The House passed a $659B FY18 defense appropriations bill (H.R. 695) this week for the third time on a mostly party-line vote of 250-166 (23 Democrats voted yes). The bill includes $584B in regular appropriations and $70B in emergency supplemental spending. The vote in the House was largely symbolic, as the bill had no chance of passing the Senate. Democrats in the Senate first want to reach a bipartisan budget deal. The funding caps for FY18 are $549B for defense and $516B for non-defense programs. H.R. 695’s funding level exceeds the FY18 funding cap by $35B, but a provision in the bill exempts it from the automatic sequestration cuts that would be triggered.

The current FY18 continuing resolution (CR) funds the federal government through next Thursday, February 8. The House will likely consider another CR (the fifth this fiscal year) that would keep the government open another six weeks through March 22.

The six week timeframe for the CR could complicate negotiations as the deadline for winding down the Deferred Action for Childhood Arrivals program set by the President is March 5, and the Congressional Budget Office now estimates that the Treasury Department will run out of extraordinary measures for the debt ceiling sometime in the first half of March. Both issues need to be addressed before March 22.

The Trump administration has asked House Republicans to include language suspending the debt ceiling in the next short-term spending bill. In addition to a provision to raise the debt ceiling, the next CR could include $80B in disaster relief as well as a $300B sequester relief package.

The federal government shutdown lasted three full days ending on Monday when the President signed another continuing resolution (CR) funding the government through February 8. The Senate approved the measure by a vote of 81-18 (two Republicans and 16 Democrats voted against the measure). The House followed and approved the measure by a vote of 266-150 (six Republicans voted against the bill, while 45 Democrats voted for passage). The President then signed the bill later that evening.

Senate Democrats agreed to vote for the measure after getting a commitment from Senate Majority Leader Mitch McConnell (R-KY) for floor time for an immigration debate. McConnell said that turning to immigration legislation was contingent on the passage of a CR to keep the government open. McConnell said his intention is to take up legislation that would address DACA, border security, and related issues, as well as disaster relief, defense funding, and healthcare and to have an amendment process that is “fair to all sides.” The debate over legislation that would protect the nearly 700,000 “Dreamers” would occur if there is no bipartisan deal before this new CR expires on February 8. There is no assurance, though, that the House will take up an immigration package. House Speaker Paul D. Ryan (R-WI) has said he will only take up legislation if it has support from a majority of his Republican conference.

The CR included a six-year reauthorization of the Children’s Health Insurance Program as well as delays for three taxes that were set to take effect under the 2010 Affordable Care Act. The CR also provided retroactive pay for federal employees who either worked or were furloughed during the shutdown and will cover periods for any future funding lapses during FY18. The Congressional Budget Office (CBO) estimated that this CR will add $31.25B to annual deficits over the next decade.

After the CR was passed, Senate Intelligence Committee leaders on both sides expressed concern over a provision that was included in the stopgap measure. The language could allow the White House to exert greater control over the intelligence community’s funding by permitting the transfer and spending of intelligence funds without congressional authorization or approval. Effectively, the intelligence community could expend funds as it sees fit without an authorization bill in place. Before final passage of the bill, Senate Intelligence Committee Chairman Richard Burr (R-NC) sought unanimous consent to change the language of the intelligence provision, but Senate Appropriations Committee Chairman Thad Cochran (R-MS) objected saying the language was requested by the administration and used in previous CRs.

The risk of another shutdown persists as this CR only funds the federal government through February 8. Congress has just two weeks (9 legislative days in the Senate, 6 legislative days in the House) to agree on new defense and non-defense spending limits for an FY18 omnibus appropriations bill as well as come to terms on an immigration deal. However, Senate Democrats may now be considering decoupling the spending caps deal from the immigration deal. Other issues that could be on the negotiating table include: measures to continue cost-sharing payments to insurers to reduce out-of-pocket costs for low-income Americans, long-term funding for community health centers, funding to address the opioid epidemic, propping up underfunded private pension plans, and emergency funding for victims of recent hurricanes and wildfires. Absent an agreement, Congress will have to pass another CR. Senate Majority Whip John Cornyn (R-TX) said this week that Congress likely would have to pass at least two more CRs.

