Early this morning, voting primarily along party lines, the U.S. House of Representatives approved President Bush's budget plan that would provide large tax cuts. It is a $2.2 trillion budget for fiscal year 2004 and includes $726 billion in tax cuts.

The Republican majority in the House approved the budget plan by a vote of 215-212.

The Senate intends to vote on a completely different version of the budget measure later today. A group of moderates who want to limit the tax cut to about half of what the president wants seemed to lack the votes to prevail because they could not bring around a small group of senators who refuse to vote for any tax cut at all. If it fails, then the full tax cuts will be part of the Senate plan.

Neither the House nor the Senate resolution allocates funds to meet the cost of the war against Iraq or its aftermath. But there is no doubt that at least this year, Congress will approve spending as much money as the president asks for in a supplemental which the Administration is expected to send to Capitol Hill as early as next week.

In a report released yesterday, rising health care costs have helped speed the projected insolvency of the Medicare program, but changes in the nation's payrolls have extended the solvency of the Social Security program by a year. It was part of an annual report issued yesterday by the trustees who monitor the fiscal health of the Medicare and Social Security system.

Medicare will exhaust the money in its trust fund by 2026. Last year, it was reported that it would have enough money until 2030, but its solvency has been harmed as medical costs have risen and revenue from payroll taxes has dwindled.

Social Security is largely unchanged because of lower growth in wages and more immigrants working and paying payroll taxes.

Both political parties have used the forecasts as ammunition to for their views on how Medicare and Social Security systems should function.

Republicans who favor a larger role for private insurers are likely to say the worsening finances mean that Congress should move to stop increased government spending. Democrats will probably argue that since Medicare is still solvent until 2026, Congress should be in no rush to make major changes.

Senate Republicans and Democrats began the budget debate yesterday and the impact of the impending war stood front and center. At issue were whether the cost of the war should be factored in the discussion. Democrats, including Senator Edward Kennedy (D-Massachusetts) called for cutting the size of President Bush's 11-year, $726 billion economic growth package, in part to accomodate the potential cost of the war.

Senator Michael Enzi (R-Wyoming) felt the war should be treated as "a one-time emergency" and not part of the baseline budget.

Senate Republicans are aiming to complete debate on their version of the budget resolution and vote on some amendments this week. They also expect that a final vote will have to wait until the week of March 24.

The House will begin debating its draft budget resolution March 20, but the schedule is likely to change if the war commences.

If war breaks out, the Administration is expected to send up a supplemental spending request to the Hill. While there are no precise figures of how large the supplemental will be, there are estimates that it will be as large as $100 million.

It appears that Republicans in the Senate do not have the votes to block a Democratic amendment to strip language in the budget resolution that would allow drilling in the Arctic National Wildlife Refuge (ANWR)

If, as expected, Democrats are successful removing the ANWR language, it also appears that Republicans will not attempt to place language in the Senate version of energy legislation which is expected to be prepared next month.

If both of these events occur, it will signal the end of the debate on oil drilling in ANWR, a big priority for the Bush administration. Republicans were hoping to push this through via the budget process because it would be filibuster-proof and require fewer votes to pass.

Opponents to ANWR are not claiming success yet as they still see a fight in the House and in conference.

On March 13, DOT Inspector General Kenneth M. Mead testified before the House Appropriations Committee Transportation and Treasury Subcommittee.

In his lengthy testimony, Mead informed lawmakers that Amtrak would likely face another financial crisis later this year. While Amtrak received its grant request of close to $1.2 billion in FY 2003, Mead alerted the subcommittee, "lower-than-predicted revenues for the first 4 months of FY 2003 combined with more aggressive budget targets in the second half of the year means that Amtrak faces a significant challenge to avoid another cash crisis similar to the one experienced last summer."

Mead did however offer much praise for Amtrak President and CEO David Gunn. While lauding some of Gunn's initiatives aimed at improving efficiency and transparency, the inspector general warned that Amtrak's financial projections would not be realized in FY 2003. In addition, Mead told subcommittee members that the FY 2004 budget request of $1.812 billion would fall short of meeting Amtrak's short-term needs. Mead exhorted lawmakers that Amtrak's FY 2004 budget request is based on two contingencies: productivity enhancements from work rules changes and $206 million in additional savings from actions as yet undefined. According to Mead, it is unclear at this moment what kind of concessions Amtrak will receive from labor in contract negotiations. Finally, Mead attempted to disprove the myth that cutting long-distance routes will save Amtrak significant money in the short-term: "because of labor severance payments and other shutdown costs, it is unlikely there would be any short-term savings."

The DOT Inspector General sees FY 2003 as another difficult year for Amtrak, which has already lost $73 million more in the first 4 months of FY 2003 than in the first 4 months of the prior fiscal year. Mead also mentioned the substantial growth in debt over the past 5 years and the continued deferment of track maintenance and equipment repairs as additional burdens for Amtrak in the coming year.

