Good afternoon.
When you’re from Buffalo, New York, it is hot every day in Washington in one way or another.
We are in strange times: It’s an election year. The things that all of us have learned or come to expect doesn’t seem to apply in this case. So I want to give you some background on what is happening right now, what will happen into the Fall and post-Election, so that my colleagues Richard Price and Monica Sussman can get to the process of what’s going on the respective appropriations.
What kind of sets an idea here is the House has been in the process of passing Appropriations Bills, but it’s almost for show and not for go. They’ve got 6 of 12 done, so they’re in a position to negotiate with the Senate and the President at a later time. Late this week, the Transportation and HUD subcommittee moved legislation from the subcommittee to the full Committee. The goal of the Chair of the Appropriations Committee and the House Leadership is to complete a package of the twelve subcommittee Appropriations Bills by the time they break for recess in August. They’re halfway there.
Most years they don’t get to that point; most years we would look at every single thing they are doing from the time they show up in Washington till they have the subcommittee on Appropriations. This year it just seems to have less of an impact; we do want to know what they’ve put in there because we don’t want to find startling circumstances that we have to go back and work on. As they pass the Transportation/HUD Bill in the House, we’re literally going back through and seeing some of the language they’ve chosen to put into that. Some of it makes sense, some doesn’t. Funding levels for the most part are not disastrous. You’ll know a little later when Richard lays it out on MPR things we need to work on. As Colleen pointed out, with the House not in session, this is a great opportunity for you to visit with key staff that deal with housing and other issues in your Congressional Districts. You want to weigh in so that people know on the staff and report to the Member you’ve been there. For those of us working the Hill, this is a great week while they’re not there to also get into the weeds and begin to point out some of the things we’d like to drive home as well.
Now, many times in the old school of politics, the first year after the election is the policy year: everybody tries to advance the policy -- new President, new Congress. The next year becomes an election year for one third of the Senate, possibly the President and all of the House of Representatives. So when you look at where we are in Washington, what it means to you as small businessmen and what it means to CARH and the legislative agenda, is that Democrats and Republicans remain far apart on taxes and entitlements.
Eric Cantor (R-VA) the Majority Leader of the House said this week that the 2012 election is required to solve the differences between the Democrats and the Republicans. So it clearly is on record also what we actually fought, now members are saying we’ve seen signs now of switching from policy to an election year and politics. But there’s a must do list and I want you to Hear this quickly that the Congress, both Houses, and the President must sign this legislation this year somehow:
•• student loans, without that July interest rates escalate, and both Houses have passed their own versions, but they need to sit down and crunch something that they can agree on.•• Postal reform needs to have some sort of solution; both Houses have talked about it. The Senate has passed legislation, the House has not as of yet.
•• National Flood Insurance, the reauthorization needs to occur. The House has passed one, and you may want to look at the fact that the House says, “Maybe we won’t put subsidies into flood insurance for second homes and vacation homes.” That’s the first we’ve seen of some of that as a shot across the bow.
•• Russian trade? They’re going to be admitted to the World Trade Organization in the Fall, and if we don’t do certain action that is agreed to between the House and the Senate and the President signing it, it will have them having higher tariffs on us than we do them with normal trade relations. It must happen.
•• Highway bill and transportation bill needs some sort of extension. I do not expect to see a five year bill this year. Lot of talk about it, lot of hope, it isn’t going to happen. It’s going to have a short term extension until we have an election.
•• Farm bill? Same type of thing, everyone has good intentions, but at the end of the day I don’t believe we can get a multiyear farm bill. I believe we will see an extension, again being put off in the short term.
•• FDA user fees? The conference is pending on that; it must be addressed.
•• Finally, keeping the government open after October 1 with the new budget year (FY 2013): If you look, the House has passed six appropriations bills, the Senate has passed none. They do not intend to pass any before the election as I can see. So, as we look at this, we’ve got what will happen in a lame duck session coming back after November: two months to do a full year’s work.
I want to give you one other thing: The Supreme Court will issue the ruling on health care. If the law is overturned, the Republicans will have legislation ready. If it is not a full overturn of the law, they will put a repeal measure on the floor to totally repeal it. However, the Republicans will protect some of the popular provisions of the law such as not allowing denial for preexisting conditions. Why do I mention this? Because when the Court acts, it will stop everything around here as Congress takes a deep breath and starts the politics and the political action of what some of the solutions are going to advance, again before the election. Now, the Congress is going to work June, July, be off in August, work some in September, be back in their Districts in October, campaigning, and then they’re going to come back here after the November elections, and they’re going to do Leadership elections, and then they’re going to move into the two months to do a full years work.
And that is going to get into what you’re beginning to see is a Fiscal Cliff; that was coined by Federal Reserve Chairman Bernanke. What is it? It is that Congress and the President have not come to an agreement on how they’re going to address spending and entitlements. So, there’s a hold on tax increases and spending cuts that will automatically occur. The combined effect of the spending cuts and tax increases will result in a fiscal policy deduction of over $600 Billion, or more than 4% of the GDP.
What are expiring taxes? I sometimes hear that as the Bush tax cuts. The top rate will go from 35% to 39.6%, and accordingly down through the rates. Capital gains to dividends will go back. It will automatically happen unless Congress takes action.
Health care tax increases tied to Obamacare are a surcharge of 3.8% on top of that, so that theoretically, if the Bush tax cuts were not renewed and the health care tax increases go, we’re looking at about 42.3% on top of the tax cuts. The end of jobs measures, the right of the small business 2%, tax holiday payroll tax, and unemployment benefits are expected to be changed. End of the “Doc Fix,” which you will see in the chaos that would reduce the doctor’s Medicare reimbursement rate by 30%. You’ll have every doctor in the country screaming bloody murder. Expirations of various tax extenders, and you know what they are, my colleagues at Nixon Peabody are expert at figuring out how to maximize them. They expire and normally expire at the end of the year.
And then we have Sequestration. The activation of Sequestration under the law says they will cut 1.25 trillion over ten year cuts in Defense and non-defense programs. And finally the debt ceiling; the debt ceiling is how much we can borrow. Sometime between November of this year and February or the first quarter of 2013, we’re going to hit that debt ceiling. And so, when we get there, when we hit that debt ceiling, I’m willing to bet they’ll get pushed off till after the first of the year, but if it happens this year, everything will stop and there will be a whole debate on the debt ceiling, which many of you remember because we had a Super Committee that we all talked about last year: What it meant, what it called for, what the realities were and ultimately what its failure was. So as we look at what’s going on here, I would say the Congress coming back in a lame duck session is going to have to temporarily extend the Bush tax cuts; we’re going to see all sorts of dynamics of that, the election will help somewhat to have that outcome. We will also see an AMT tax, which needs to be addressed or bridged to middle-class America, which many of us are paying now. And then we look at the likely-to-be- extended 2% payroll tax and unemployment insurance benefits for a good simple reason: It has to be. Damage would be done to political parties if they do not see that extended. Now, finding a way to put off sequestration is a reality of what we’re seeing. Republicans don’t want to cut Defense this way; Democrats are saying over my dead body are we going to do Social programs that were outlined in the sequester program.
So we are going to see, in my opinion, a way that Congress wriggles a way out of having to do a sequester by putting it backwards or postponing it. They’ve run out of gimmes on this because the Super Committee was supposed to be that. And sequester is always supposed to do that. As we look at this, I don’t think that tax extenders are going to be done in lame duck, I don’t think the Doc-fix is going to be fixed then. On the debate over the debt limit, if the debt limit is reached this year it is going to have everything else stopped and is going to take precedence over the whole debate, spending and the deficit. If it goes into the first quarter, it pushes all this back.
Why are we in this as we are? Because the country is at odds between the Republicans and Democrats. If you look at presidential campaigns, this is going to be a close election. If you’re from New York or California, it’s over. If you’re from the South or Southwest, it’s likely over. But if you’re from the 12 swing states across America, there have been over $100 million in television buys by President Obama, Governor Romney and the outside groups, and there will be much more because we’re at the start of the presidential race.
Look at the public polling to show you how close it is, and therefore why public policy is as divided as it is: because the country is divided. This week’s polls Fox News, Obama 43%, Romney 43%; Gallup, Obama 45%, Romney 47%; the purple poll across the swing states, Obama 48%, Romney 46%; DiMotta University, Obama 47%, Romney 46%. And so when we look at where we are, the 30 day average of the polls of these swing states shows there there isn’t a large margin of error in the states that make it look too close to call. When we look at the final stretch here, we have a very close election for president, a Senate that is going to be very close either way, and a House of Representatives is likely to remain Republican from all the signs out there.
So where are we? We’re going to have kind of a slow summer. Many of us are going to have to look at what’s happening to make sure we fix any damage, keep what good things are happening and then to fight like hell to keep in November and December when the work is beginning to get done. And we’re going to wait to see if lame duck will set some of the tenor for both parties to get a little bit pushed off their desk or whether it is going to be pushed into the first of the year with a new President and a new Congress.