Capitol to Capitol
An Information Service of NCSL's Standing Committees

Volume 19,   Issue 12 - April 6, 2012



For the next 21 days, six House standing committees will be searching for ways to save $18 billion (one year) and $261 billion (10 years) in mandatory and entitlement programs and through tax changes. That’s the “reconciliation” order imposed by the FY 2013 House budget resolution (H. Con. Res 112) that passed last week on a 228 to 191 vote. The implications for states are potentially huge. 

Just to clarify:  “reconciliation” refers to an accelerated congressional process for making changes in tax, debt and entitlement policies. Only the committees specified in the budget resolution get to participate. And even though Wisconsin Rep. Paul Ryan’s budget resolution suggested possible areas for savings or changes, the six committees will get the final say on taxes, Medicaid, agriculture subsidies, Pell Grants and more. The committees must report back by April 27, when their recommendations are then bundled into one bill. 

What actions will likely be under the microscope that would affect state-federal programs and state economies?

1.      Converting the Medicaid/Children’s Health Insurance Program and the Supplemental Nutrition Assistance Program into block grants. The former would be indexed for population growth and inflation and provide the federal government $810 billion in savings over ten years. The latter’s changes would start in 2016.

2.      Repealing federal health care reform, including insurance exchanges and Medicaid expansions.

3.      Terminating the Social Services Block Grant altogether.

4.      Eliminating payments to states for the restoration of abandoned mines. 

5.      Reducing direct agricultural payments and crop insurance subsidies.

6.      Bolstering the Highway Trust Fund by increasing domestic energy production and requiring that future transfers to the trust fund from the general fund be offset.

7.      Preempting state medical malpractice laws with federal standards.

8.      Eliminating broad, unconditional eligibility for the Temporary Assistance for Needy Families block grant.

9.      Denying any further extension of emergency unemployment insurance benefits.

10. Reforming the Pell Grant program by limiting the annual awards and eliminating administrative fees.

11. Scaling back subsidies for energy efficiency and renewable energy programs. 

What are the possible tax changes that will have implications for states?

1.      Consolidating individual federal income taxes into two brackets:  10 percent and 25 percent.

2.      Lowering the corporate tax from 35 percent to 25 percent.

3.      Moving to a “territorial” tax system, where companies would be taxed only on the income they earn within the United States.

4.      Maintaining federal revenues at between 18 percent and 19 percent of the GDP. 

Chairman Ryan’s proposal would be revenue neutral, which would require a number of tax expenditures to be reduced or eliminated, even though that is not cited in the budget resolution. Of note to states as well:  the House budget proposal does not mention tax-exempt financing for state and local governments nor federal deductibility of state and local taxes. 

It takes two, however, to do the reconciliation “tango.” And the Senate majority continues to insist it will not consider a FY 2013 budget resolution and therefore will not negotiate with the House. Instead, the Senate Appropriations Committee will use the discretionary spending caps set in last year’s Budget Control Act to guide deliberations. Therefore, any House reconciliation work that passes will linger in the Senate and die from inattention. That work, however, will set the “House majority position” on future tax, spending and related issues for consideration after the election, crowding the end-of-year “lame duck” schedule.  

NCSL staff contacts: Michael Bird/Jeff Hurley (budget generally), Joy Wilson/Rachel Morgan (health), Sheri Steisel/Emily Wengrovius (human services), Ben Husch/Jennifer Arguinzoni (transportation), Lee Posey/Michael Reed (education), Ben Husch/Marcus Peterson (energy), Jon Jukuri/Michael Reed (unemployment insurance), Susan Parnas Frederick/Jennifer Arguinzoni (medical malpractice)