Washington Insider-- Thursday

Avoiding a Government Shutdown

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Recap of Major Provisions in Highway Bill Conference Report

The $305 billion highway bill is expected to win final passage in both chambers this week or next. The five-year authorization would be the longest since 1998, when Congress passed the bill known as TEA-21. The bill would authorize highway and mass transit programs, including Amtrak, through fiscal 2020. Lawmakers said they were hopeful they could get the measure to Obama for his signature this week.

The deal, which came three days before the current authorization is set to expire, would require a transfer of about $70 billion in general fund revenue to the Highway Trust Fund (HTF). That money would be made up through a variety of measures, including by cutting the dividend the Federal Reserve pays to some member banks, tapping a Federal Reserve surplus account designed to help the central bank absorb losses, and selling a portion of the Strategic Petroleum Reserve, which is designed to stockpile U.S. oil for emergencies.

While the financial industry would still have to share a portion of the 6% dividend with the government, it would be a floating payout tied to 10-year U.S. Treasuries, which currently yield about 2.2%. Senate Majority Leader Mitch McConnell, R-Ky., had proposed in July cutting the annual dividend to 1.5%. Under the new deal, the dividend would be capped at 6%, so if Treasury yields rose higher than that, the Fed would not have to pay the banks more. Banks with $10 billion or less in assets would be exempt from the reduction. The bill would index the asset threshold to inflation. The changes would take effect Jan. 1, 2016, and contribute $6.9 billion in offsets, less than the $15 billion eyed by the Senate in its version of the highway bill.

Federal Reserve Chairwoman Janet Yellen has opposed the dividend cut, warning it could prompt member banks to leave the federal system. The dividend was created as an incentive to get banks to join the Fed system.

A House proposal that would have eliminated the Fed’s $29 billion surplus account was dropped from the final deal. Instead, the surplus account would be capped at $10 billion and all other Fed surpluses would automatically go to the US Treasury. The change in the Fed surplus would provide about $19 billion for the highway bill.

The plan includes additions to the rules on how railroads can carry crude oil, and it carries several provisions that will impact the trucking industry. Trucking companies will get the pilot program they want for drivers under 21 years of age. But the compromise drops a plan to allow drug and alcohol testing using hair follicles. Lawmakers did not go along with trucking company calls to allow longer and heavier trucks on federal highways.

The conference report would give states the option to issue permits to allow milk haulers to increase their truck weights beyond Interstate highway limits. Producers said that the amendment would mean “fewer vehicles would be needed to transport milk, cutting transportation costs and easing the burden on farmers, consumers and commuters” according to a statement from International Dairy Foods Association President and CEO Connie Tipton.


Tax Incentive Extenders Update

Republican leaders continue to pursue a deal to extend tax breaks without cutting spending to make up for the loss of revenue. Senate Finance Chairman Orrin Hatch, R-Utah, said he was optimistic that Congress could reach agreement on a package of tax breaks that could cost more than $500 billion over 10 years without offsetting spending cuts.

At a minimum, Hatch said, he would press for the Senate’s two-year extension package (S 1946) that would cost $96 billion – that would be a retroactive extension of lapsed tax incentives and an extension of them through 2016. House Majority Leader Kevin McCarthy, R-Calif., said he would not insist on revenue-raising offsets to cover the cost of extending tax breaks because permanent tax cuts would spur economic growth. Partisan disputes over business tax write-offs and revenue raisers in the health care overhaul could prove to be hurdles to a year-end deal.

Hurdles include Democratic demands to boost tax credits for low-income households and on the potential cost of the package. Democratic members and the White House want to include indexing certain family-oriented tax credits for inflation. The White House has said an enhanced Earned Income Tax Credit (EITC) is key to its support. If an extenders measure extends or makes permanent tax credits such as the EITC and the Child Tax Credit, Republican lawmakers say they aim to include provisions to prevent fraudulent claims.

