Washington Rundown 1 January 15, 013 WASHINGTON UPDATE Following President Obama s reelection in early November, Congressional leaders spent the final six weeks of the 11 th Congress attempting to reach an agreement on the tax and spending issues known as the fiscal cliff. While talks among President Obama, Speaker Boehner (R-OH), and Senate Majority Leader Reid (D-NV) stalled, Vice President Biden and Senate Minority Leader McConnell (R-KY) successfully negotiated a deal. The Biden- McConnell deal, formally known as The American Taxpayer Relief Act of 01, passed both the Senate (89-8) vote and the House (56-171) and was subsequently signed by President Obama on January, 013. FISCAL CLIFF TAXES One of the most contentious points in negotiations was the fate of the Bush tax cuts, which were set to expire on January 1, 013. Democrats made it clear that they would refuse to support any compromise legislation that did not raise income tax rates for the wealthiest Americans. Republicans remained apprehensive to raise taxes on any group. With a perceived mandate from the election results, Democrats pushed their point, and many Republicans slowly relented. The Biden-McConnell deal permanently extended the Bush rates for the middle class. However, the deal permanently raised rates for individuals making over $400,000 and couples making over $450,000 to Clinton-era levels (39.6%). The deal also permanently dealt with dividend, capital gains, and estate taxes. For those above the $400,000/$450,000 threshold, the legislation raises the dividend and capital gains rates to 0%. Those below the threshold will retain the 15% rate. The legislation also raises the estate tax from 35% to 40% with a $5 million exemption that is indexed for inflation. Additionally, the Biden-McConnell deal addressed two other high profile tax issues, the Alternative Minimum Tax (AMT) and the payroll tax. Going forward the AMT will be indexed for inflation, protecting millions of middle
income Americans. The deal did not extend the % payroll tax cut, which expired at the beginning of the year. ISSUE SEQUESTRATION DELAYED Based on the Budget Control Act signed by President Obama in 011, federal spending was scheduled to take a substantial hit under a budget process known as sequestration. The sequestration provision called for $1. trillion in automatic cuts, split evenly between defense and non-defense spending, on January, 013. The White House and Republican leaders in Congress were unable to come to a grand bargain on spending cuts, so the fiscal cliff legislation included language to delay the sequestration cuts until March 1, 013. This gives both parties about seven more weeks to come up with a spending plan to avoid sequestration. In accordance with the Sequestration Transparency Act of 01, the White House Office of Management and Budget (OMB) released its initial estimates on the potential cuts triggered by sequestration. Though tentative in nature, the report provides a general outline for where sequestration cuts would fall should Congress fail to act. The Budget Control Act placed a strict % cap on reductions to Medicare. Even so, the OMB report indicates that over $11 billion could be cut from the program should sequestration occur. Additionally, key implementation programs of the Affordable Care Act would also face millions of dollars in cuts. The report also outlines the potential cuts to the Food and Drug Administration (FDA). Under sequestration, the FDA could lose 8% of its budget, or $319 million. At a recent panel discussion, BIO Executive Vice President for Health Sara Radcliffe stated that such cuts could have a detrimental effect on the industry s chief regulator. Moreover, Ms. Radcliffe expressed concerns over the potential seizing of $11 million in user fees paid by industry to expedite the review of new drug and device applications. ISSUE AGRICULTURE The Farm Bill expired on September 30 with Congress failing to pass an extension before adjourning for the election recess. The Senate had passed an updated version of the Farm Bill at the end of June, and the House Agriculture Committee advanced its own version in mid-july. However, the full House failed to take action on either measure before the August recess or during the abbreviated September session. Among the provisions included in the House Farm Bill proposal is a requirement that the Secretary of Agriculture, in conjunction with the
3 Secretary of Health and Human Services and the EPA Administrator, draft a report on measures to reduce regulatory oversight of agricultural biotechnology products. As a part of an overall deal, Congress agreed only to extend the current farm bill for nine months. Thus, the deal did not include House committee-passed language relating to ag-biotech regulatory efficiency or mandatory funding for farm energy programs, though some energy programs were reauthorized subject to available appropriations. With the 113 th Congress now underway, Members will begin efforts to craft a full five-year farm bill before the extension expires in September. ISSUES TAX EXTENDERS Tax extenders were also included in the Biden-McConnell deal. The tax extenders provisions were based on a $05 billion package that passed the Senate Finance Committee just before the August recess. Provisions included extensions of the research and development tax credit, mortgage debt credit, and state and local sales tax deductions. A detailed summary of the legislation is included here. Provisions that expired in December 011 were extended for two years (retroactively covering 01) while provisions that expired in December 01 were extended for one year. ISSUES DEBT CEILING While the Biden-McConnell legislation dealt with most tax issues, the final agreement did not address America s legal borrowing limit, better known as the debt ceiling. The US reached the debt ceiling on December 31, 01. In a letter to Congress, Treasury Secretary Timothy Geithner informed Members that the Treasury would employ extraordinary measures to keep the country from exceeding the debt limit. This debt insurance suspension period can be maintained until the end of February. Unless Congress acts before that time, the US government will not be able to fund its liabilities. Though there had been some hope that a fiscal cliff grand bargain would include a deal to raise the debt ceiling, no such provision was negotiated. Thus, the first two months of the 113 th Congress are expected to be filled with battles to raise the ceiling. Democrats have stated adamantly that they will not relive the contentious 011 debt ceiling battle. Conversely, Republicans have maintained their position of tying any increase in the debt ceiling to spending cuts. Republicans are expected to be even more forceful in their demands as many GOP Members feel they conceded too much in the fiscal cliff deal. Two other elements may affect the negotiations. First, having dealt with tax rates, President Obama will not have easy leverage to use against
4 Republicans. Additionally, the fiscal cliff deal delayed sequestration till precisely the day after the Treasury s extraordinary measures become ineffective. Both elements give Republicans the upper hand leading into the negotiations. 113 th Congress The 113 th Congress convened on January 3, 013. House Senate 33 00 Democrats Republicans Vacancies 45 53 Democrats Republicans Independents (Caucus with Democrats) The House convened with two vacancies. Democrat Jesse Jackson Jr. (IL-) resigned in November for health reasons, and Republican Tim Scott (SC-1) resigned in January after being appointed to fill the Senate seat of Jim DeMint, who left to lead the Heritage Foundation. Two more vacancies are expected. Upon Secretary Clinton s retirement, Massachusetts Senator John Kerry will be appointed Secretary of State and is expected to resign upon confirmation. Finally, Republican Rep. Jo Ann Emerson (MO-8) will resign in February to pursue other opportunities. Special elections will be held for all vacancies. INAUGURATION President Obama and Vice President Biden will begin their second term following a private swearing-in ceremony on January 0, 013. Constitutionally, the presidential term begins on January 0 th ; however, since that date falls on a Sunday, public ceremonies will not take place until Monday, January 1 st. SUMMARY: ONE CLIFF DOWN, THREE TO GO
5 While Congress and President Obama avoided the tax cliff by agreeing to the Biden-McConnell deal in early January, the country faces three additional cliffs in the first quarter of this year: Mid-February: Breach of Debt Ceiling Limit March 1: Sequestration Cuts March 31: Expiration of Continuing Resolution to Fund the Federal Government RECENT POLLING Job Approval: President Obama Poll Date Results Rasmussen Reports January 3 Approve 57 Disapprove 41 Gallup January 3 Approve 50, Disapprove 43 CNN/Opinion Research December 18 Approve 50, Disapprove 45 Job Approval: Congress Poll Date Results USA Today/Gallup December 17 Approve 18, Disapprove 76 CBS News December 1 Approve 11, Disapprove 81 Fox News December 11 Approve 17, Disapprove 74