The House passed an FY18 continuing resolution (CR) funding the government through December 22 by a vote of 235 to 193. Voting against the bill were 18 Republicans (Amash-MI, Biggs-AZ, Brooks-AL, Gaetz-FL, Garrett-VA, Gohmert-TX, Gosar-AZ, Griffith-VA, Harris-MD, Hollingsworth-IN, Jones-NC, Labrador-ID, Massie-KY, Mooney-WV, Perry-PA, Ratcliffe-TX, Wittman-VA, and Zeldin-NY) and 175 Democrats. Fourteen Democrats (Bustos-IL, Crist-FL, Gottheimer-NJ, Murphy-FL, O’Halleran-AZ, Peters-CA, Peterson-MN, Rosen-NV, Ruiz-CA, Schneider-IL, David Scott-VA, Sinema-AZ, Speier-CA, and Walz-MN) voted for the measure. Five members (one Republican – Bridenstine-OK and four Democrats – Brownley-CA, Kennedy-MA, Lawson-FL, and Pocan-WI) did not vote.

The Senate then passed the two-week CR by a vote of 81 to 14. The fourteen members who voted against the measure were: Booker (D-NJ), Cruz (R-TX), Ernst (R-IA), Gillibrand (D-NY), Harris (D-CA), Hirono (D-HI), Lee (R-UT), Markey (D-MA), McCain (R-AZ), Merkley (D-OR), Rounds (R-SD), Sanders (I-VT), Sasse (R-NE), and Warren (D-MA).

The President signed the measure into law today.

Congressional leaders now need to broker a long-term funding agreement to fund the federal government for the rest of FY18. House and Senate leadership met with the President yesterday, but they don’t seem to be any closer on a final spending deal. The deal leadership is discussing reportedly includes $200B in additional spending – $73B for defense, $56B for non-defense, and $70B for emergency spending. House Speaker Paul D. Ryan (R-WI) speculated that a third CR may be needed in order to give the Appropriations Committee enough time to assemble an FY18 omnibus appropriations bill once they have agreement on topline spending levels.

Negotiators are hoping to get a deal on the budget caps before the Dec. 22 deadline. If lawmakers aren’t able to get a deal on the budget, sequestration is set to start in mid-January, which will spark automatic spending cuts. Senate Republicans need the support of Democrats to pass an FY18 omnibus spending measure. Democrats are asking for parity in increases in defense and nondefense spending. They may be willing to support an increase in defense spending if it was matched with an equal increase on the nondefense side. Democrats are also asking for an extension of the Children’s Health Insurance Program (CHIP) and a legislative fix for the Deferred Action for Childhood Arrivals (DACA) program. Republicans are also pushing for funding for a southwest border wall.

House Republicans discussed plans to pass another FY18 continuing resolution (CR) funding the government through December 22. And House Appropriations Committee Chairman Rodney Frelinghuysen (R-NJ) indicated in a newsletter to constituents that the CR will last through 12/22. The current CR expires next Friday, December 8. House conservatives are concerned that a deadline right before Christmas will lead to approval of a massive spending bill. They prefer a one-month CR funding the government through January with some increases for defense spending. Democrats also declined to support the short-term CR because of a series of tweets from the President earlier this week. Democratic leaders boycotted a meeting with the President on Tuesday after he attacked them for being “weak on crime.” Democrats may also be withholding their support for another CR in order to increase their leverage in year-end negotiations, more specifically, to include a solution for “Dreamers” in the final spending deal.

While there isn’t consensus over how long the next CR should be or what should be attached to it, there is agreement that the spending caps set by the 2011 Budget Control Act must be raised to get a bipartisan deal on a final spending package. Republicans have offered a $54B increase in defense spending and a $37B increase in non-defense spending. Democrats are asking for parity between defense and non-defense spending increases.

Status of FY18 Appropriations Spending Bills

The Senate Appropriations Committee released its four remaining FY18 appropriations bills this week as chairman’s marks. The Defense, Homeland Security, Interior, and Financial Services bills will not be marked up in committee, but instead used in negotiations with the House for a final omnibus spending measure.

Defense

The $581.3B FY18 Defense Appropriations bill was released by the committee on November 21. The bill is $15.4B above the President’s FY18 budget request, and includes $64.9B in Overseas Contingency Operations (OCO) funding. The bill also includes $4.5B in emergency funding, as requested by the President, for Missile Defeat and Defense Enhancements.

