Predictions For Congress Lame-Duck Session, Including Biofuels Tax Extenders

Members of Congress return to Washington Nov. 15 for what has been billed as the first of two lame duck sessions following the Nov. 2 national elections.

Members of Congress return to Washington Nov. 15 for what has been billed as the first of two lame duck sessions following the Nov. 2 national elections. Flying in the face of some claims from both political parties that the American people are demanding change and action from Washington, other statements –– again from both political parties –– indicate that the nation can expect continued gridlock on most issues, at least for the short-term. The possible exceptions will be an omnibus appropriations bill to fund the government in the current fiscal year, and an extension of income tax cuts that are scheduled to expire Dec. 31. 

Even these two must-have bills are unlikely to receive more than a cursory inspection by Congress. In the first case, it is more likely that members will choose to approve another continuing resolution to keep the government funded until some point in February or March. In the second, a simple, across-the-board extension of the so-called Bush tax cuts is far more likely that a more complicated approach that would extend the cuts for some taxpayers but not for others. 

Current plans call for lawmakers to return again after a short Thanksgiving recess, but that timeline could change if Democrats find they cannot approve much beyond the two issues outlined above and then decide to postpone the remainder of the congressional agenda until the next Congress is seated in January. 

On Spending: GOP leaders have made it clear they will seek lower spending levels beyond those recommended last year by President Obama. If an agreement on this issue cannot be reached during the lame-duck, members will approve a new continuing resolution (the current CR expires Dec. 3). 

There is virtually no chance Congress will approve an omnibus appropriations bill encompassing spending for all the various departments of the federal government. That is because top House appropriator Jerry Lewis (R-Calif.) has expressed his "unequivocal opposition" to an omnibus spending bill that would include some $1.1 trillion in discretionary spending. "The unmistakable message sent by the American people on Tuesday is that they are justifiably angry at Washington," said Lewis in a letter to current Appropriations Chairman David Obey (D-Wis.). "They want Congress to cut spending," Lewis added. 

President Obama recently reiterated his proposal for a three-year freeze on domestic non-security spending, but Republicans want much deeper cuts overall, to 2008 levels. Asked about this proposal to cut spending back to 2008 levels and extend all the Bush tax cuts –– even those that benefit the wealthy — for two years, Obama said: "I think that when we start getting specific like that, there's a basis for a conversation.… We can look at what the budget projections are. We can think about what the economy needs right now, given that it's still weak. And, hopefully, we can agree on a set of facts that leads to a compromise." 

This issue has also been linked to the debate that will occur early next year on raising the debt limit ceiling. Rep. Eric Cantor (R-Va.), who is likely to become House majority leader in January, says House Republicans plan to take steps to cut spending before voting to increase the debt ceiling. "We're going to have at least three to four months [to show] that this is a cost-cutting Congress," he said. Adding to the likely difficulty Congress will face in raising the debt limit is the election of several Tea Party candidates who said during their campaigns that they would not support such an increase. 

Deficit Reduction Commission: President Obama's Deficit Reduction Commission is not scheduled to meet again until Nov. 30. The next day, Dec. 1, it is required to release its report and any possible recommendations to Congress and the White House. The Nov. 30 meeting will be the first time that commission members will discuss publicly specific spending and tax policies to reduce the current and future federal deficits. If 14 of the panel's 18 members agree on a set of recommendations, congressional leaders have agreed to vote on those recommendations during the lame-duck session. Many are predicting that the commission will not achieve a 14-4 vote and that budget deficit issues will be carried into 2011. 

Expiring Tax Cuts: The tax cuts approved in 2001 and 2003 expire at the end of December and, as indicated above, President Obama has expressed a willingness to discuss with Republicans a way forward after Dec. 31. Republican leaders in recent days have pushed a three-year extension if they cannot get a permanent extension of all expiring tax cuts. 

However, the president has made it clear that he continues to oppose any longer-term extension of the tax cuts for higher-earners. In a post-election interview with the CBS program 60 Minutes, Obama said "there's a basis for a conversation" when it comes to extending tax cuts temporarily for people who earn more than $200,000 and couples who earn more than $250,000 a year. That is a shift from his pre-election opposition to extending those cuts for higher earners. 

Some administration officials and Democratic lawmakers are promoting a plan under which tax cuts for one group of income earners would be decoupled from others. Under this proposal middle-class cuts would be permanently extended beyond this year, while the upper-income cuts would expire after just one or two years. However, Republicans so far have rejected the decoupling approach. 

Senate Democrats also are considering tinkering with the president's proposed income threshold for determining who is a high-income earner. Some are promoting a plan to keep the tax cuts for families who earn up to $500,000 or even $1 million per year. An extension of only one year would push the debate into the opening session of the next Congress; a two-year extension would place it squarely in the 2012 presidential campaign; three years would hand the issue to the next administration. Outlook: Most observers predict a one- or two-year extension of all expiring tax cuts. 

Permanently extending the full spectrum of Bush tax cuts would add nearly $4 trillion to deficits over the next decade, according to the Congressional Budget Office. Obama's proposal to extend the cuts only on income of less than $250,000 a year would add more than $3 trillion to future deficits. 

Tax Extenders, Including Biofuels: Congressional and industry sources are split in their outlook. Some think Congress will extend expired (biodiesel) or expiring (ethanol) tax credit incentives for at least one or two years during the lame duck. Others think this matter will be carried over to the new Congress. Whatever the timeline or final decision, sources agree that budget offsets will have to be found for any extensions. 

Estate Tax: An agreement on this contentious issue has eluded lawmakers for years. It also could be bumped into the new Congress unless an agreement along the lines of a bipartisan Senate proposal is voted on. Unless Congress alters current estate tax language, the exemption would go to $1 million (double for spouse) in 2011, with a maximum 55 percent tax rate beyond the exemption. There currently is no estate tax in place for 2010.  

Outlook:  It is unlikely that Congress will resolve this issue during the lame duck. 

Other Issues: Before the election, Senate Majority Leader Harry Reid (D-Nev.) scheduled votes on a natural gas bill, food safety legislation and a paycheck fairness bill for the Senate's first week back. In addition to the Bush tax cuts, other major fiscal items outstanding include the need for another alternative minimum tax "patch," the Nov. 30 expiration of extended unemployment benefits and legislation preventing a 23 percent cut in Medicare physician reimbursement rates. In all, quite a bit of work to be done but chances are good that fairly little will be accomplished before the end of 2010. 

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