OMB Legislative Report - June 25, 1998

      TO:                ACTING DIRECTOR JACK LEW
                   ACTING DEP. DIRECTOR FOR MANAGEMENT ED
                           DESEVE
                   EXECUTIVE ASSOCIATE DIRECTOR JOSH GOTBAUM

FROM:      OMB LEGISLATIVE AFFAIRS

DATE:      JUNE 25, 1998

SUBJECT:           LEGISLATIVE REPORT

IRS Reform: Conferees on H.R. 2676, the IRS Restructuring and Reform Act
of 1998, filed their conference report Tuesday night.   ArcherD,s capital
gains provision (reducing the holding period) is included in the bill.
Also included is the TEA-21 technical corrections bill.   Joint Tax
estimated the net effect of the bill to be the following over the next 5
years:
1998: gains $608m
1999: gains $1. 087 billion
2000: gains $270 m
2001: loses $535 m
2002: loses $933m
2003: loses $1. 218 billion

Line-Item Veto: Today the Supreme Court held the Line Item Veto Act
unconstitutional --ruling that the ActO,s cancellation procedures violate
the Presentment Clause of the Constitution.   (Clinton et.al. v. City of
New York). At issue in this case were cancellations of one "item of
direct spending" and one "limited tax benefit": (1) the item of direct
spending was Section 4722(c) of the Balanced Budget Act of 1997, that
would have given New York special authority to raise Medicaid funds by
taxing hospitals; and (2) the limited tax benefit was Section 968 of the
Taxpayer Relief Act of 1997 that would have let farmers defer
capital-gains taxes when they sell processing facilities to farmersD,
cooperatives. Speaking for the Court, Justice Stevens reasoned that the
PresidentD,s two cancellations, in both legal and practical effect, had
amended two Acts of Congress by repealing a portion of each; but this was
unconstitutional, the Court reasoned, because there is no constitutional
authorization for the President to amend or repeal --only another Act of
Congress can amend or repeal a provision of law.   (By contrast, Justice
Breyer, in a dissenting opinion found that "the means chosen do not amount
literally to the enactment, repeal, or amendment of a law."
        Responding to the CourtD,s decision today, Senator McCain stated
his intention to re-introduce the "separate enrollment" version of
line-item veto.   That is the version that originally passed the Senate in
1995 and called for each item of appropriations bills to be separately
enrolled and separately presented to the President. The version that
eventually became law was much closer to the House-passed version.   In a
May 8, 1995 letter to Congressional Leadership, the President stated his
preference for the House-passed bill over the SenateD,s separate
enrollment approach: "I have consistently urged the Congress to pass the
strongest possible line-item veto. While both the House and Senate
versions would provide authority to eliminate wasteful spending and tax
provisions, the House-passed bill is much stronger --and more workable."


        In addition to McCainO,s separate enrollment bill, we should also
expect Members to introduce "enhanced rescission" legislation as a
response to the CourtO,s decision.  Under this approach, the President
could not unilaterally
 cancel items, but would be guaranteed a congressional vote on each item
the President proposes for rescission.   (Under current law, rescissions
may be proposed any time, but votes are not guaranteed.)
        Outlook--Lott has already said the Senate will not have time to
take up McCainO,s separate enrollment bill.   However, House Rules Chairman
Solomon indicated his Committee would act this year.

Product Liability: Lott may bring the product liability reform bill to the
Senate Floor late Thursday evening in order to file a cloture petition on
Friday. The cloture vote would occur when the Senate returns from the
Independence Day Recess on July 6.

Budget Process Reform:     Earlier this week, Rep. Jim Nussle -- who heads
the House Budget CommitteeO,s Budget Process Task Force -- expressed
doubts about proposals to change the PAYGO rules made public last week by
the SpeakerO,s ad hoc task force on budget reform. Earlier this year,
Gingrich had named Rep. Christopher Cox to head up an ad hoc budget
process reform task force.  Last week, Cox released his proposals during
testimony before NussleO,s Budget Committee Task Force. Cox said PAY GO
rules "should be amended to permit tax cuts to be offset by the permanent
elimination of discretionary (spending) programs or (should be) waived
altogether in times of budget surplus." In commenting on the Cox
proposal, Nussle said "the good news is that paygo got us to this point.
Before we change it, I want to make sure there are other mechanisms in
place to achieve the same kind of budget responsibility."    Nussle said he
plans to work with Rep. Cardin, ranking Dem. on the Task Force, to
determine what type of reform legislation could pass this year.

