Today three committees – Energy & Commerce, Agriculture, and Ways and Means – will debate and finalize proposals that will have a significant impact on the fiscal future of the country. For those keeping score at home, the House plan has a total deficit increase limit of $2.8 trillion over 10-years.
The plan includes $4.5 trillion in net deficit increases from tax cuts for the Ways & Means Committee.
To partially offset the impact of the tax cuts, the Energy & Commerce committee, with jurisdiction over Medicaid, was assigned $880 billion in deficit reduction. The Agriculture Committee, which oversees the Supplemental Nutrition Assistance Program (SNAP – also known as food stamps), was given a target of $230 billion in deficit reduction. Those reductions combined with net reductions achieved by other committees and another $500 billion in “unallocated” debt reduction would ensure that the House does not exceed its $2.8 trillion debt increase limit.
Energy & Commerce Committee Markup: Medicaid will Drive Debate on Spending Side
The Chairman of the Energy & Commerce Committee, Brett Guthrie (R-KY) has proposed a plan with $912 billion in spending reductions, exceeding the Committee target of $880 billion. The health provisions in the bill comprises $715 billion of the ten-year savings and the energy, environment and communications provisions of the proposal would reduce the deficit by at least $197 billion over the 2025 to 2034 period. Some of the major changes to Medicaid included in the proposal are:
- Provider taxes capped: States have enacted taxes on healthcare providers where they use the proceeds of the tax, in part, to pay the same providers for services under Medicaid. The states then claim this payment, financed by the tax, as part of their Medicaid match from the Federal government, thereby drawing down additional Federal funds. These funds cover both the cost of the tax, making the service provider whole, and provide additional revenue to pay for Medicaid services. The House proposal caps provider taxes at their current rates and includes rules to distribute the proceeds of the tax to a broader group of providers than just those who paid them.
- Work requirements: Medicaid recipients between the ages of 19 and 64 without dependents would be required to work, volunteer or attend school for 80 hours a month.
- Cost sharing: The package would also require some people making more than 100 percent of the federal poverty level — about $16,000 a year for an individual — to pay for some of their coverage, capped at $35 per service, except for primary care, prenatal care and emergency care. Cost sharing would not exceed 5 percent of an individual’s income.
- Eligibility checks: The package would require states to conduct eligibility checks for Medicaid every six months instead of every 12 months required by current law.
According to preliminary CBO estimates the changes proposed in the Energy & Commerce bill will increase the number of people without health insurance by 7.6 million people, above the baseline estimate, by 2034. This would increase the projected total number of uninsured in 2034 to 40.0 million and increase the uninsurance rate from 8.9 percent to 11.0 percent.
The Medicaid debate will focus on several issues. The Freedom Caucus and other conservative members of the House may push for deeper cuts focused on provisions that were not included in the Chairman’s proposal such as:
- Per capita caps: A cap on what the federal government spends on Medicaid expansion per enrollee, with increases only allowed for medical inflation.
- Greater state cost sharing: Decrease the amount the federal government pays to cover the population of 20 million people who received Medicaid under broadened eligibility in the 2010 health care law. The federal government pays 90 percent of the costs for the 40 states that expanded Medicaid. For the regular Medicaid population, the federal government covers around 60 percent.
These provisions were left out of the proposal in order to keep House moderates on-board and to have a proposal that could potentially pass in the Senate. At the same time, will the House moderates sign-off on this proposal or push for changes that reduce the number of people who could lose coverage?
Democrats who don’t have the votes to impact the substance of the proposal but may foreshadow the debate in the Senate likely will focus on the increase in the number of low-income uninsured as the “price for tax cuts that favor the wealthy.” Furthermore, while Republicans are extending one set of tax cuts, they are allowing expanded health premium tax credits to expire which CBO estimates will increase the number of uninsured Americans by an additional 4.2 million by 2034.
Agriculture Committee Mark-Up: Is Everyone On-Board with Cost Shift to States?
