Supplemental -- House Aims to Pass Bill by July 4: The House floor may see key action this week toward passage of the war spending supplemental package covering the costs of the Iraq and Afghanistan wars for the rest of FY08 and into FY09. The bill has been delayed as Democrats have sought consensus on whether expanded veterans benefits, extended unemployment benefits and other domestic spending provisions will be attached and offset. Speaker Nancy Pelosi (D-CA) said last week that Congress will have the bill ready for the president's signature by July 4. If Democrats can reach a deal, the bill could go to the Rules Committee on Tuesday and be on the floor Wednesday. Story.

Budget -- The Killer 302(b)s on Their Way: The appropriations process has gotten off to a slow start this year because of the late approval of a final budget resolution and the continuing negotiations on a FY08 supplemental war spending bill. But the House Approps Committee released its 302(b) spending allocations last Friday and the Senate panel will release its allocations this week. They are expected to be similar. The majority of the 302(b) caps violate the veto thresholds outlined by President Bush in February. OMBW Approps Chart.

Extenders -- Business, Senate Dems Eye PAYGO : In letters sent to the Senate GOP leadership this past week, Senate Democrats and hundreds of major U.S. corporation have urged the GOP to drop its opposition to paying for the dozens of popular tax breaks known as "extenders" in the $55 billion bill ($120 billion, including the AMT patch) expected to hit the Senate floor in the coming days. The Democratc' letter tells the GOP: "your statements give the impression you are... blocking this much-needed tax relief... in order to protect a small group of wealthy investment-fund managers." Senate Democratic Letter. Story on Corporate Letter.

Call it solomonic, metaphysical, ingenious, or disengenuous, but it appears that a great PAYGO Pact of 2008 is in the offing.

Here's the conundrum: since the principles of PAYGO apply only to changes in current law increasing mandatory spending or decreasing taxes, how many times must temporary extensions of tax breaks be extended before they are no longer regarded as "extenders," but as "current law." It seems to beg reasoning to say that merely calling them "permanent" (since they can be eliminated any time) makes them current law. But it also seems paradoxical that an extended tax break can ever evade the strictures of PAYGO.

Count on Chuck Grassley (R-IA), the Senate Finance Committee's ranking member, to cut the Gordian knot. He's working on a plan that would offset certain extenders that could be considered "new" extenders because they are being added or modified in the extenders package. Under the plan, extension of the research and development tax credit would not be paid for, while a number of the energy provisions, like the newly-added credit for energy-efficiency improvements to existing homes would be offset.

Elegant enough? Not quite. Grassley said he hears that Democrats on the Finance Committee believe there is $18-19 billion in new policy to be offset, but his staff puts the number closer to $5-6 billion.

It may come down to what the meaning of "new" is. Take the Grassley Challenge and figure it out for yourself:

• Bill Summary: Energy Independence and Tax Relief Act
• Bill Text
• JCT Scoring

Whatever the answer is could be known, the extender package pay-fors determined, and the package voted on as early as next Monday.

Today, the Bush Administration issued a veto threat against H.R. 5794, the Emergency Extended Unemployment Compensation Act of 2008.

Please read the following and see if you can spot the non sequitur:

The Administration is deeply committed to continually fostering an environment where every American who wants a job has a job. The Administration believes the best way to help workers is to create an environment that encourages job creation and to promote effective job training. To accomplish these goals, the Administration urges Congress to create more opportunities for American exporters by passing the pending free trade agreements with Columbia, Panama, and South Korea, make permanent the President's tax cuts that will expire over the next two years, and reform and reauthorize the Trade Adjustment Assistance program and the Workforce Investment Act. The Administration looks forward to continuing to work with Congress to enact these important measures. However, the Administration strongly opposes H.R. 5749. If H.R. 5749 were presented to the President, his senior advisors would recommend that he veto the bill.

Oh, wait -- I think I get it. Those free trade agreements are with some pretty small countries with pretty small economies. In economies of small scale, the blessings of free trade really could make a difference with respect to unemployment...

... in Panama.

Would that it were easy to answer this one. As you might imagine, the answer is: it depends.

PRO: PAYGO applies to an extension of unemployment insurance (UI) benefits because there would be -- without an offset -- a net increase of the deficit at the end of the day. Like other trust funds (think Social Security), there is no actual money there, just IOUs.

CON: But in the case of the UI trust fund, there is plenty of money in the account -- it's $35 billion in the black and the proposed legislation would cost roughly $12 billion over ten years.

ANSWER: the current ($35 bn. surplus) condition of the Federal Unemployment Tax Act (FUTA) trust fund has no bearing on the question. More directly relevant is whether the proposed UI extension is adopted as part of the emergency supplemental war spending appropriation (as it was in the Senate), or as a stand-alone bill. If the former, technically mandatory spending is not subject to PAYGO on an emergency supplemental appropriations bill; if the latter, the stand-alone, without offsets, would be subject to a (waivable) point of order under the rules of PAYGO.