New regulations enacted in the FY 2003 omnibus appropriations law require DOT to oversee the finances of the embattled rail corporation. Also, Amtrak must now apply to DOT for grants that would cover operating losses for long distance routes. Finally, by May 1, Amtrak must submit to Congress a business plan, which details how operating and capital costs will be funded in FY 2003.

After admonishing legislators that an Amtrak crisis would likely occur later in the year, Mead advised Congress to "get on with the reauthorization process".

Republicans may scale back tax cuts or abandon many of the spending cuts they had hoped would fund them due to an open revolt from moderate House and Senate Republicans.

Both chambers are scheduled this week to vote on the adoption of the budget resolutions which are the blueprints that would establish the size of any tax cut and limits on federal spending for 2004 and beyond. Last year, these resolutions failed to be adopted, eventually causing a delay which forced most FY03 spending bills to be passed this January.

It is unclear whether either body can pass the plans that were approved last week by their respective budget committees. Moderates of both parties have been bolstered because of concern surrounding the prospects of war and its unknown costs.

Both resolutions fund nearly all of the $1.6 trillion in tax cuts proposed while giving special treatment to the economic growth plan to help it pass through the Senate. Lawmakers expressed concern in both Houses about the deficit - both resolutions call for a balanced budget in 2010 in the House plan and 2013 in the Senate plan. This is different from the President's plan which does not address the issue of deficits.

Neither plan discusses funding for any upcoming war.

House leaders have been trying to get the votes needed to pass their resolution. But simulataneously, they have been trying to come up with an alternative plan which might re-write parts of the the resolution - particularly the Medicare cuts. One plan may be to allow the House plan to be defeated on a procedural vote and then order the Senate version to the House floor as a substitute. That way, House Republicans won't be forced to take politically sensitive votes on key potential cuts.

Senator Zell Miller (D-Georgia) has offered legislation that would lower the threshold of a filibuster on successful cloture votes.

Currently 41 Senators can block just about any piece of legislation or nomination moving on the Senate floor. Last week, Senator Miller introduced legislation that would keep the 60-vote requirement intact on the first cloture vote. But on the second cloture vote, it would decrease to 57 votes and on the third vote, only 54 votes would be needed to break a filibuster. If a fourth vote is called a simply majority, or 51 votes, is all that would be needed.

Senators Tom Harkin (D-Iowa) and Joe Lieberman (D-Connecticut) made a similar effort in 1995, but were defeated soundly. The filibuster is the most potent weapon Senate Democrats currently have in their arsenal.

While the Senate was completing their spending resolution, a bipartisan group of senators released a letter yesterday saying they would accept a tax cut no smaller and no larger than $350 billion over 10 years.

The letter signed by Sens. George Voinovich (R-Ohio), Olympia Snowe (R-Maine), Max Baucus (D-Montana) and John Breaux (D-Louisiana). At least three other Republicans have voiced concern about a tax cut the size Bush wants or even one worth $350 billion. Those Senators include Sens. John McCain (Arizona), Lincoln Chafee (Rhode Island) and Susan Collins (Maine).

Today 11 moderate U.S. House members also got into the mix by issuing their own letter objecting to spending cuts and large tax cuts. They are looking for a plan that limits spending and tax reductions to those which are most needed.

The move in the House will make it more difficult to move the President's plan.

The U.S. House of Representatives voted yesterday to limit the monetary damages that courts can award in medical malpractice cases.

The measure, approved 229-196 would cap punitive awards in malpractice suites at $250,000. It would apply to suits filed against doctors, hospitals, health maintenance organizations and maufacturers of drugs and medical devices.

This was a top goal of doctors, hospitals, many businesses and the Bush administration. The prognosis in the Senate is unclear as many Democrats oppose the bill and those in favor of it would need a 60 vote super-majority to overcome a potential filibuster.

Those supporting the measure believe the rising costs of malpractice insurance has caused some hospitals to close and many doctors to shut down their practices. Those who oppose the measure believe it would benefit powerful health care groups while penalizing citizens who may have been harmed by wrongful medical actions.

Representative Jim Moran (D-Virginia) just announced that he would step down from his Democratic leadership position as a regional party whip. This follows the outcry from some controversial comments the Congressman made earlier this week.

The House and Senate Budget Committees have both completed two very different budget resolutions. Both were passed on partisan votes and neither contains any provision for paying for a war with Iraq.

Yesterday, the Senate Budget Committee approved approved its fiscal 2004 draft resolution on a 12-11 party-line vote. The Senate budget is more generous than the House in the near term for discretionary spending, allocating $784 billion for fiscal 2004. It would balance the budget by 2013, but bases them on unrealistic assumptions about spending levels, including for defense.

