- The Washington Times - Thursday, November 11, 2010

Lawmakers returning Monday for the start of the lame-duck session on Capitol Hill face an age-old political conundrum: How to respond to voter anger over federal spending without cutting into the entitlement programs and tax breaks that so many of their constituents enjoy.

It’s a thorny political issue that promises to haunt lawmakers, who face renewed electoral pressure to speak out against government spending and the soaring national debt, but who also spent the campaign season avoiding detailed discussions about the nation’s fiscal health beyond vague generalities and fuzzy math about their plans to cut waste and reduce spending.

“You get a very different reaction when you tell people, ‘I’m going to cut spending,’ versus telling people, ‘I’m going to cut Medicare, Social Security, Medicaid and veterans’ benefits,’” said Donald Marron, director of the nonpartisan Urban Institute and Tax Policy Center. “Those sound really different.”

While those sacred cows will not be on the table during the lame-duck session that starts Monday and could run into December, there are numerous issues that could affect voters.

Congress will have the opportunity to try to resolve their differences about the estate tax, to extend unemployment benefits and to come up with a temporary fix for the alternative minimum tax.

Lawmakers also could take up the White House’s push to ratify the new arms-reduction treaty with Russia and a dozen spending bills that Congress put off earlier this year by agreeing on a stopgap bill to keep the government from shutting down on Oct. 1, the start of the fiscal year. Among them is the Pentagon spending bill that includes a controversial provision to end the “don’t ask, don’t tell” military policy that bars open gays from serving in the military, a goal President Obama has said he shares since taking office.

In addition, Senate Majority Leader Harry Reid also has promised a vote on any recommendations agreed to by at least 14 of 18 members of Mr. Obama’s deficit-reduction commission, and that he would bring up the Dream Act, a proposal that would offer a path to citizenship to illegal immigrants who arrived in the U.S. as minors.

Meanwhile, conservatives in the Senate will push their Republican colleagues to end the practice of requesting earmarks, or pork-barrel projects.

But the big question that will loom over the lame-duck session will be whether Congress can agree to renew the tax cuts passed in 2001 and 2003 under President George W. Bush — a debate that some view as the opening round in a broader battle over how to rein in federal spending and reform the country’s complex tax system.

For months, Republicans have argued that they all must be extended, lest Congress raise taxes at the time of a fragile economy. Mr. Obama and Democrats say the cuts should be extended only for individuals earning less than $200,000 and households earning less than $250,000. They point to Congressional Budget Office estimates that letting the cuts lapse for higher-income earners would generate $700 billion in new revenue over the next 10 years, which could help keep down the $13.727 trillion national debt and trillion-dollar annual deficits.

Whatever the case, the tax battle during this lame-duck session may come down to a simple numbers game.

“I think you will see an extension of the Bush tax rates, in some form or another, though maybe not permanently,” said former Rep. Vin Weber, Minnesota Republican, and now managing partner of the Washington-based lobbying firm of Clark & Weinstock. “I definitely think the Democrats want to do it now because if they wait, the Republicans will have a much bigger say about it in the next Congress.”

Economists also have varying opinions of how Congress should act.

David Stockman, a director of the Office of Management and Budget under President Reagan, told The Washington Times that Congress should let all the tax cuts expire.

“We couldn’t afford them in 2001 and 2003, so we certainly can’t finance them now after two unfinanced wars [in Iraq and Afghanistan], the massive TARP bailout, the huge stimulus spending and all the unfunded spending that built up during the Bush administration,” Mr. Stockman said, alluding to the $400 billion prescription-drug benefit that the GOP Congress passed in 2003. “I think the math is very clear, and people are very delusional if they think we can afford tax cuts.”

Others, including Mr. Marron and Mark Zandi, chief economist at Moody’s Analytics, see it differently, saying that raising taxes on high-income earners in this fragile political and economic environment is a gamble.

Mr. Zandi told The Times that the safest bet for the president and Congress is to quickly pass a yearlong extension of all the tax cuts and then to gradually phase them out over the next two fiscal years.

“The logic for extending them for at least a year is that the recovery is very fragile, and if the tax cuts are to expire for everyone, I think we would likely [have a] double-dip” recession, Mr. Zandi said. “Even if the tax cuts for upper-income individuals are to cease, as the president has proposed, I think it would be taking a chance.”

The White House on Wednesday showed some signs of moving in that direction after Mr. Obama’s senior adviser reportedly suggested his boss might be willing to accept a temporary extension if that ensured the middle-class tax cuts were protected.

Mr. Zandi also said that if Republican lawmakers are serious about getting the country’s fiscal ship in order, they should get away from the idea of keeping taxes for the wealthy at the current rate indefinitely.

“I think spending restraint is more important than tax increases, but nonetheless allowing the tax rates to revert back to where they were once the economy is off and running would be appropriate, given our fiscal issues,” he said. “I think it would go a long — or at least partial — way to addressing the fiscal problem”