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Category: Tax & Finance

FY13 Budget Supports Research, Student Aid

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The Obama Administration’s FY13 budget, released on February 13, reflects a continuing commitment to increased federal investments in research and education.  The budget would increase funding for the National Science Foundation (NSF); the Department of Energy’s (DOE) Office of Science and ARPA-E; and the Agriculture and Food Research Initiative (AFRI) in the Department of Agriculture, which supports competitive research.  It also would provide a modest funding increase for the National Endowment for the Humanities (NEH).  Similarly, funding for basic research at the Department of Defense (DOD) is essentially level despite significant cuts elsewhere in the agency. 

Funding for the National Institutes of Health (NIH) would be essentially frozen at the FY12 level.  The science portfolio at NASA would be cut by more than three percent.  

For student aid, the Administration would fully fund the maximum Pell Grant level of $5,635 and extend the 3.4 percent interest rate on subsidized Stafford loans, which otherwise would rise to 6.8 percent on July 1, 2012.  Additionally, the Administration would shift campus-based aid programs, such as Perkins Loans, toward institutions that “keep their tuition and tuition increases low,” enroll relatively high numbers of Pell-eligible students, and provide “good value.”  No additional details are available on exactly how the Administration would implement this.

The FY13 budget also contains several tax proposals of interest to research universities.  These include making the American Opportunity Tax Credit permanent and limiting the value of certain tax expenditures, including the deduction for charitable contributions for individual taxpayers, to 28 percent.  The budget would also expand the Build America Bonds program by making the program permanent, expanding eligibility to both government entities and nonprofit institutions—including both public and private universities—and expanding the allowed uses of the bonds.

Today in Congress

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The House and the Senate are expected to vote on legislation that would extend a payroll tax cut through the end of the year.  The legislation also would extend federal unemployment insurance benefits and prevent a cut in Medicare payments to physicians.

The Senate holds a test vote on an amendment offered by Majority Leader Harry Reid (D-NV) on a two-year surface transportation bill.  This procedure will help determine if the Senate can move toward final passage when they return from their President’s Day recess.

Both the House and Senate will be in recess next week for President’s Day.

Deal on Payroll Tax, Doc Fix, Unemployment

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Congressional leaders have reached a tentative deal on a payroll tax cut, extend unemployment benefits, and delay rate cuts to doctors who treat Medicare patients.  Under the proposed plan, a 2-percentage point payroll tax cut would be extended until the end of this calendar year.  The cost of this tax cut would be added to the federal deficit. Unemployment benefits would also be extended for the next 10 months and doctors who treat Medicare patients would avoid seeing their payments cut. Those two provisions would cost about $50 billion and be paid for with cuts elsewhere in the federal budget.

One of the most sensitive issues in the final negotiations was the question of how much Medicare should compensate hospitals for the bad debt accumulated when patients don’t provide their required co-pays for care (uncompensated care). Medicare currently compensates hospitals for 70 percent of their loss and the House proposed to cut this to 55 percent — saving more than $10 billion over 10 years. But this puts a heavy burden on hospitals that provide a lot of uncompensated care – like Harborview.  The final compromise lowers the bad debt cut to about $7 billion, which is better than the original proposal from a couple of months ago but it will still be a blow to hospitals with low-income patients.

FY13 President’s Budget Request

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The President is scheduled to deliver his FY13 budget request to Congress later this morning, kicking off the annual budget and appropriations season. While the details of the budget have remained under wraps until today, the Office of Management and Budget (OMB) released a 2013 “Fact Sheet” on Friday revealing that the budget will include strong support for research and development, including “$140.8 billion for R&D overall; increase the level of investment in non-defense R&D by 5 percent from the 2012 level, even as overall budgets decline; maintains the President’s commitment to double the budgets of three key basic research agencies (National Science Foundation, Department of Energy’s Office of Science, and National Institute of Standards and Technology Laboratories); expands and makes permanent the R&D tax credit. [Includes] Level funding for biomedical research at NIHNational Institutes of Health ($30.7 billion); and to get more out of the money, proposes new grant management policies to increase the number of new research grants by 7 percent.”

The President will also request $4 trillion in deficit reduction over the next decade in his FY13 budget, but his proposal to pay for it with revenue increases and spending cuts — already rejected by the special deficit reduction panel last fall — will make it tough to sell to Congress. Half of the deficit reduction would come by increasing revenues, including raising $1 trillion over 10 years by increasing taxes on families earning more than $250,000. Obama’s proposal would cut the deficit to $901 billion by the end of FY13, or about 5.5 percent of the gross domestic product. All told, his proposal would reduce accumulated debt by $3 trillion in addition to the $1 trillion in savings over 10 years already put in place by the BCA. If approved, Obama’s plan would void the automatic across-the-board cuts— known as a sequester— due to kick in January 2013.

Once the budget request is delivered to the Hill, both the House and Senate canCures Acceleration Network begin the annual appropriations process. The usual first step in that process is for both chambers to approve a budget resolution, which gives appropriations committees their top-line numbers on how much to appropriate. This year, however, Senate Majority Leader Harry Reid (D-NV) has announced that he won’t move a budget resolution to the floor, even if the Senate Budget Committee approves one, since the Budget Control Act (BCA) approved last August already specified the top-line number for FY13. In the House, Budget Committee Chairman Paul Ryan (R-WI) will move a budget resolution through his committee, which will likely specify a top-line number even less than what was agreed to in the BCA.

President Obama’s American Jobs Act Would Carry Slight Impact for UW

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The American Jobs Act introduced by President Obama last week and delivered to congress in full bill form this week, looks like it may carry some tax implications for UW.

  • If passed, the bill would expand and extend the existing payroll tax reduction for employees from the already reduced rate of 4.2% to 3.1%.
  • Would reduce the payroll tax cut for employers to 3.1% – half of what it is now – for the first $5 Million of payroll. This applies to institutions of higher education, but is designed to primarily benefit small businesses – it will have a minimal impact on UW.
  • A couple of tax credits for hiring veterans and long-term unemployed workers may carry a small financial benefit for UW.
  • $30 billion for state aid, which would not apply to institutions of higher education, but the provision does contain a Maintenance of Effort provision designed to protect higher ed funding at the state level.

Portions of the bill have already drawn opposition from both parties, and it is unlikely that it will pass completely in its current form. We are more likely to see the tax credits enacted, while the state aid will be more contentious.