The Senate Budget Committee markup went through smoothly without the addition of any Democratic amendments of substance, except for one added by Seantor Robert Byrd (D-West Virginia). Byrd's amendment would allow for an increase emergency spending for homeland defense programs to win approval by a simple majority vote in the Senate instead of being subject to a point of order requiring 60 votes to override. Senator Judd Gregg (R-New Hampshire) voted with the Democrats as the committee adopted the amendment, 12-11,

The House plan calls for a 1% across-the-board cut in non-defense, non-homeland security spending, would provide $775 billion. The House plan also calls for several committees to produce bills that would cut billions from mandatory programs which is causing tremendous dismay to key House Republicans.

House Budget Chairman Jim Nussle said, that in devising the plan, he came under pressure from fiscal conservatives that showed a push toward regaining a balanced budget. He was forced to re-write this 10-year budget plan after some members of the delegation were concerned that the budget appeared to call for politically damaging cuts to Medicare and Medicaid. Under a manager's amendment, The Ways and Means Committee is instructed to combine its cuts in entitlement programs, such as Medicare, with a $400 billion prescription drug benefit as it produces a budget reconciliation bill this summer. The Energy and Commerce Committee would also play a role in drafting the prescription drug measure.

The Senate is scheduled to take up the budget on March 17th. It will face an amendment backed by several moderate Republicans to limit tax cuts to $350 billion over 10 years.

Peyser Associates has obtained very reliable information on the contents of the highway and transit program reauthorization bill which the Department of Transportation has submitted to the Office of Management and Budget for review. While the information we have obtained is subject to change by OMB, we believe the bill the Administration ultimately submits to Congress will be either identical or very close to what we share with you here on the analysis side.

Final numbers on the differing budget packages in the Senate and the House are far from concrete, with work expected through Thursday, but as they take shape some differences are emerging. Both the House and the Senate Budget Committees would move $726 billion (out of a total of $1.31-$1.35 trillion worth of tax cuts) of President Bush's new tax cut packages into reconciliation instructions, which would prevent filibusters from affecting them in the Senate. The cuts not included in the instructions could still be subject to filibuster. The House version cuts mandatory spending programs by $470 billion over 10 years, while the Senate version aims to reach a balanced budget by 2013, the final year mentioned in the plan.

The moderate movement in the Senate to reduce the overall package by half appears to have lost a little momentum as "sticker shock" from the overall deficit projection last week, coupled with the costs of a possible war with Iraq have begun to weigh heavily in some lawmaker's minds. The administration hasn't currently projected the costs of a war, and with such a large figure still unknown, several Senators have backed away from a tax cut package of any size until the numbers are disclosed.

There's sure to be plenty of resistance on both sides of the Capitol to the spending cuts and projected deficits contained within both budget blueprints, but we'll be sure to keep our friends and clients updated as progress is made throughout the week.

House Transportation and Infrastructure Committee Chairman Don Young (R-Alaska) has raised the gax tax likely to be included in the upcoming surface transporation bill up to 30.4¢ per gallon, a 12¢ increase over the current gas tax over the next six years. This is a significant increase over the 8¢ over six years increase floated last week. In addition, Young is considering a freight container fee, an idea dropped in 2002. Both ideas would generate opposition, both from the administration (which opposes any gas tax increase) and from the shipping industry (which opposes the freight container fee). With the Federal Highway Trust Fund receipts significantly lower because of the recession, any new bill will seek to increase the amount of money coming into the fund.

Senator John Breaux (D-Louisiana) said today that he believes that he has the support in principle of four Republican senators for a letter drafted by members of the bipartisan Centrist Coalition that proposes scaling back President Bush's tax cut plan. The centrists have put forth a plan that will propose a tax cut of $350 billion which is significantly less than the $726 billion tax package that President Bush has proposed.

Senator Breaux has said that he believed that the letter would likely be supported by Republicans Olympia Snow of Maine, George Voinovich of Ohio, John McCain of Arizona and Lincoln Chafee of Rhode Island.

If these four Republicans are on-board, the centrist compromise would have at least 52 votes which is enough to win a floor vote to cut the size of the President's package. A letter will be transmitted to GOP leaders after the Senate Budget Committee completes work on a budget resolution.

A group of moderates and deficit hawks from both sides of the aisle are attempting to reduce the scale of the administration's proposed tax cut package. The House and Senate markup sessions are expected to be completed by Thursday evening of this week, so the centrist Senators will have to reach consensus on a final number for their budget goal before the resolution heads for the floor. They're currently aiming around the $350 billion mark, almost half of the 726 billion dollar cut the administration is seeking, which would bring the total tax cut up to $1.6 trillion. Despite the new CBO numbers out late last week, the real question about a stimulus package of any size now seems to be "how much?"