President Bush signed into law today a $257 billion supplemental spending package that will fund the wars in Iraq and Afghanistan several months into the next president's term and a host of domestic programs. Bush's signature on the bill comes days after the Senate passed the measure Thursday night.

The package appropriates some $162 billion dollars for the wars; $62.8 billion for an expanded GI bill; $8.2 billion for a 13-week unemployment insurance benefit extension; and a bevy of other domestic discretionary spending provisions.

Happy Fourth of July!
Just wanted to let our loyal BudgetBlog readers know we're going on a short hiatus next week. With Congress heading out of town for a short summer recess and the upcoming Fourth of July holiday next week, the Fiscal Policy team is heading out of town in order to escape the heat for some well-deserved vacation. This means, though, that the BudgetBlog will be dormant next week.

But don't despair. Craig and I will return in one short week on July 7 to continue to bring you all the news, gossip, information, and analysis on federal fiscal policy you've come to expect.

Hope everyone has a safe and festive Independence Day next week - be careful with those fireworks.

It's the end of June, and the temperature is climbing in the District. And I think it's starting to affect the work of our elected leaders.

The House Appropriations Committee abruptly adjourned in chaos Thursday before acting on two big domestic spending bills, after Republicans tried to force the committee to take up a bill covering the Interior Department they believe could be used to lower fuel prices.

...

Tension began soon after the committee began meeting, when Jerry Lewis of California, the panel's senior Republican, asked Obey to give his word that he would bring the Interior spending bill up for a vote the week Congress returns from its July Fourth recess.

Obey declined, and lectured Lewis. "If the gentleman wants to set the agenda of the committee, he needs to go out and get 30 Republicans elected," he said. [This bit does not appear in the free CQ version of the story, but it is on their pay site here - ed. ]

Lewis stood and offered an amendment to strip the text from the Labor-HHS-Education bill and replace it with the Interior spending bill.

When John E. Peterson , R-Pa., tried to offer an amendment to Lewis' amendment, Rep. Norm Dicks , D-Wash., made a motion to adjourn.

Later, Obey spokeswoman issued the following statement:

"It should come as no surprise to anybody that Dave Obey has no patience for B.S.

"Yesterday, Obey announced to the committee that the Interior Appropriations bill was scheduled to be marked up in full committee on July 9th, giving folks a real debate and real votes on issues in that bill."

"Today's plan by republicans to tie the committee in knots with a series of unrelated amendments was just another political stunt, the kind the American people have come to despise. It is B.S. and Obey won't put up with it."

A recently released GAO report finds that (surprise!) Medicare Advantage providers predicted lower profit margins in 2005 than actually materialized.

[Medicare Advantage (MA)] organizations, on average, reported spending 85.7 percent of total revenue on medical expenses in 2005, but had projected medical expenditures of 90.2 percent of total revenue. Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations' self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected.

And while these MA providers would have been paid the same regardless of their projections, they would have been required to provide beneficiaries either more services or lower premiums had they accurately projected their profit margins.

File this one under "W" for "Well, Duh." A system that depends profit maximizing firms to divulge information that would result in lower profits will, time and time again, result in less-than-accurate information.

If you want to bring the Magic of the Marketplace^TM to government services, transparency matters -- it matters a lot. Just because the government pays a firm to provide services doesn't mean the government won't get taken.

Another report of a questionable use of outsourcing appeared today in CongressDaily, this time it's happening over at the State Department. Seems folks over there have modified an existing contract to Computer Sciences Corporation (FedSpending.org profile) to "collect visa information and fingerprints of Mexicans applying for new border crossing cards." The non-competed contract has raised some eyebrows in Congress and among government watchdogs, particularly the Government Accountability Office (GAO).

A State Department official testified before the House Oversight and Government Reform Government Management Subcommittee that the contract is just a test program and that the department hopes to initiate a formal competition before the end of the year. But it looks as though that "test program" is just an attempt by the State Department to assess the usefulness of the contract cover their behinds. GAO has not had time to assess the new contracted out work and what impact it will have, and surprise, surprise, neither has the State Department. GAO testified at the same hearing that the State Department has "not developed metrics to measure the success and efficiency of the test program."

So, the State Department is going to determine whether this is a good idea or not by...wait, how are they going to figure that out? Most likely, they have already concluded this outsourcing should happen. My bet is that the test program will lead to a contract for a full program, that Computer Sciences Corp. will undoubtably win, regardless of whether this really is a good deal for taxpayers or might compromise privacy or national security. No worries though - those are just minor details that will unfortunately remain unknown. Sigh...

