• Mission & Governance
• Services Overview
• How to Get Involved
• Standing Committees
• NCSL Foundation

• Issue Areas: A-Z
• State-Federal Relations
• NCSL Standing Committees
• News from D.C. and the States

• About State Legislatures
• Elections, Campaigns & Redistricting
• NCSL's StateConnect Directory
• Web Sites

• Online Guide to NCSL Services
• Staff Sections and Networks
• Meetings & Professional Development
• Staff Directories

• Meetings Calendar
• Online Registration
• Meetings Home Page
• Legislative Summit

• Bookstore
• State Legislatures Magazine
• NCSL's StateConnect Directory

Federal Budget & Tax Update

An Information Service of the AFI Federal Budget and Taxation Committee

March 23, 2000, Vol. 6, No. 3
Federal Budget and Tax Update Archives

H. Con. Res. 290 doomed from the Start?

On March 15, 2000 the House Budget Committee approved Chairman John Kasich's mark of the FY 2001 House budget resolution (H. Con. Res. 290, H. Rept. 106-530). The 23-18 vote broke down virtually along party lines. Fiscal year 2001 spending contained in the resolution is a result of a delicate agreement between House Budget Chair John Kasich (R-Ohio) and Senate Budget Chairman Pete Domenici (R-New Mexico) reached earlier this month. The Rules Committee will consider the resolution on March 22, with the full House scheduled to consider the resolution on March 23.

The $1.8 billion resolution provides $596.5 billion for discretionary spending. In the resolution, defense discretionary spending is set at $307 billion, an increase of $17.4 billion in budget authority over FY 2000. The resolution sets non-defense discretionary spending (a..k.a. Domestic discretionary spending) at $289 billion for FY2001. The $289.5 billion in budget authority for non-defense discretionary programs represents a reduction of $19 billion - or a cut of 6.3 percent - below the level the Congressional Budget Office estimates is needed to maintain funding for non-defense discretionary programs at the level enacted for fiscal 2000, adjusted for inflation. Using the alternative CBO estimate, which holds FY 2001 spending at an FY 2000 freeze, the reduction to domestic discretionary spending would be roughly $11 billion. Over five years, defense spending would increase by $25 billion above inflation while non-defense spending would be cut by $135 billion from current services adjusted for inflation. These proposed cuts would likely be disproportionately targeted to state-federal partnership programs.

But that's not all. The story gets gloomier. Compounding these reductions are desires on the part of House and Senate leaders to increase spending for certain programs given their popularity and the November elections. Within the resolution, elementary and secondary education would receive an increase of $2.2 billion, veteran's health would get a 6% boost, NIH would get a $1 billion increase and an additional $6 billion would be spent on income assistance for farmers and crop insurance reform. Programs within the Agriculture, and Labor/HHS/Education appropriations areas would face the stiffest reductions to allow these targeted increases. The resolution directs the House Appropriations Committee to come up with more than $24 billion in cuts in domestic discretionary spending for next year.

In addition to setting overall discretionary spending levels, the House Budget Resolution proposes $150 billion in tax cuts over the next five years and directs the House Ways and Means Committee to report four separate reconciliation bills over the next six months on May 26, June 23, July 28 and September 22. The use of four reconciliation bills, rather than the traditional one, allows the House to take advantage of any increases to the on-budget (non-Social Security) surplus that may arise from CBO mid-year re-estimates of the surplus. The resolution includes a $60 billion reserve fund, sets aside $10 billion for debt relief and $40 billion over the next five years for Medicare reform and to provide prescription drug coverage for seniors.

Will the Resolution Survive the House? Influential members and groups of the House, including House Appropriations Committee Chairman Young (R-Florida) have repeatedly expressed opposition to the budget resolution. Many, including Chairman Young oppose the resolution because it includes a provision offered during the Committee markup by freshman Budget Committee member Patrick Toomey (R-Pennsylvania). The Toomey provision effectively prevents any net new FY 2000 spending. It establishes a point of order against any bill that decreases the FY 2000 surplus for any purpose other than debt reduction, Social Security and Medicare reform, or tax reductions. The $9 billion FY 2000 supplemental appropriations bill, which is not fully offset, and thus spends a portion of the FY 2000 surplus, would violate the provision (see later story). Chairman Young in a letter to Speaker Hastert, argued that the measure would "place a stranglehold" on the FY 2000 Supplemental. Young and the 13 Appropriation Subcommittee Chairs appear unified in their opposition to the provision and have signaled their willingness to break with House Leaders by voting against the budget resolution unless the Rules Committee strips the Toomey provision out of the resolution.

Adding to leadership's heartburn on the resolution is increasingly vocal opposition from members of the House Conservative Action Team (CATS). They have repeatedly expressed opposition to the budget resolution because it spends too much and provides too paltry a tax cut. Finally, House Democrats have been extremely critical of the bill, which provides $19.5 billion less for domestic discretionary spending than the President's FY 2001 budget recommendation. Without the support of appropriators and the CATS, the resolution appears doomed as few Democrats, if any, are expected to vote for the resolution. House Democrats, the CATS and others are expected to offer alternative resolutions, which although unlikely to pass, will delay action on the measure. Table II, attached, provides total spending and revenues by budget function for the House resolution. Table II provides comparative information on the House resolution and the FY 2001 Presidential budget.

Senate deja vu? Action on the Senate version of the budget resolution was to begin with a Senate Budget Committee markup on March 22 but has since been postponed. Senator Domenici (R-New Mexico) may not have enough votes to pass the resolution out of committee. The Senate Budget Committee has 12 Republicans and 10 Democrats.

The chief opponent to the Domenici mark is Senator Phil Gramm (Texas). His primary opposition to the Chairman's mark is increased non-defense discretionary spending for FY 2001. He would prefer that spending in FY 2001 for these purposes are frozen at FY 2000 levels and has vowed to vote against the measure. Joining Gramm in expressing similar concerns, but not going as far as to say they will vote against the resolution, are Budget Committee members Majority Whip Don Nickles (R-Oklahoma.) and Senators Rod Grams (R-Minnesota) and Judd Gregg (R-New Hampshire). Senate Majority Leader Lott has been unable to reach an agreement on acceptable spending levels between Domenici and the Gramm. Even one Republican vote against the resolution would spell defeat for the Senate majority, as the vote would likely result in a tie, given that Senate Democrats are very unlikely to vote for the resolution. Chairman Domenici's spending totals have historically been higher than those of Chairman Kasich in the House.

Can it get any worse? Yes. Compounding the difficulty to passage are several other potential problems. Chairman Domenici is expected to include a temporary repeal of the 4.3-cent-per-gallon tax in his resolution. Inclusion of this measure would result in heavy opposition from members supportive of TEA-21 and the state highway funds that these gas taxes provide. Finally Senators Grams (Minnesota) and Allard (Colorado) are expected to offer amendments to the mark that would insert language similar to the Toomey provision in the House resolution.

Overall spending levels in Chairman Domenici's mark are similar to the House measure, although the Senate version of the resolution would allow only one reconciliation bill.

FY 2000 Supplemental: A Casualty of War?

On March 9 the House Appropriations Committee approved H. R 3908, the nearly $9 billion FY 2000 Supplemental Appropriations bill. The bill provides funding for counternarcotics, peacekeeping, and disaster relief related primarily to Hurricane Floyd. House leaders have said they will not bring the measure to the floor for a final vote in the House until the budget resolution is approved. Offsets to the bill total $109 million. House conservatives, who want to insure that the $23 billion dollar estimated on-budget surplus for FY 2000 is not reduced by the supplemental, have continually argued that the measure should be fully offset or at the very least offset to a greater extent. On the other side, appropriators have been quick to point out that further offsets would likely reduce support from moderates and Democrats for the supplemental and would likely kill the bill. From the White House the administration has been vocal in its opposition to the additional $3.8 billion added to the measure above the President's supplemental proposal. Items contained in the supplemental of importance to the states include $13 billion for emergency crop assistance, $600 million for low-income energy assistance, $35 million for payments to states for foster care and adoption assistance to name a few.