FY18 Defense Appropriations Bill Text

https://www.appropriations.senate.gov/imo/media/doc/FY2018-Defense-Chairmans-Mark.pdf

FY18 Defense Appropriations Report

https://www.appropriations.senate.gov/imo/media/doc/FY2018-Defense-Explanatory-Statement.pdf

Homeland Security

The committee also released they $51.6B FY18 Homeland Security Appropriations bill on November 21. The bill provides $13.5B for U.S. Customs and Border Protection (an increase of $2.1B over FY17), $6.7B for Immigration and Customs Enforcement (an increase of $230M over FY17), $11.2B for U.S. Coast Guard (an increase of $700M over FY17), $7.4B for the FEMA Disaster Relief Fund, $4.7B for the Transportation Security Administration (a decrease of $3.1B from FY17), $2.0B for the U.S. Secret Service (same as FY17), $3.3B for National Protection and Programs Directorate (an increase of $9M above FY17), $132M for U.S. Citizenship and Immigration Services (an increase of $10.9M above FY17), $213M for Federal Law Enforcement Training Centers, $720M for Science & Technology, $310M for the Domestic Nuclear Detection Office, $113M for the Office of Health Affairs, and $1.2B for departmental management, operations, intelligence, and oversight.

The bill also continues the following: a requirement that any contract award fees be tied to successful acquisition outcomes; a provision prohibiting the collection of any new land border fees or the study of such fee; requirements on issuance of Jones Act waivers for oil tankers carrying oil from the strategic petroleum reserve; prohibition related to individuals detained at the Naval Station, Guantanamo Bay, Cuba; prohibition on award or incentive fees for contractors who do not meet performance requirements; a prohibition of the transfer of an operable firearm by a Federal law enforcement officer to an agent of a drug cartel; a provision limiting the cost of and number of employees allowed to attend international conferences; a provision requiring that the Department make public any report that the Department determines would serve the national interest, except reports that would compromise security or that contain proprietary information; a provision prohibiting funds from being used to develop and submit a budget that relies upon unauthorized fee proposals; a provision prohibiting domestic prosecutions based on the Arms Trade Treaty; and a provision reducing administrative contracting expenses across the Department. The bill also rescinds dormant funds from various accounts across the Department.

FY18 Homeland Security Appropriations Bill Text

https://www.appropriations.senate.gov/imo/media/doc/FY2018-Homeland-Security-Chairmans-Mark.pdf

FY18 Homeland Security Appropriations Report

https://www.appropriations.senate.gov/imo/media/doc/FY2018-Homeland-Security-Explanatory-Statement.pdf

Interior

The $32.6B FY18 Interior appropriations bill was released last week and includes $507M in emergency firefighting funds, $12.17B for the Interior Department, $1.23B for the Bureau of Land Management ($16M below FY17), $2.94B for the National Park Service ($5.6M above FY17), $1.48B for the U.S. Fish and Wildlife Service ($40.4M below FY17), $1.08B for the U.S. Geological Survey (equal to FY17), $252.2M for the Office of Surface Mining ($897K below FY17), $5.04B for the Indian Health Service ($1M above FY17), $2.86B for the Bureau of Indian Affairs and Bureau of Indian Education ($7.5M above FY17), $7.91B for the Environmental Protection Agency ($149.5M below FY17), $5.8B for the U.S. Forest Service, $3.6B to fight wildland fire, $878M for the Smithsonian Institute ($15M above FY17), $149M for the National Endowments for the Arts and Humanities (equal to FY17), and $3M for the Council on Environmental Quality (equal to FY17).