Treasury Postal - The House defeated (125-291) the rule for floor
consideration of the Treasury/General Government appropriations. The
Democrats who voted against the rule voted against it mainly because it
would have stripped the Y2K provisions.  The Republicans who voted against
the rule voted against it because the rule protected the Lowey language on
contraception coverage in FEHBP. Other Republicans were upset about the
Hoyer language on pay raises for federal workers. It is still too early to
finally determine how the Republican leadership will proceed on this bill
after the break. But if the Republicans do NOT protect the Lowey
language, moderates have threatened to vote against the rule -- with
Democrats voting no because of Y2K, the rule may still fail.



CONGRESS -- TODAY (6/25):
SENATE:
Continued consideration of S. 2057 - DoD Authorization
[SAP sent, 5/14: Cites concerns; Cohen letter sent 6/19/98; cites strong
concerns on Inhofe/Dorgan amendment]


At press time, action had occurred on the following amendments to S.2057:
o Rejected (18-74) Wellstone amendment to authorize an additional $270
million over five years for the Defense DepartmentO,s child development
program.
o Adopted (48-45) Inhofe amendment to prohibit DOD from closing military
bases without congressional authorization if more than 225 jobs are at
stake (current law sets the cap at 300 .


o Rejected (38-55) Harkin amendment to transfer $329 million from defense
accounts to VA for health care programs.
o Rejected (44-49) Murray amendment to repeal current law prohibiting
overseas u.s. military facilities from performing privately funded
abortions for U.S. service personnel and dependents.
o Adopted (49-44) Kempthorne amendment to strike language in the bill
allowing the Air Force to expand training activities at the Mountain Home
Base in Idaho.


HOUSE:
Passed (235-179) H.R. 4112 - Legislative Branch Appropriations. The rule
was adopted (228-188). During consideration, Congressman Obey tried to
strike $8.3 million from the bill, a move that was intended to prevent
Republican leaders from setting up another special reserve fund to use for
investigations. This motion failed by recorded vote, 192-222. Amendments
by Farr (D-CA), to earmark funds for recycling, and Gutierrez (D-IL), to
require an energy conservation plan were agreed to by voice votes.

Defeated (125-291) rule for consideration of H.R.4104 - Treasury/General
Government Appropriations (H. Res 485)

Passed (402-8) H.R. 2676 - Internal Revenue Service Restructuring and
Reform Act Conference Report. Motion by Rep. McDermott to recommit was
defeated (116-292)


Friday, J~ne 26th:
SENATE
Attempt to complete action on S. 2057 - DoD Authorization (if necessary)
[SAP sent, 5/14: Cites concerns; Cohen letter sent 6/19/98; cites strong
concerns on Inhofe/Dorgan amendment]

H.R. 2676 - Internal Revenue Service Restructuring and Reform Act
Conference Report (also includes the TEA-21 technical corrections) .
(possible)

S.2160 Military Construction Appropriations Bill (unlikely)
        [SAP pending]

S.2137 Legislative Branch Appropriations Bill (unlikely)
        [No SAP]




If UC agreements can be reached, the Senate could consider any of the
following measures, although action appears unlikely:

H.R. 2614 - Reading Excellence Act
         [SAP under development; support Senate passage if amended]

S. 1882 - Higher Education Amendments of 1998
        [SAP sent 6/16/98: strongly opposes in its current form]

H.R. 2610 - National Narcotics Leadership Act of 1997 (ONDCP
reauthorization)
         [SAP sent 11/8/97: no objection but will seek amendments]


After Independence Day recess:
S. 1250 - NASA authorization bill
         [SAP pending: support if amended]

The Senate is expected to recess from Monday, June 29th to Monday, July
6th.

HOUSE
The House will not be in session on Friday, June 26th and will recess
through July 13th.