SEC re-proposed the 2016 rule, along with proposed alternatives and questions for public comment. The SEC has been engaged in an ambitious slate of rulemaking but has included a rulemaking to implement Section 956 on its recent rulemaking agenda.

The Fed, however, has failed to join this proposal. This is particularly disappointing since the reckless risk-taking by executives of financial institutions can threaten not only the executives’ own companies but the stability of the broader financial system. We encourage the Fed to fulfill the mandate put forth by Congress and join the other federal agencies in moving forward with the rule.

Hearings

HFSC Subcommittee GOP Critiques SEC Enforcement 

The House Committee on Financial Services Subcommittee on Capital Markets convened on Tuesday for a hearing in which Subcommittee Republicans continued their ongoing criticism of the Securities and Exchange Commission’s (SEC) recent rulemaking to protect investors and capital markets. The hearing particularly targeted the SEC Enforcement Division responsible for investigating and prosecuting violations of federal securities laws. 

Subcommittee Chair Ann Wagner (R-MO) took the agency to task for the actions of two of its lawyers who made false statements in a case against the crypto platform known as DEBT Box. Immediately after Wagner’s remarks, Ranking Member Brad Sherman (D-CA) aptly pointed out that the two SEC lawyers who acted wrongly in the DEBT Box case were fired, setting an example to ensure that other SEC lawyers do not act similarly. 

Subcommittee Democrats strongly defended the Enforcement Division. Ranking Member Sherman noted that with its budget of under $700 million, the Division has secured $3.4 billion for investors and over $1 billion for the government. He further noted that for every market participant caught engaging in wrongful action, there are “dozens who thought of doing something wrongful, then thought better of it.”

Senate Banking Members Trades Barbs Over “Junk Fees”

On Thursday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on “junk fees,” especially those charged for financial services and others in the rental market. Eliminating junk fees has been a major focus for the Biden Administration and the Consumer Financial Protection Bureau (CFPB) as they seek to limit the fees corporations can squeeze from everyday Americans as they access common products and services, allowing consumers to keep more of their money.

Republican Senators, led by Ranking Member Tim Scott (R-SC), claimed that junk fees are just a “boogeyman” and a scapegoat that President Biden and Democrats are using to shift the blame for their own “failed” economic policies. They claimed that Democrats are “playing political games” with price controls and trying to micromanage businesses, actions they argue would actually increase costs for Americans.

Democrats, led by Chairman Sherrod Brown (D-OH), pointed out that American consumers are acutely aware that junk fees are a serious issue, one that raises prices for consumers in an often obscure and underhanded manner. Democrats laid out how junk fees increase prices for consumers without adding any value. Democrats praised the measures taken by the CFPB to address the issue such as its recent Credit Card Late Fee rule that seeks to clamp down on the rising cost of late fees charged to consumers. The Democrats also highlighted how junk fees deceptively raise the costs of other products, such as rental housing and auto loans. The CFPB has found that taking on junk fees could save Americans billions of dollars a year.

Look Ahead

Tuesday, May 14

  • April CPI report

Wednesday, May 15

Thursday, May 16

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