Republicans have signaled they could accept permanent extensions of the two Obama administration priorities: the expanded Earned Income Tax Credit and the Additional Child Tax Credit, both of which expire in 2017. But they are balking at further expansions, such as indexing the Additional Child Tax Credit, which is a refundable version of the benefit for families who do not have enough income to receive the full Child Tax Credit.

The Republicans are pressing for a package of business tax preferences such as permanent extensions of the research and experimentation tax credit and the $500,000 cap for small business expensing under Section 179 of the tax code. While a biodiesel tax incentive is part of the extenders, there is no push to make it permanent.

Any tax extender deal would likely ride on legislation keeping the government running into 2016. Timing remains tight if Congress abides by a self-imposed deadline of Dec. 18 to finish business for the year. Ways and Means Republicans reportedly have a deadline of Dec. 7 to strike an extenders agreement.


Washington Insider: Avoiding a Government Shutdown

There is even more than the usual smoke and fog in Washington these days as budget deadlines approach. The main game seems to be to decide just how hard controversial policy riders can be pushed without getting tagged as an obstructionist.

The Hill is reporting that House Speaker Paul Ryan, R-Wis., is working especially hard on a new strategy that will provide a clean break from the divisive intraparty warfare of the past. For example, GOP leaders predicted on Monday that there would be no shutdown over Planned Parenthood funding, one of the more controversial issues. They say they expect an omnibus budget package to be approved with Democratic support before funding expires on Dec. 11.

In spite of optimism by the leadership, Majority Whip Steve Scalise of Louisiana, the GOP’s chief vote-counter, saw the need to issue a warning. He told rank-and-file Republicans they need to play a constructive role in the legislative process, and added, “The vote that hurts our Conference is the no vote from a Member who hopes the bill passes, but relies on others to carry that load…that vote isn’t fair to the Members who shoulder the responsibility of voting yes, and it isn’t fair to the Republican Conference as a whole,” he said.

The clear message to the GOP troops is that this funding fight needs to be different, the Hill says.

In the past, House GOP leaders were forced repeatedly to lean on Democrats to fund the government, a pattern that Speaker John Boehner, R-Ohio, was unable to change.

Whether Ryan can achieve that shift remains to be seen, the Hill says, but he is pushing more of their members to line up behind the omnibus, $1.1 trillion spending bill. He noted, especially, the “listening sessions” he held ahead of the Thanksgiving break to solicit ideas on how to shape the unfinished appropriations bills and bring members into the process earlier, efforts that were well received, lawmakers say. “Prevailing feedback is that it was helpful to all,” a GOP aide told the Hill.

At the same time, both House Speaker Paul Ryan and House Majority Leader Kevin McCarthy, R-Calif., are insisting that riders proposed by both parties will be part of the omnibus bill, defying Democratic warnings that more controversial policy provisions would be “poison pills” and spark a confrontation with President Obama.

Passage of a government funding bill is being seen as the first major test for Ryan, who saw how Boehner’s Speakership was undercut during past showdowns with Democrats. In March, 167 House Republicans voted against a bill to fund the Department of Homeland Security as they protested the President’s executive actions on immigration. A shutdown at the agency was averted largely through unanimous support of Democrats, with House Minority Leader Nancy Pelosi, D-Calif., coming to Boehner’s rescue.

Ryan wants a different approach, the Hill says, seeking buy-ins from members at the front end of the process rather than dropping something on them at the last minute. In addition, his efforts to overhaul internal GOP rules also could help him win support from some of the usual defectors.

Still, Ryan probably had no choice but to allow controversial riders, even though it is clear that Democrats are ready for a fight, believing that the Republicans will not shut down the government this time around. The Hill cites White House spokesman Josh Earnest as suggesting that Ryan “doesn’t want to preside over a government shutdown six weeks into his tenure.”

Nevertheless, time is short now and both sides are deeply dug in. It appears that nobody wants another government shutdown, but that may not be as true as many hope. Certainly, Ryan has a tough job just now and it seems highly unlikely that the coming budget battle will be either quiet or short, Washington Insider believes.

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