Federal Budget & Tax Update

An Information Service of the AFI Federal Budget and Taxation Committee

April 14, 2000, Vol. 6, No. 4
Federal Budget and Tax Update Archives

FY 2001 Budget Resolution Approved

Cuts to State-Federal Partnership Programs Likely

On Thursday, April 13, the House by a vote of 220-208 and the Senate by a vote of 50-48 approved the conference report on H.Con.Res. 290, the $1.8 trillion FY 2001 budget resolution. House Budget Committee Chairman John Kasich, Ohio, remarked on passage of the resolution that the resolution "recognizes that we need to strengthen people across the country, not the central government in Washington." In the Senate, four Republicans voted against the measure while in the House, six Democrats supported the resolution and five Republicans opposed it.

The budget resolution, which does not require the president's signature, determines the maximum spending levels for each of the 13 appropriations bills and also authorizes reconciliation legislation which sets the framework for tax cutting measures. The resolution provides $600.3 billion in discretionary spending for the coming year, tax cuts of up to $215 billion over the next five years depending on projected budget surplus estimates, $40 billion for Medicare reforms and a prescription drug benefit for seniors and $12 billion in debt reduction.

Discretionary Spending

The FY 2001 budget resolution provides $310.8 billion for defense discretionary spending, an increase of 6.4 percent over FY 2000, and $289.4 billion for domestic (non-defense) discretionary spending, an increase of 2.6 percent above FY 2000. While the resolution provides substantial increases for education and health, other discretionary spending programs will have to be cut substantially in order to balance the budget.

Both Appropriations Chairman Representative Bill Young of Florida and Representative John Porter of Illinois, Chair of the Appropriations Subcommittee on Labor, Health and Human Services and Education, shared with Speaker Hastert their concerns that the resolution will require "ill-advised" cuts to domestic programs. Porter said about the resolution, "I believe this resolution puts us exactly in the same position we were in last year, putting our necks in the noose and handing the president the rope," Porter said in an interview. Chairman Young, while saying he was confident the 13 bills would be approved by the House, remarked that "some of the 13 bills will be less than last year."

House Democrats and the President were highly critical of the amount set for domestic discretionary spending-while the resolution provides $4.5 billion more for defense than President Clinton sought, it provides $28.8 billion less than the president wanted for domestic programs. Earlier this year, the Congressional Budget Office issued three competing estimates of the projected budget surplus for FY 2001. The budget resolution as approved is $6.7 billion below the CBO estimate of a "hard freeze" at FY 2000 levels for non-defense discretionary spending. Exacerbating the cuts that will need to be made in domestic discretionary spending under the resolution is the $23 billion bill for advance appropriations included in last year's budget that comes due in FY 2001. House Minority Leader Dick Gephardt has gone so far as to say that the resolution would require draconian cuts of nearly $120 billion.

How deep the cuts will be and in what functional budget areas will be determined in early May as each chamber returns from spring recess to determine the 302(b) allocations, which set spending levels for each of the 13 appropriations bills.

Tax Cuts

The resolution provides $150 billion in reconciled tax cuts over five years ($11.6 billion in FY 2001) and places up to an additional $25 billion in a special reserve fund that can be used for both tax cuts and other priorities. The resolution allows two reconciliation bills that are to be reported July 14 and September 13. Over the five-year period depending on CBO revised on-budget surplus projections, tax cuts under the resolution could rise to $215 billion.

Debt Reduction, Medicare and Prescription Drugs

The resolution directs the House Ways and Means Committee to report two debt reduction bills, which correspond with the dates set for the tax reconciliation measures. The first is expected to reduce publicly held debt by $7.5 billion, the second by up to $19.1 billion. The second debt reducing measure is designed to ensure that, should tax cuts included in the resolution not come to pass (i.e. should the president veto the bills or one chamber fail to get a measure passed), the funds that would have be used for a tax cut would be used to reduce the publicly held debt rather than to increase domestic discretionary spending.

While the resolution sets aside $40 billion for Medicare reform and a prescription drug benefit for seniors, language in the resolution is in conflict about how this would happen. The resolution authorizes the House to increase budget authority and outlays to the Ways and Means Committee if they approve Medicare reform measures or a prescription drug benefit, providing $2 billion in FY 2001 and no more than $40 billion over five years.

In the Senate, the resolution authorizes $20 billion over five years of additional funds to the Finance Committee if they approve legislation for a Medicare prescription drug benefit, so long as the legislation does not cause an on-budget deficit in any of the five years. Further, the resolution permits $40 billion over five years of revised allocations to the Finance Committee if they report legislation which improves the solvency of the Medicare programs without new subsidies from the general fund and improves access to prescription drugs or continues the access provided in the first part of the Senate's two-part Medicare reserve fund.

New Budget Rule

Finally, the resolution provides for a new 60-vote point of order in the Senate. As a result of the resolution, 60 affirmative votes will be required in the Senate to designate any non-defense spending as "emergency" spending. Under current congressional budget rules, emergency spending does not count against the spending levels determined by the budget resolution. Defense spending would not be affected by this new rule.