In the Senate, Majority Leader Lott stated on March 20 that he would prefer some of the provisions of the bill come in the form of increases in the regular FY 2001 appropriations bills. This would put additional strain on discretionary spending, particularly in the Foreign Operations and Defense appropriations bill, as Lott has suggested that funds for Kosovo and Columbia should be stripped from the bill. Lott continued that the "...the window for the supplemental has already passed." The Senate Appropriations Committee was tentatively scheduled to mark up a supplemental appropriation bill this week, but no session has been scheduled. Further delays on the supplemental are problematic for those awaiting disaster related emergency spending contained in the bill, which many in Congress continue to argue are needed now.

ACEC Meeting in Dallas a Bust, NCSL Urges Congress to be Cautious When Receiving the ACEC Report

At its final two-day meeting held March 21 and 22 in Dallas, the federal Advisory Commission on Electronic Commerce (ACEC) failed to reach agreement on recommendations and findings that would be the basis of their statutorily required report to Congress due April 21. Efforts to reach the 2/3 majority of 13 votes need to make formal "recommendations or findings" as defined within the Internet Tax Freedom Act (IFTA) stalled throughout the meeting. The main sticking point is a lack of agreement on the plan put forth by the "Business Caucus" of the commission, which would significantly alter the current nexus standard for taxation of remote commerce.

On a majority vote of 11-1, with seven abstentions, the ACEC supported the Business Caucus plan. Abstaining from the vote on the Business Caucus plan were Governors Mike Leavitt (Utah) and Gary Locke (Washington), former South Dakota state legislator Gene Lebrun, Washington County Commissioner Delna Jones (Oregon), and the three administration representatives to the commission who represent the interests of the Commerce and Treasury departments and the U.S. Trade Representative's office. Dallas Mayor Ron Kirk (Texas) cast the lone vote against the proposal. The administration representatives stated that they abstained from the vote because the proposal lacked broad consensus.

The "Business Caucus Proposal" was put forth by Commissioners Michael Armstrong, Chairman of the Board of AT&T; Richard Parsons, President of Time Warner; Robert Pittman, President and COO of America Online; David Pottruck, President & co-CEO of Charles Schwab; John Sidgmore, Vice Chairman and COO of MCI Worldcom and Ted Waitt, Chairman of Gateway, Inc. The proposal was also supported by Governor Gillmore; Dean Andal, Chairman of the California Board of Equalization; Delegate Paul Harris, a member of the Virginia House of Delegates; Grover Norquist, President of Americans for Tax Reform, and Stan Sokul from the Association for Interactive Media.

Under the business proposal, the current moratorium on Internet access fees and multiple and discriminatory taxes defined in the IFTA would be extended for five more years. It would also eliminate the Internet access charges that are currently grandfathered in the IFTA. The proposal would make significant changes to states' business activity tax authority and would prohibit sales and use taxation of digital products and "their tangible equivalents." The business caucus plan would dramatically alter the current nexus standard for collection of state sales and use taxes by allowing companies that sell over the Internet to have their technicians enter a state to service their products, and would allow their stores within a state to accept returned merchandise purchased remotely through the Internet or by catalog. Under existing law, when a company has a bricks-and-mortar presence or sales and technical agents in a state, it must collect taxes on sales in that state. The proposal would also eliminate the 3-percent federal tax on telecommunications.

Each of business caucus representatives' firms would be directly impacted by the recommended changes, specifically, the proposal would:

Allow media companies to sell digitized versions of computer software, movies, books, newspapers and music -- as well as their physical counterparts sold in stores -- without collecting state sales taxes (this provision would expire in five years).

Permit a company, including computer makers, to set up subsidiary ``stores within stores'' and contract for repair services while avoiding sales tax collection.

Prevent states from collecting income or business activity taxes on services such as information, entertainment and stock brokerage by shifting earned income away from certain states, and finally the proposal would

Allow long-distance telephone companies to avoid sales and excise taxes by shifting telecommunications services and sales into different sets of subsidiaries.

NCSL continues to support the Streamlined Sales Tax Collection System proposed to the ACEC at its December meeting in San Francisco, while opposing the business caucus plan. Also rising in opposition to the business caucus plan are the Federation of Tax Administrators who estimate that if Congress were to enact law based on the business caucus proposal the loss to state in sales tax revenue would be at least $25 billion annually. The e-Fairness Coalition, an advocacy group comprised of traditional retailers also opposes the proposal.