Looks like reforms that would bring increased transparency to earmarking in the U.S. Senate will have to wait a little longer. The Senate Republican caucus postponed a vote yesterday on a package of recommendations developed by five GOP senators earlier this year that would increase disclosure of earmark requests and accessibility of earmark language in legislation. The Hill reports:

The conference was scheduled Wednesday to vote on reforms that were first proposed in April by a GOP task force to make the process of inserting pet projects into appropriations bills more transparent. But due to the heavy business awaiting Senate action before the Fourth of July recess, and since some members wanted more time to review the recommendations, the meeting was delayed until next month at the earliest.

The earmark reform debate continues to divide the GOP caucus as Republican appropriators have voiced concerns about some of the reforms proposed by the five-member task force. Indeed many believe the delayed vote was not due to the main reason cited in press reports - a heavy legislative calendar - but because Senate Minority Leader Mitch McConnell (R-KY) is an appropriator and is particularly sensitive to reforms that would curb earmarking.

Even if the GOP adopts the recommendations as written, it will still require a Senate rule change to implement some of the reforms, such as requiring that earmark language appear in the text of legislation and not in accompanying bill reports. It is nice to see transparency reforms continue in the debate in Congress, and people like Sens. Jim DeMint (R-SC) and Tom Coburn (R-OK) should be commended for keeping this issue alive. But increasing access to information about earmarking should really be done in a comprehensive way that links earmark information with bill text and background materials and other online information about Congress. This system should be put online in a central place, be searchable, downloadable, and easily understood by average citizens, and the information must be available before Congress considers legislation - not after.

Following up on my blog earlier today about the Webb-McCaskill Wartime Contracting Commission finally starting to get off the ground, I came across a great column by Thomas Frank today in the Wall Street Journal (of all places!) continuing the drumbeat for a contracting commission to finally get to the bottom of the rampant shenanigans that have gone on for far too long in Washington.

Frank, who wrote a cultural analysis of American politics in the book "What's the Matter With Kansas?", briefly explores the original of the privatization movement in the U.S. in his latest edition of his column entitled "The Tilting Yard," and calls on conservatives (of all people) to help turn the tide of waste, fraud, and abuse in federal procurement. Frank concludes:

The days when conservatives railed against red tape and shrieked for efficiency in Washington now seem like a lifetime ago. When they finally got the opportunity to put their theory into practice, conservatives contrived instead one of the most wasteful systems ever seen.

It is time for a new Grace Commission, this one examining the sordid history of privatization in all its details.

Frank's column is worth a read: The Tilting Yard: Conservatives and Their Carnival of Fraud

The voted this afternoon (233-189) to pass a fully-offset, one-year AMT patch that would prevent some 25 million Americans from falling into an alternate tax universe in which their tax bills would jump by an average of $2,000.

The bill's $61.6 billion cost is fully offset mostly by:

• Treating income of equity fund managers as income, rather than capital gains
• Revoking some tax cuts for oil companies
• Closing a loophole currently enjoyed by some foreign-owned firms using tax havens
• Tighter tax enforcement of merchant credit card payments

These offsets, however, will most likely be stripped by the PAYGO-phobic Senate when it considers the measure.

Craig's post yesterday about some short-sighted decisions at OMB to not provide sufficient resources for contractor oversight at the Army got me thinking about the Webb-McCaskill Commission on Wartime Contracting. There hasn't been a ton of news about that commission since it was enacted into law last fall, but just last week seven of the eight commission members were announced.

Four of the members were selected by Democrats in Congress, one was selected by Republicans in Congress, and two by President Bush. The Project on Government Oversight has a full rundown of the commission members selected so far and ample background information on each of them.

OMB Watch is looking forward to the work of the commission. We hope this badly needed oversight body for the broken federal procurement system will be able to continue to bring to light the significant problems with federal contracting, but also develop policy solutions to prevent future abuses.

A day after we read that OMB denied the Army funds to employ 5 generals that would be in charge of overseeing contracting for the Army, the House Oversight and Government Reform Committee issues a report that finds the Army's $300 million contract with fraudster contractor AEY "can be viewed as a case study in what is wrong with the procurement process."

That OMB sees no imperative for improving military contracting is disturbing. The installation of 5 generals to oversee Army contracting follow a recommendation from the Gansler Commission report -- a study that found failures of Army acquisition systems have significantly contributed to the waste, fraud, and abuse..." The report also notes that "Notwithstanding a seven-fold workload increase and greater complexity of contracting, the Institutional Army is not supporting this key capability" and that there are "almost as many contractor personnel in the Kuwait/Iraq/Afghanistan Theater as there are U.S. military, [yet] the Operational Army does not yet recognize the impact of contracting and contractors in expeditionary operations and on mission success.

The House report and associated hearing, meanwhile, describe in quite some detail how these weaknesses in Army acquisition led to "a grossly inadequate assessment of AEY's qualifications, and poor execution and oversight of the contract" with "[t]he result...that U.S. taxpayers have paid over $66 million to a contractor who provided 'unserviceable' ammunition, much of it apparently of illegal Chinese origin.

