The House passed the FY18 budget resolution (H. Con. Res. 71) that provides the path forward for tax reform. The House agreed to the version that was passed by the Senate last week.

The FY18 budget resolution allows for an additional $1.5T in annual deficits over the next decade to make way for tax cuts. The resolution includes reconciliation instructions that would allow Republicans to pass future tax reform legislation without the risk of a Democratic filibuster in the Senate. The measure also could allow Republicans to push through plans to open part of Alaska’s Arctic National Wildlife Refuge to oil and gas drilling. And budget reconciliation instruction calls for the Senate Energy and Natural Resources Committee to reduce deficits by at least $1 billion over 10 years, which could be raised through sales of federal leases to oil drilling companies and royalties from any oil or gas produced.

The FY18 budget resolution has no requirement to cut entitlements to pay for the tax cuts, which is something House conservatives had wanted in the budget. In return for their support and vote on the budget, members of the Republican Study Committee were assured by House Speaker Paul D. Ryan (R-WI) that there would be a vote on the House floor next spring on a constitutional amendment requiring a balanced budget, along with deficit-reduction legislation that includes cuts to entitlement programs. House Budget Committee Chairwoman Diane Black (R-TN) said this week that she expects the FY19 budget resolution could propose up to $500B in mandatory spending reductions.

The vote in the House was 216-212 with 20 Republicans voting against the budget. Some Republicans from New York and New Jersey voted against the budget this time as they wanted assurances that the state and local tax (SALT) deduction would not be eliminated as part of a tax code overhaul. Getting rid of the deduction would bring in an additional $1.3T in new tax revenue over the next 10 years.

The House first passed the FY18 budget resolution on October 5 by a vote of 219-206 with 18 Republicans voting against the budget. Ten Republicans voted no both times, so there are combined 28 Republican members who at one point voted no on the FY18 budget resolution. Republicans can only afford to lose 22 votes on tax reform, so this is going to be a difficult balancing act by House Republican leadership to bring some of their members back on board.

Below are the members who voted against the FY18 budget resolution in the House during either the first round or second round of consideration:

Amash (MI)

Blum (IA)

Buck (CO)

Comstock (VA)

Costello (PA)

Dent (PA)

Donovan (NY)

Duncan (TN)

Faso (NY)

Fitzpatrick (PA)

Gaetz (FL)

Jenkins (KS) – member of the House Ways and Means Committee

Jones (NC)

Katko (NY)

King (NY)

Lance (NJ)

LoBiondo (NJ)

MacArthur (NJ)

Massie (KY)

Mast (FL)

McKinley (WV)

Meehan (PA)

Ros-Lehtinen (FL)

Sanford (SC)

Smith (NJ)

Stefanik (NY)

Tenney (NY)

Zeldin (NY)

Bold – the 10 Republicans who voted no both times

House Ways and Means Committee Chairman Kevin Brady (R-TX) announced that the tax overhaul bill will be released on November 1 and that the committee will begin marking up the measure on November 6. The markup is expected to last several days. Speaker Ryan wants to pass a tax overhaul before Thanksgiving.

Chairman Brady expects to have a static score from the Joint Committee on Taxation (JCT) when they begin to mark up the bill. A dynamic score from the JCT isn’t expected until after the markup. The dynamic score is important as Republicans say tax cuts will spur enough new economic growth to create additional revenue that traditional budget scoring rules don’t recognize.

Finally…speaking of taxes, National Economic Council Director Gary Cohn said this week that Congress will have an opportunity to vote on a federal gasoline tax increase as part of an infrastructure bill early next year.

Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) announced a deal to stabilize the individual health insurance markets. In addition to Alexander and Murray, the bill was cosponsored by Republican Senators Mike Rounds (R-SD), Lindsey Graham (R-SC), John McCain (R-AZ), Bill Cassidy (R-LA), Susan Collins (R-ME), Joni Ernst (R-IA), Lisa Murkowski (R-AK), Charles Grassley (R-IA), Johnny Isakson (R-GA), Richard Burr (R-NC), and Bob Corker (R-TN), and Democratic Senators Angus King (I-ME), Jeanne Shaheen (D-NH), Joe Donnelly (D-IN), Amy Klobuchar (D-MN), Heidi Heitkamp (D-ND), Al Franken (D-MN), Joe Manchin (D-WV), Tom Carper (D-DE), Tammy Baldwin (D-WE), Claire McCaskill (D-MO), and Maggie Hassan (D-NH).

While the bill had 12 Republican and 12 Democrat sponsors/cosponsors, it appeared to have collapsed soon after it was announced. President Trump was initially onboard with the deal, but soon backpedaled his support after House Speaker Paul D. Ryan (R-WI) came out against it and the Republican Study Committee panned it as a bailout for health insurance companies. But the President was back on board after learning of the Republican cosponsors. Senate Majority Leader Mitch McConnell (R-KY) has not taken a position on the bill.

The Congressional Budget Office projects health care premiums will rise 20-25% without congressional action. This deal would extend ObamaCare insurance stabilization payments in exchange for giving states more flexibility to waive federal regulations. The bill also allows all individuals to purchase a lower-premium “copper” plan on the individual market regardless of age or hardship status; requires HHS to report on consumer outreach, education, and assistance activities; and requires HHS to promulgate regulations for the implementation of Health Care Choice Compacts, which would allow plans to be sold across state lines in the individual or small group market.

Alexander made an impassioned speech on the Senate floor this week and remains optimistic on the deal he reached with Murray. One likely scenario is that it is included in a year-end “grand deal” package that includes some perks and concessions for both Republicans and Democrats on FY18 appropriations, funding for a border wall, and a legislative fix for the Deferred Action for Childhood Arrivals Program.

Bill Text

https://www.help.senate.gov/imo/media/doc/THE%20BIPARTISAN%20HEALTH%20CARE%20STABILIZATION%20ACT%20OF%202017-%20TEXT.pdf

Section-by-Section Summary

https://www.help.senate.gov/imo/media/doc/THE%20BIPARTISAN%20HEALTH%20CARE%20STABILIZATION%20ACT%20OF%202017-%20SECTION%20BY%20SECTION.pdf

House Passes FY18 Emergency Supplemental Appropriations Bill

The House passed a $36.5B FY18 emergency supplemental appropriations bill (H.Res. 569) on Thursday by a vote of 353 to 69. All 69 no votes were from Republicans. Hardline conservatives complained that the cost of the package should be offset with cuts to other programs. Others were concerned about continuing to fund the National Flood Insurance Program without reforms to what they consider is an unsustainable program.

The legislation provides $18.7B for the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund (DRF), $576.5M for wildfire-fighting efforts, and $16B for debt relief for the National Flood Insurance Program (NFIP), which now needs additional funds to make necessary insurance claims payments to individuals. In addition, it includes $1.27B for the Disaster Nutrition Assistance Program (DNAP) that enables low-income residents in Puerto Rico to receive the same emergency nutrition assistance that other hurricane-affected states already receive. Earlier this month, OMB Director Mick Mulvaney sent a request to congress for an additional $12.77B for FEMA’s Disaster Relief Fund, $576.5M for wildfire efforts, and $16B for debt relief for the National Flood Insurance Program plus reforms to the program.

The Senate is expected to take up the measure when they return next week, but exact timing isn’t clear. The Senate may work on their FY18 budget resolution first, but Senate Majority Leader Mitch McConnell (R-KY) could schedule the supplemental vote early in the week.

OMB Letter to Congress:

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/Letters/Letter%20regarding%20additional%20funding%20and%20reforms%20to%20address%20impacts%20of%20recent%20natural%20disasters.pdf

House FY18 Emergency Supplemental Appropriations Bill Text:

http://docs.house.gov/billsthisweek/20171009/HR____SUPP.pdf

Senate Schedules Homeland Security and Interior Appropriations Markups

The Senate has scheduled two subcommittee markups (Interior Appropriations and Homeland Security Appropriations) for Tuesday, October 17 and a full committee markup for the two bills on Thursday, October 19.

Status of FY18 Appropriations Spending Bills

The House and Senate both moved forward this week with their FY2018 budget resolutions. The House adopted its plan by a vote of 219 to 206. All Democrats and 18 Republicans voted against the measure. The Senate Budget Committee approved its FY18 budget resolution on a party-line vote of 12 to 11. The Senate is expected to take up the measure on the Senate floor the week of October 16 where its prospects in the full Senate aren’t certain. Senate Republicans can only lose two votes in order for it to pass the full Senate.

Both budget resolutions included reconciliation instructions for their respective tax writing committees to produce tax overhaul legislation. Republican leaders hope to conference their two budget resolutions quickly as House leaders want to unveil their tax reform legislation before the end of the month.

While budget resolutions typically are considered in the month of April preceding the beginning of the new fiscal year, Congress couldn’t move forward with an FY18 budget resolution until they had completed the FY17 budget resolution process. The FY17 budget resolution included reconciliation instructions for repealing and replacing the Affordable Care Act (“Obamacare”). The FY17 reconciliation instructions expired on September 30.

Senate

The Senate Budget Committee’s FY18 budget resolution provides $549B in defense spending, $516B in nondefense spending, and $77B in Overseas Contingency Operations spending for FY18. The Senate budget resolution complies with the spending caps imposed by the Budget Control Act of 2011. The defense level of spending increases to $684B in FY2027 while nondefense grows at a much slower rate to $537B in FY2027.

The budget resolution also includes two reconciliation instructions to Senate committees. The first would allow the Finance Committee to pass tax cuts that would reduce revenues and change outlays and increase the deficit by not more than $1.5 trillion over the next 10 years. The second instructs the Energy and Natural Resources Committee to save at least $1 billion over the next 10 years.

During committee markup, Sens. Tim Kaine (D-VA) and Kamala Harris (D-CA) offered an amendment to retain a rule to require there to be a Congressional Budget Office (CBO) score on committee-reported legislation 28 hours before it is voted on. The Senate budget resolution proposes repealing the rule, which is enforced by a point of order that can be waived with 60 votes. The amendment was not agreed to.

Sen. John Kennedy (R-LA) offered an amendment to establish a deficit neutral reserve fund to implement work requirements for certain recipients of welfare programs not including Social Security, Medicare, unemployment insurance, and workers’ compensation. The amendment was approved.

FY18 Senate Budget Resolution

https://www.budget.senate.gov/imo/media/doc/FY2018.FINAL%20TEXT%20OF%20MARK.pdf

FY18 Senate Budget Resolution Tables

https://www.budget.senate.gov/imo/media/doc/FY18%20Budget%20Tables.pdf

FY18 Senate Budget Resolution Summary

https://www.budget.senate.gov/imo/media/doc/FY18%20Budget%20Res%20-%20Title%20By%20Title%20Summary.pdf

House

The House FY18 budget resolution provides $622B in defense spending, $511B in nondefense spending, and $87B in Overseas Contingency Operations spending for FY18. The defense level of spending increases to $740B in FY2027 while nondefense decreases to $424B in FY2027.

The defense spending level in the House budget resolution is $73B over the FY18 spending caps set by the Budget Control Act of 2011. There is widespread recognition that a new bipartisan budget deal will be required to avoid sequestration in FY2018. Democrat support will be needed for any new budget deal.

FY18 House Budget Resolution

https://www.congress.gov/115/bills/hconres71/BILLS-115hconres71rh.pdf

FY18 House Budget Resolution Report

https://www.gpo.gov/fdsys/pkg/CRPT-115hrpt240/pdf/CRPT-115hrpt240.pdf

FY18 House Budget Resolution Tables

https://budget.house.gov/wp-content/uploads/2017/07/Summary-Tables-1.pdf

FY18 House Budget Resolution Summary

https://budget.house.gov/wp-content/uploads/2017/07/Summary-PDF-for-web.pdf