Virginia Governor James Gillmore, Chair of the commission, repeatedly stated that he has the support of Republican congressional leaders, including House Majority Leader Dick Armey (R-Texas), to move forward with an endorsement of the business caucus plan, regardless of the fact that the statutorily defined level of agreement was not reached by the commission. Other members of congress disagreed with Representative Armey's assessment. Senators Minority Leader Tom Daschle (D-South Dakota) and Senators Bob Graham (D-Florida), Byron Dorgan (D-North Dakota), George Voinovich (R-Ohio) and Michael Enzi (R-Wyoming) argued in a letter sent to the commission that a 2/3 majority is necessary for the commission to transmit recommendations and findings to the congress. Several commission members also expressed outrage that the Chairman would disregard the 2/3-majority rule defined in the Internet Tax Freedom Act of 1998 that also established the commission.

The commission reached unanimous consent on one resolution that will likely in the long run be pointless. The commission will recommend that Congress allow states to use unobligated TANF balances for purchase of home computers by TANF recipients in an effort to bridge the "digital divide." The recommendation relies on flawed assumptions that state unobligated TANF balances are high and not already spoken for. NCSL has repeatedly noted that state unobligated balances for TANF are not as high as many would assume, given that reports issued by the Department of Health and Human Services on these balances tend to be several months behind and do not accurately reflect these balances. Finally the commission approved a rule that will allow it to hold a conference call to vote on the final report. The call appears to postpone the inevitable as it is unlikely that members of the commission will dramatically change their positions before April 21.

On a related note Senator John McCain (Arizona), fresh from the campaign tail, introduced S. 2255 on March 21, which unlike S. 1611, his current bill to enact a permanent ban on all Internet taxes, would extend the current moratorium on new Internet taxes through 2006. Senator McCain maintains his support for that bill as well. The current moratorium on discriminatory, multiple and access taxes on Internet service expires mid-2001. The committee of jurisdiction for the new bill is of course, Commerce, which Senator McCain chairs. Also on March 21 in an effort to make clear the Senate Finance Committee's jurisdiction over the report, Chairman William V. Roth Jr. (Delaware) and ranking Democrat Daniel Patrick Moynihan (New York) jointly announced their intention to hold a hearing later this year on the report produced by the Advisory Commission on Electronic Commerce.

Public Pension Provisions Remain Live

On March 16 Representative Rob Portman (Ohio), chief sponsor of H.R. 1102 the Comprehensive Retirement Security and Pension Reform Act stated that House Republican leaders have assured him that they are willing to bring the bill up for a stand-alone vote if the bill is not enacted as part of H.R. 3081, the minimum wage bill approved by the House earlier this month. H.R. 1102 contains many of public pension tax changes needed to modernize and simply federal tax rules on state pension systems supported by NCSL. Among other NCSL supported provisions, the measure, co-sponsored by Representative Ben Cardin (Maryland), would allow greater portability of pension assets, permit the use of section 457 and 403(b) funds to purchase permissive service credit as allowed by state law, and would increase limits on contribution and benefit levels for both defined benefit and defined contribution plans. The bill has wide bipartisan approval in the House, with the main sticking point on the bill, being the cost of the total package and the concerns that many of the private sector provisions included in the bill are skewed to highly compensated employees. The administration has expressed concerns that the increases in benefit and contribution limits are too expensive. The overall cost of the bill, estimated in 1999, is $11.4 billion over five years. While the cost of the public pension provisions, including portability and the raising of limits, which are bundled with similar changes for private sector pension plans and thus cannot be estimated on their own, is $3.6 billion over five years.

Fiscal Year 2000 House Budget Resolution

FY2000 House Budget Resolution

http://hillsource.house.gov/LegislativeDigest/Digest/Digest2000/Wk7pt2.htm

http://www.house.gov/budget_democrats/sa_r0300.pdf

http://www.house.gov/apps/list/press/pa15_toomey/pa15releases.budgetres.html

http://www.ncsl.org/programs/press/pr000322.htm