FY18 Interior Appropriations Bill Text

https://www.appropriations.senate.gov/imo/media/doc/FY2018-INT-CHAIRMEN-MARK-BILL.PDF

FY18 Interior Appropriations Report

https://www.appropriations.senate.gov/imo/media/doc/FY2018-INT-CHAIRMEN-MARK-EXPLANATORY-STM.PDF

Financial Services

The $20.8B FY18 Financial Services appropriations bill is $637M below the FY17 enacted level. The bill includes $347M for departmental offices within the U.S. Department of Treasury, $11.1B for the Internal Revenue Service, $717M for the Executive Office of the President ($8M above FY17), $7.0B for the federal judiciary ($260M above FY17), $886.3M for the Small Business Administration (equal to FY17), $7.8B for the General Services Administration ($1B below FY17), $1.8B for the Securities and Exchange Commission ($200K above FY17), $250M for the Commodity Futures Trading Commission (equal to FY17), $306.3M for the Federal Trade Commission, $322M for the Federal Communications Commission ($18M below FY17), and $704M for the District of Columbia ($52M below FY17). The bill also includes several policy provisions including a prohibition on funds for an increase in pay for the Vice President and other senior political appointees; a prohibition on funding for grants or contracts to tax cheats and companies with felony criminal convictions; a prohibition on the use of funds to paint portraits of federal employees, including the President, Vice President, Cabinet Members and Members of Congress; and a requirement that agency inspectors general have timely access to agency documents and records.

FY18 Financial Services Appropriations Bill Text

https://www.appropriations.senate.gov/imo/media/doc/FY2018-FSGG-CHAIRMEN-MARK-BILL.PDF

FY18 Financial Services Appropriations Report

https://www.appropriations.senate.gov/imo/media/doc/FY2018-FSGG-CHAIRMEN-MARK-EXPLANATORY-STM.PDF

Status of FY18 Appropriations Spending Bills

Congressional leaders are negotiating a budget deal with the Administration that would raise budget caps on discretionary spending by about $182B over two years. The proposed deal would increase defense spending by $54B above the $549B limit for FY18 and non-defense spending by $37B above the $515.6B limit for FY18. Those same increases would be applied in FY19 when the caps are $562B for defense and $529.2B for non-defense. The budget deal may not include a legislative fix for the Deferred Action for Childhood Arrivals or funding for a southwest border wall.

Democrats have apparently rejected the offer and are insisting on parity between defense and non-defense spending increases. Conservatives want to offset the spending limit increases with cuts to other programs, including entitlements. And defense hawks could push for additional defense spending in line with the levels provided in the final FY18 National Defense Authorization Act sent to the President this week for his signature. That bill authorized $626B for base Pentagon funding.

Senate Majority Leader Mitch McConnell (R-KY) said a budget deal could be reach by the end of this month, and may be announced as early as next week.

House Speaker Paul D. Ryan (R-WI) said that the House is considering extending the continuing resolution (CR) past its current expiration date of December 8, but they are not talking about extending it into next year. Ryan said the extension is a possibility to give appropriators more time to write and negotiate their bills. Senate Appropriations Committee Chairman Thad Cochran (R-MS) is also ruling out a new CR that extends into the new year. Extending the CR into CY2018 could lead to some issues (per CBO), as the spending levels would trigger sequestration.

The House has already passed an omnibus FY18 appropriations bill. The Senate has passed eight of their 12 FY18 spending bills out of committee, but hasn’t considered any of the bills on the Senate floor. The four remaining bills are Defense, Financial Services, Homeland Security, and Interior. The Senate Appropriations Committee plans to unveil the four remaining bills next week as chairman’s marks. The bills will not be marked up in full committee.

House Freedom Caucus Chairman Mark Meadows said he would oppose a short-term stopgap spending bill that ends just before the winter holidays. He is instead pushing for a temporary spending measure lasting into the new year.

Status of FY18 Appropriations Spending Bills

After four days of debate this week, the House Ways and Means Committee approved a bill to rewrite the tax code. H.R. 1, the Tax Cuts and Jobs Act, was approved on a party-line vote of 24-16. The House Rules Committee will meet on Wednesday at noon to consider the measure, and the full House is expected to vote on the bill on the House floor next Thursday.

The Senate Finance Committee released a description of the Chairman’s Mark of the “Tax Cuts and Jobs Act” this week. To comply with the rules of the Senate, the measure cannot add more than $1.5T to the debt over 10 years. The committee plans to make adjustments to the legislation during markup next week as Democrats could make a procedural challenge under the Senate’s Byrd Rule if the bill increases annual deficits after the first 10 years.

