8:48 PM 25 Jun 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.