House Republicans presented a blueprint for the fiscal 2012 budget on Tuesday that seeks to end what they see as an onerous provision of the Dodd-Frank financial reform law, dials back federal spending to a level that Securities and Exchange Commission officials say would hamstring the agency and recommends a tax overhaul that includes eliminating major tax breaks.
House Republicans presented a blueprint for the fiscal 2012 budget on Tuesday that seeks to end what they see as an onerous provision of the Dodd-Frank financial reform law, dials back federal spending to a level that Securities and Exchange Commission officials say would hamstring the agency and recommends a tax overhaul that includes eliminating major tax breaks.
Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, unveiled a plan that would cut an additional $6.2 trillion from the federal budget and reduce the deficit by $4.4 trillion more over the next decade than would the budget proposal President Barack Obama made in February.
Those cuts would be achieved in part by paring spending at federal agencies to levels below those of 2008. In testimony before Congress last month, SEC Chairman Mary Schapiro said that under such a scenario, the SEC would have to slash its budget by $241 million, eliminate about 1,000 positions and “dramatically” curtail investment adviser examinations, among other moves (http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20110316/FREE/110319952).
The so-called budget resolution that Mr. Ryan presented sets the broad outlines for spending that will be allocated by appropriations committees. Mr. Ryan said that his plan would “put the nation on a path to pay off the national debt.”
The measure could be voted on by the House as early as this week. It is likely to pass but will run into difficulty in the Democrat-controlled Senate. Meanwhile, the House, Senate and White House are enmeshed in negotiations this week to settle on a fiscal 2011 budget before Saturday, when the government is scheduled to shut down if an agreement hasn't been reached.
The document contains fundamental policy objectives, such as repealing health care reform. It does not, however, call for scrapping Dodd-Frank. Instead, it would repeal a provision of the law that allows the Federal Deposit Insurance Corp. to make whole the creditors of large, “systemically significant” financial institutions.
“We want to end the permanent bailout of Dodd-Frank,” said Rep. Jason Chaffetz, R-Utah, a member of the House Budget Committee.
A group that backs Dodd-Frank denounced the effort. Americans United for Change said that the Republicans are conflating two different parts of the law. One allows the Financial Stability Oversight Council to designate certain institutions as systemically important. The other gives the FDIC the authority to recoup costs that it incurs from winding down large failed financial firms.
“These provisions correct two key problems that plagued the pre-2008 financial system: giant firms didn't have to adhere to stricter standards and the government had no tools to unwind them when they failed,” Lauren Weiner, deputy communications director for the organization, said in a statement. “The House GOP budget would return the regulatory system to this standard.”
Although Democrats will resist eliminating this portion of Dodd-Frank, Republicans aren't using their budget outline to scrap the entire law — as they're doing with health care reform.
The more measured approach stands in contrast with bills introduced in the House by Rep. Michele Bachmann, R-Minn., and in the Senate by Sen. Jim DeMint, R-S.C., that would rescind Dodd-Frank. So far, it doesn't look as if either piece of legislation is gaining substantial momentum.
In fact, the top Republican aide to the House Financial Services Committee told an audience in Washington on Tuesday that there are some parts of Dodd-Frank that are worth keeping on the books.
“We recognize it is well intentioned,” Larry Lavender, chief of staff for the Republican majority on the panel, said in a luncheon speech to a Council of Institutional Investors conference. He said that his boss, Chairman Spencer Bachus, R-Ala., wants to “preserve what's good about Dodd-Frank” while shaping the implementation of some of its provisions so that it does not undermine “what makes our economy the best in the world.”
Among the targets of the committee for Dodd-Frank revisions are the Consumer Financial Protection Bureau and provisions regarding derivatives and proprietary trading by banks.
Although the budget resolution touches on a number of individual items like Dodd-Frank, it also provides overarching policy strategy. For instance, in tax reform, it recommends eliminating so-called tax expenditures in order to bring down tax rates.
Tax-deferred buildup of cash value in insurance policies and tax-free contributions to retirement plans are two of the biggest tax expenditures. The budget resolution doesn't offer specifics on which ones should be cut.
“The new, simplified code outlined in this budget will continue to raise sufficient revenue to fund the government by broadening the tax base, eliminating or limiting as necessary existing tax deductions, exclusions and other special provisions,” states the resolution. “These carve-outs have distorted economic activity and necessitated high tax rates that hurt growth. Getting rid of these tax expenditures will make the tax code simpler, fairer and more conducive to economic growth and job creation.”