The Senate Finance Committee will begin consideration of the bill on Monday at 3 PM. And the week of November 27 is possible for Senate floor consideration of the tax reform bill. Senate reconciliation rules require 20 hours of debate followed by a “vote-a-rama.” After the House and Senate pass their respective tax bills, they are expected to quickly appoint conferees and begin to work out the differences in their bills in a conference committee in December.

The conference committee will have a number of differences to resolve. Because Republicans can only lose two votes in the Senate, the final bill may more closely resemble the Senate’s plan than the House’s plan.

Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R-AK) released a four-page reconciliation bill this week that would open the Arctic National Wildlife Refuge (ANWR) in Alaska to oil and gas drilling. The FY18 budget resolution reconciliation instructions required Murkowski’s committee to come up with $1B in revenue over the next 10 years. According to the Congressional Budget Office (CBO), the measure would net $1.092B over the next decade. The bill will be marked up in committee on November 15 at 9 AM. Democrats and environmental groups oppose the measure.

House Rules Committee Print of H.R. 1:

http://docs.house.gov/billsthisweek/20171113/BILLS%20-115HR1-RCP115-39.pdf

Congressional Budget Office Estimate of H.R. 1:

https://www.cbo.gov/publication/53297?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=0

Description of Senate Finance Committee Chairman’s Mark of the “Tax Cuts and Jobs Act”:

https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman’s%20Mark.pdf

Joint Committee on Taxation Score of Senate Draft Proposal:

https://www.finance.senate.gov/imo/media/doc/11.9.17%20JCT.pdf

Congressional Budget Office Cost Estimate of Proposed ANWR Legislation:

https://www.cbo.gov/publication/53301?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=Express_2017-11-09_08%3a00

House Releases Tax Reform Proposal, Markup Next Week

After several months of negotiations between the big six (Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, House Speaker Paul D. Ryan, Senate Majority Leader Mitch McConnell, House Ways and Means Committee Chairman Kevin Brady, and Senate Finance Committee Chairman Orrin Hatch), the House Ways and Means Committee released its tax code overhaul plan this week.

The House Ways and Means Committee will begin marking up H.R. 1, the Tax Cuts and Jobs Act on Monday at noon. Chairman Kevin Brady (R-TX) expects the markup to last through Thursday. He is hopeful the bill would then be considered on the House floor the week of November 13. Brady wants all amendments to be offered during committee markup to avoid amendments being offered on the House floor. Senate Majority Leader Mitch McConnell said the Senate is aiming to introduce its own tax reform bill as early as next week (Nov 8?). Majority Leader McConnell may delay the Thanksgiving recess to vote on their tax reform bill.

The House and Senate will use the budget reconciliation process to pass the tax reform measure, which will only require a majority vote in both chambers. Assuming all Democrats vote against the measure, the House cannot lose more than 22 Republicans and the Senate Republicans cannot lose more than two votes from its members. The process also limits Senate debate to 20 hours.

Here are some of the highlights of H.R. 1:

Individual Tax

• Lowers individual tax rates to 12%, 25%, and 35% but maintains rate at 39.6% for high income Americans (over $1M)
• Increases the standard deduction from $6,350 to $12,000 (individuals) and from $12,700 to $24,000 (married)
• Expands Child Tax Credit from $1000 to $1600
• Continues the deduction for charitable contributions
• Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000
• Continues the deduction for state and local property taxes up to $10,000
• Repeals the Alternative Minimum Tax
• Doubles the exemption for the estate tax and repeals it after 6 years
• No changes to tax treatment of 401(K) contribution limits

Business and Corporate Tax

• Lowers corporate tax rate to 20% down from 35%
• Allows businesses to immediately write off full cost of new equipment
• Preserves the R&D tax credit
• Makes it “easier” and “far less costly” to repatriate earnings
• Establishes new safeguards to distinguish between individual wage income and pass-through business income

Other Provisions

• New 1.4% tax on private university endowments for schools with more than $100,000 per student
• Tax-exempt religious organizations would no longer be barred from political speech

Original Introduced Bill Text:

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf

Amendment in the Nature of a Substitute (Chairman’s Mark):

https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-Amendment-in-the-Nature-of-a-Substitute-to-H.R.-1.pdf

Section-By-Section Summary:

https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf

Joint Committee on Taxation Estimated Revenue Effects:

https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-JCT-Score-H.R.-1.pdf