By a voice vote, a Senate appropriations subcommittee has approved a FY 2009 Labor-HHS-Education funding bill. The measure would provide about $400 billion less than the House version but bests the president's request by over $7 billion. The bill includes a $1.1 billion boost to NIH and would increase college education funding by $2.7 billion.

Our friends over at the Government Accountability Office released another great report a week or two ago concerning how Medicare providers (hospitals, nursing homes, and doctors) are failing to pay federal taxes to the tune of at least $2 billion a year. Findings from the report:

Our analysis of data provided by CMS and IRS indicates that over 27,000 health care providers (i.e., about 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling over $2 billion. The $2 billion in unpaid tax debts only includes those debts reported on a tax return or assessed by IRS through its enforcement programs. This $2 billion figure is understated because some of these Medicare providers owed taxes under separate tax identification numbers (TIN) from the TINs that received the Medicare payments or they did not file their tax returns.

GAO found some pretty crazy stuff in their investigation, including abusive and potentially criminal activity, and found that many individuals associated with their investigation used the proceeds of their tax evasion for personal profit. Again from GAO:

Furthermore, individuals associated with some of these providers at the same time used payroll taxes withheld from employees for personal gain. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes.

While the actions of these providers is pretty bad, the failure of the Centers for Medicare and Medicaid (CMS) to take any actions to prevent these abuses might be worse:

CMS has not developed a policy to require contractors (1) to obtain consent for IRS disclosure of federal tax debts and (2) to screen providers for unpaid taxes. Further complicating this issue, absent consent by the taxpayer, which CMS does not require, federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors.

IRS can continuously levy up to 15 percent of each payment made to a federal payee—for example, a Medicare hospital—until that tax debt is paid. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for calendar year 2006, the government lost opportunities to potentially collect over $140 million in unpaid taxes.

Health care providers receiving federal resources should be treated no differently than contractors who fail to pay their taxes. Congress recently passed legislation to prevent contractors from using off-shore tax havens to avoid paying federal taxes. They should do the same to make sure all entities who benefit from our common resources pay the taxes they owe.

One-Page Summary of GAO Report
Full Report: Thousands of Medicare Providers Abuse the Federal Tax System

The housing legislation that the Senate may vote on this week contains a property deduction similar to one found in the House version of the bill. The provision would allow homeowners who do not itemize their taxes to deduct a fixed amount from their taxes -- $500 for individuals and $1,000 for couples.

Senate Minority Whip John Kyl (R-AZ), however, has inserted language into the bill that would prohibit non-itemizers from using this deduction if they live in locality that raised property taxes from the time of the law's enactment until the end of the year. As the Center on Budget illustrates, this is just a finger in the eye to state and local governments.

In both the short and the long run, [Kyl's language] is likely to impede efforts of localities to provide an adequate level of services for their residents, including schools, public safety, roads, libraries, parks, and social services. Moreover, it is an unwarranted and unprecedented intrusion by the federal government into policies that always have been left to the states to determine.

But there's also a chance the legislation's property tax increase penalty could extend beyond Dec. 31, 2008.

History suggests, however, that once a deduction is included in the tax code for one year, there is a high probability it will become an "extender" that is renewed every year. Examples include the deduction for state and local sales tax, the deduction for qualified tuition expenses, and the deduction for teacher classroom expenses, as well as a host of business-oriented deductions and credits. If this type of restriction on local property tax revenue were continued for several years, it would fundamentally alter the nature of state and local finance in the country and represent a basic change in the principles of federalism.

This is all hooey...This is going to severely hamper the ability for state and local governments to address looming education shortfalls...

A "Brookings Alert" in my inbox this morning directs me to an op-ed by Brookings Senior Fellow Alice M. Rivlin and U. Mich Prof. John W. Kingdon entitled "Next President and Congress: Tackle Social Security First." Oy.

I'm going to outsource this one to Shawn Fremstad over at Inclusion.

What's missing from Rivlin and Kingdon's op-ed is any reality-based account of why Social Security should even be on the list of problems that the next administration needs to tackle over the next four years. According to CBO, the Social Security surplus a decade from now will be around $250 billion. Moreover, Social Security is fully solvent, under current projections, until 2046.

There are real crises out there. Social Security just isn't one of them.

Yesterday evening (Thurs.), the House approved a pair of amendments to the war supplemental spending bill that would found the wars in Iraq and Afghanistan and would provide funding for exetended unemployment benefits, expanded GI bill benefits, and a host other domestic spending provisions.

By a vote of 268-155, the House approved $161.8 billion in war funding. And by a vote of 416-12, it approved some $92 billion in domestic spending.

The package has been sent to the Senate, where it will be considered sometime next week. The president has expressed support for the bill and will likely sign it when it reaches his desk.

The following table comes from the House Appropriations Committee press release: