Congress

What Will Washington's Lame Ducks Do?


Literally, a lame duck is a wounded animal unable to keep up with the flock, making it a predator's target. That's an apt description of the 49 defeated and 20 retiring House Democrats coming back to Washington on Nov. 15. Also returning will be three defeated and four retiring Democratic senators, along with six departing Republican senators, five of whom are retiring and one who was defeated. On their agenda: a slew of tax and spending issues, each with a pressing deadline. Will the lame ducks feel freed from the political fallout of the next roll call to vote their consciences? Will House Speaker Nancy Pelosi bring up measures she can't win, just to get Republicans on the record on difficult votes before she loses control? "She's got a brief window of opportunity," says University of Oklahoma political scientist Ron Peters, "to start the 2012 campaign."

ISSUE: BUSH-ERA TAX CUTS

Deadline: Dec. 31
One-Year Cost: $207 BN

The Conundrum: Congress must act to prevent higher income tax rates from taking effect Jan. 1. President Barack Obama wants to extend relief only on the first $250,000 of income. Republicans, fresh from a midterm electoral victory, want the cuts extended for all incomes.

The Outlook: Short-term extension, with a higher income cutoff of $500,000 or $1 million, is possible. So is gridlock, resulting in the tax cuts' expiration.

ISSUE: ESTATE TAXES

Deadline: Dec. 31
One-Year Cost: $18 BN

The Conundrum: The estate tax, now at zero, returns in 2011 at a top 55 percent rate. It would apply after a $1 million tax-free allowance ($2 million for couples). Obama wants the exemption to be $3.5 million, and a 45 percent tax rate beyond that. Republicans want to repeal the tax.

The Outlook: Obama's plan would return the tax to 2009 levels. Republicans want to continue the rate at zero, but that would cost $69 billion. A compromise, backed by Senate Minority Leader Mitch McConnell, would set the rate at 35 percent and exempt the first $10 million, but it too would have to be offset with spending cuts or tax increases.

ISSUE: DIVIDENDS AND CAPITAL GAINS

Deadline: Dec. 31
One-Year Cost: $13 BN

The Conundrum: The 15 percent capital gains tax rate is scheduled to increase to 20 percent in 2011. Dividends would be taxed at a taxpayer's top marginal rate. Obama would preserve the 15 percent rate on both investment income sources for couples earning under $250,000. Republicans want the 15 percent rates with no income threshold.

The Outlook: The income thresholds and the extension period for these tax rates are likely to follow whatever compromise is negotiated on the Bush-era tax cuts.

ISSUE: ALTERNATIVE MINIMUM TAX

Expired: End of 2009
One-Year Cost: $66 BN

The Conundrum: The AMT hasn't been indexed for inflation since 2009. A tax increase affecting 30 million households already is on the books for 2010 unless Congress rolls it back. The cost for 2011 would be similar.

The Outlook: Of all the tax issues confronting lawmakers and the White House in the lame-duck session, enacting an inflation "patch" covering 2010 is the most likely outcome.

ISSUE: SPENDING BILLS

Deadline: Dec. 3
One-Year Cost (est.): $1.4 TN

The Conundrum: Congress failed to complete any of the 12 annual appropriations bills before the Oct. 1 start of the 2011 fiscal year and has been funding the government with a series of stopgap measures. The latest temporary extension, which funds all government programs, except for entitlements like Medicare, Medicaid, and Social Security, at fiscal 2010 levels, expires Dec. 3. The cost per month is about $117 billion.

The Outlook: Another stopgap vote could push the issue into next year, when it might coincide with the government hitting the $14.3 trillion debt ceiling. That would put fiscal hawks and Tea Party lawmakers on the spot.

ISSUE: JOBLESS BENEFITS

Deadline: Nov. 30
One-Year Cost: $65 BN

The Conundrum: At the end of November, about 2 million unemployed Americans will lose benefits. They are among some 6.2 million who have been out of work for more than six months. Some have received jobless benefits for as many as 99 weeks.

The Outlook: Democrats were already under pressure before the election to let federal jobless aid lapse, and the midterm election results only amplify that. Now the latest extension lapses just weeks before Christmas.

Rowley is a reporter for Bloomberg News.
Donmoyer is a reporter for Bloomberg News.

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