One of the bills to replace Fannie Mae and Freddie Mac and overhaul the housing finance system just got a verdict from CBO: it will save $58 billion under the current budget rules for scoring credit programs. The bill, the Housing Finance Reform and Taxpayer Protection Act of 2014 (S. 1217), passed the Senate Banking Committee in May by a 13-9 vote, with both bipartisan support and opposition.
Fannie and Freddie have drawn the ire of some policymakers after the federal government placed them into conservatorship and infused hundreds of billions of dollars to rescue them during the heart of the financial crisis. However, after a change in the terms of the agreement that required the two government-sponsored enterprises (GSEs) to pay their net worth back to the federal government each quarter, the situation has reversed: Fannie and Freddie have brought in an estimated $200 billion for the Treasury in the past two years alone. Still, lawmakers are concerned about the inherent instability of the current arrangement and the potential risk to taxpayers if the housing market turns down again.
S. 1217 would replace Fannie and Freddie by 2020 with a new Federal Mortgage Insurance Corporation (FMIC), which would provide mortgage guarantees funded by fees.
The Postal Service has been losing money in recent years and has needed to cut back on services and raise stamp prices. However, these latest reductions are setting off a squabble among lawmakers. After USPS announced plans to consolidate 82 mail processing centers in 2015 and shed 15,000 jobs, 50 mostly Democratic senators sent a letter to the Senate Appropriations Committee and Financial Services and General Government Subcommittee chairs and ranking members asking them to postpone the reductions for one year and return mail delivery standards back to where they were in July 2012 to buy time for postal reform. Senate Homeland Security and Government Committee Chairman Tom Carper (D-DE) responded with a statement arguing that the best way to address these concerns would be for Congress to enact reforms to fix the financial challenges facing the Postal Service. But are lawmakers close to an agreement?
The answer is unclear. Both the House and Senate have produced bills with similar elements, but they have different emphases when it comes to stemming USPS's flow of red ink.
The American Enterprise Institute held an event Thursdsay commemorating the 50th anniversary of the start of the War on Poverty. The event, “Expanding Opportunity in America,” featured House Budget Committee Chairman Paul Ryan (R-WI) as well as a panel of experts.
In the coming days, the Senate will vote on the House-passed measure to replenish the Highway Trust Fund. The bill is a last-ditch effort to prevent the fund from going bankrupt, which would stall construction projects across the country.
Congress returns from its July 4th recess this week, and it will have plenty of work to do. Most pressing is the looming insolvency of the Highway Trust Fund (HTF). In less than a month, federal disbursements for highway projects will be disrupted if nothing is done. In addition, the House will take up a bill to permanently extend bonus depreciation, a business tax break enacted as stimulus in 2008. Also, the conference committee on a bill to reform veterans' health benefits in response to the unfolding scandal at the VA is expected to resume, and the President has called for a $3.7 billion supplemental request for funds to secure the southern border in response to an influx of child migrants.
The first three issues, in particular, all have the potential to significantly impact the federal budget. First, the Highway Trust Fund faces a nearly $170 billion shortfall over the next ten years, an issue that has been addressed in recent years by mostly unpaid for general revenue transfers. Because of budget conventions, these transfers don't count as increasing the deficit, even though the transfers allow greater levels of spending than would otherwise be the case. The Senate Finance Committee is looking to transfer $8 billion to the HTF to extend it through the end of the year, offsetting the cost with other revenue provisions. Closing the ten-year shortfall within the HTF through various options available to lawmakers or fully offsetting a general revenue transfer would reduce debt by about 1 percentage point of GDP by 2024; put another way, it would avoid the 1 percentage point of GDP being added to the debt that would occur if lawmakers transferred general revenue without offsets.
Second, the House is expected to vote this week on bonus depreciation, a business tax break enacted as stimulus in 2008. The House bill not only permanently extends the current provision to allow 50 percent of many new business investments to be written off in year one but also expands the tax break by making eligible new categories of investments. In total, the bill would cost $360 billion through 2024 including interest, increasing debt as a percent of GDP in 2024 by 1.5 percentage points of GDP. We've written before on how bonus depreciation has already cost $220 billion since 2008, and should not be treated as a normal tax extender because it interacts with other parts of the tax code.
Our recent paper Trust or Bust: Fixing the Highway Trust Fund called on lawmakers to identify a long-term fix to the funding gap in the Highway Trust Fund (HTF). Unfortunately, it appears unlikely that there is sufficient time to enact a fix before funds fall too low and disrupt construction this summer. A short-term patch can be enacted by transferring funds from general government revenue. To be fiscally responsible, however, this transfer should be fully offset elsewhere in the budget.
Previously, we discussed long-term options to restore highway solvency by cutting spending, raising more from current highway taxes, and raising new taxes. Below are tax, spending, and other options that could pay for upfront general revenue transfers to shore up the HTF in the short-term, although they leave the HTF's chronic imbalance in place. These options can buy time, but they do not replace the need to identify a long-term solution to bring dedicated revenue and spending in line.
|Options To Offset a Transfer of General Revenue|
|Policy||Ten-Year Savings||Trust Fund Extension|
|Dedicate one-time "deemed repatriation" tax to the HTF||$125 billion||8 years|
|Dedicate temporary transition revenue from repealing LIFO to the HTF||$90 billion||6 years|
|Repeal certain oil and gas tax preferences^||$35 billion||30 months|
|Eliminate tax exclusion for new private activity bonds||$30 billion||24 months|
|Require filers to have a SSN to file for a refundable child tax credit||$20 billion||16 months|
|Eliminate Amtrak subsidies*||$15 billion||12 months|
|Eliminate "Capital Investment Grants" for the rail system*||$15 billion||12 months|
|Reduce farm subsidies||$15 billion||12 months|
|Close Section 179 "luxury SUV loophole"||$10 billion||8 months|
|Reduce Strategic Petroleum Reserve by 15 percent||$10 billion||8 months|
|Increase sequestration by $1 billion/year||$10 billion||8 months|
|Repeal tax deduction for moving expenses||$10 billion||8 months|
|Clarify worker classification||$5 billion||4 months|
|Prevent "double dipping" between unemployment & Social Security Disability||$5 billion||4 months|
|Allow drilling in ANWR and the Outer Continental Shelf||$5 billion||4 months|
|Reduce federal research funding for fossil fuels and nuclear energy*||$5 billion||4 months|
|Repeal or phase-out tax credit for plug-in electric vehicles||$1.5 - $5 billion||1 - 4 months|
|Require inherited IRAs to be paid out within 5 years||$4 - $5 billion||3 - 4 months|
|Extend current Fannie/Freddie fees through 2021||$4 billion/year||3 months|
|Extend customs fees through 2024||$4 billion||3 months|
|Deny biofuels credit for black liquor (retroactively)||$3 billion||3 months|
|Increased mortgage reporting||$2 billion||~2 months|
|Require the IRS to hire private debt collectors||$2 billion||~2 months|
|Enact federal oil and gas management reforms in the President's Budget||$2 billion||~2 months|
|Devote mandatory aviation security fee to deficit reduction through 2024||$1.5 billion||~1 month|
|Make coal excise tax permanent||$1.5 billion||~1 month|
|Make Travel Promotion Surcharge permanent||$1.5 billion||~1 month|
|Clarification of statute of limitations on overstatement of basis||$1.5 billion||~1 month|
|Close the "gas guzzler" loophole||$1 billion||~1 month|
|Revoke passports for seriously delinquent taxpayers||< $0.5 billion||<1 month|
Sources: CBO, OMB, JCT, and CRFB calculations
All numbers are rounded and calculated by CRFB based on a variety of sources.
*These discretionary changes would need to be accompanied by reductions in the discretionary spending caps.
^Includes expensing for exploration and development as well as the “percentage depletion allowance”
CBO published its score of the Postal Reform Act of 2013 (H.R. 2748), a bill introduced by House Oversight Committee Chairman Darrell Issa (R-CA), on Monday. The bill would deliver net unified budget savings of $17 billion over the 2015-24 period, reflecting a $23.6 billion reduction in off-budget spending and a $6.6 billion increase in on-budget spending.
We released a new paper, Trust or Bust: Fixing the Highway Trust Fund, which showed the Highway Trust Fund (HTF) faces a $170 billion shortfall over the next decade and provided numerous options to close that shortfall. In a previous blog, we explored options for doing that by increasing revenue from sources that are currently dedicated to the HTF.
With the Highway Trust Fund (HTF) running low and the threat of disrupting highway construction later this summer, lawmakers are scrambling to come up with a short-term solution to add more money to the fund. However, a new Joint Committee on Taxation analysis shows that one popular idea to "pay" for the transfer – a tax holiday for corporations returning cash held overseas, or "repatriation tax holiday" – actually adds to the debt and therefore cannot be used as an offset.
In response to the recent VA scandal and hospital backlogs, Senate Veterans Affairs Committee Chairman Bernie Sanders (I-VT) has proposed legislation that would address the situation and authorize additional funding for the Department of Veterans' Affairs (VA). Congressional Quarterly's (subscription required) Alan Ota explains: