Tax Cuts to Dominate Lame-Duck Congress

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The Wall Street Journal
By: Damian Paletta
November 2, 2010

The White House and Capitol Hill are preparing for post-election chaos over a host of unresolved economic issues, from taxes to jobless benefits, potentially prolonging what has been a lengthy period of uncertainty for taxpayers and businesses.

The 111th Congress returns to Washington for its final session later this month with what will likely be a weakened president, shell-shocked Democrats and an emboldened Republican Party seeking to define a new political dynamic.

In this unpredictable environment, lawmakers must grapple with a looming tax increase for more than 150 million Americans and expiring unemployment insurance for two million. They also hope to vote on a bill to fund the government's operations through at least early next year. Almost all the decisions are expected to worsen the budget deficit--one area both parties have said needs to be addressed.

The GOP is expected to win control of the House of Representatives Tuesday and gain a stronger foothold in the Senate. But Democrats will still control both chambers of Congress until at least January when the new Congress is sworn in, and their plans aren't yet set.

"We need some time to reassess after [the midterms] and then figure out how to proceed," said Jim Manley, spokesman for Senate Majority Leader Harry Reid (D., Nev.). "We have a long list of things to do."

Capitol Hill aides said this lame-duck session could be more unpredictable than most, in part because Republicans will probably have control of the House. That means they will likely spend at least a week determining who will take leadership roles. Republicans could also be less likely to compromise on key issues just two months before assuming more power.

Other issues from the midterms are also clouding the process. For example, if Mr. Reid loses his re-election bid to Republican Sharron Angle, Senate Democrats would have to quickly nominate a future Senate leader even if Mr. Reid stays in his post until January.

"It would be my hope that the Congress in a lame-duck session would only do the absolutely positively necessary business of the Republic, and otherwise wait for the new Congress to take on some incredibly weighty issues" in January, said Rep. Jeb Hensarling (R., Texas).

A primary focus is expected to be whether to extend all or part of the tax cuts passed by Bush administration in 2001 and 2003. Administration officials and key congressional aides said that they still weren't close to reaching a deal on the tax cuts, which both expire in December.

President Barack Obama has called for the tax cuts to be extended for everyone earning less than $200,000 a year, and all married couples filing jointly who earn less than $250,000 a year. Republicans and a growing group of Democrats have said the cuts should be extended temporarily for everyone. If they aren't extended, the higher tax rates will begin in January, which the administration says would add about $2,000 a year to tax bills for a typical middle-class family.

Lawmakers will also try to extend exemptions to the alternative-minimum tax, or AMT, by the end of the year. If they don't, about 29 million people would have to pay this additional tax in their 2010 filings, compared with just four million people who paid it in 2009.

"If you are living on the edge, just making your mortgage payments and not doing much else, $100-a-month [in additional taxes] is serious money," said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. "If you multiply this in the aggregate, it's billions and billions of dollars being taken out of people's pockets."

Congressional aides from both parties have said it is possible lawmakers could try and bundle a one- or two-year extension of the Bush tax cuts and the AMT into one bill to move things more quickly. They could also try to tackle the estate tax, which is set to jump to a rate of 55% for certain people next year.

One possible area for compromise: Congress could permanently extend tax cuts for families making less than $250,000 and temporarily extend them for people earning more.

Meanwhile, extended unemployment benefits that were established during the Bush administration are scheduled to expire this month. This would cut off unemployment benefits for about two million people. But extending these benefits has become politically more difficult in recent months as lawmakers have argued over how to pay for them. They cost the government roughly $5 billion a month.

Congress is also expected to try and cram in several other issues in the session, including a bill that would prevent Medicare reimbursements to doctors from falling more than 20% and another bill known as a "continuing resolution" that essentially funds the government's operations through early next year.

The continuing resolution is expected to be the one priority for both parties, as a failure to pass it could lead to a shutdown of government operations. Republicans have called for government spending to be reset to early-2008 levels, while Democrats are expected to push for an extension of current spending levels.

Write to Damian Paletta at

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This page contains a single entry by CFED published on November 2, 2010 3:52 PM.

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