The Chairman of the Agriculture Committee, Glenn “GT” Thompson (R-PA), has proposed a plan that would produce about $296 billion in savings over 10 years, while the increase in farm spending would total about $60 billion over the same time. On net the proposal would exceed the total deficit reduction target of $230 billion in the reconciliation instructions. The major provisions in the proposal include:
- Cost shifts to states: Require all states to pay at least 5 percent of the cost of food stamps starting in 2028, with states with high overpayment rates paying a larger share – up to 25 percent. The proposal would cut the federal reimbursement of state administrative expenses from 50 percent to 25 percent.
- Eligibility change: The provisions would raise the general SNAP work requirement age from 15 to 60 today to 17 to 65.
Congressional leaders will likely be hearing from their colleagues in the states, governors and legislators, as they digest the details of a proposal that could add hundreds of millions of dollars to state budgets. One can expect a CBO estimate of the number of individuals that will lose benefits due to the range of provisions tightening eligibility requirements that could drive the debate over the trade-offs of the House budget package.
Ways and Means Committee Markup: Would you like SALT with that?
The Chairman of the Ways and Means Committee has released a proposed tax bill with a cost of $3.8 trillion, well within the cost cap of $4.5 trillion in the House reconciliation instructions. However, this proposal will likely face considerable pressure for changes that could increase the overall cost. The largest provisions in the bill in terms of cost, as estimated by the Joint Committee on Taxation, include the following major extensions of provisions that expire at the end of 2025 totaling $6.4 trillion:
- Income tax rate reductions – $2.2 trillion cost
- Increased standard deduction and temporary additional increase that sunsets at the end of 2028 – $1.3 trillion cost
- Increased child tax credit and temporary additional increase that sunsets at the end of 2028 – $797 billion
- Deduction for qualified business income and permanent enhancement – $705 billion
- Increased alternative minimum tax exemptions and phase-out thresholds – $1.4 trillion
The proposal includes several provisions that President Trump discussed on the campaign trail including no tax on tips, no tax on overtime, enhanced deduction for seniors, and no tax on car loan interest. These provisions are means-tested and expire after four years. The total cost of these major new provisions is just under $300 billion.
The major offsets of $3.2 trillion in the proposal include:
- Termination of the deduction for personal exemptions – $1.9 trillion savings
- Increase from $10,000 to $30,000 the cap on deductions for state and local taxes (SALT) for households making less than $400,000 – $915 billion savings
- The termination of several clean energy credits including clean vehicles and energy efficient home improvement, among others – more than $500 billion in savings.
The debate in the Ways and Means committee will be focused on the size and scope of the SALT deductions. The SALT Caucus wants the SALT cap completely removed. The SALT Caucus has considerable leverage because if the House takes no action, the cap on SALT deductions expires at the end of the year, returning to full deductibility of state and local taxes.
The Committee proposal is currently about $700 billion below its deficit increase cap of $4.5 trillion, so the Committee could choose to increase the size of the plan to pay for additional SALT tax relief. Alternatively, Ways and Means could consider additional offsets that have been discussed such as changes to the individual top rate, the tax treatment of carried interest income, the corporate state and local tax deduction and the one percent excise tax on stock buybacks, which have been floated as potential offsets.
Conclusion
The next 24 hours will be busy on Capitol Hill. The House Leadership wants to complete its work on reconciliation before Memorial Day Weekend which begins on Saturday, May 24. That means finishing these major markups and then bringing the entire package together into “one, beautiful bill” that limits the increase in the debt to $2.8 trillion. There is a lot of political negotiation that needs to happen before the House crosses the finish line.
- Will Republican moderates accept the size and scope of the Medicaid cuts and the increase in the uninsured population?
- Will the Freedom Caucus demand larger cuts to Medicaid and SNAP?
- Will the SALT Caucus dig in and refuse to support a bill unless it includes full repeal of the SALT cap?
- If the negotiations result in a debt increase of more than $2.8 trillion, where will they find additional offsets?
Once all these issues are resolved the action turns to the Senate, which has a very different plan for reconciliation that includes only $4 billion in deficit reduction and a potential $5.8 trillion increase in the debt compared to current law estimates. The House and Senate will need to come together with a plan that, at a minimum, raises the debt limit which is set to be reached in August.
