–Congress To Deal First With Payroll Tax Cut, Debt Ceiling Disapproval
–President Obama’s State of Union Speech, FY 2013 Budget Coming Soon
–End of Year Crunch Expected on Bush Tax Cuts, Debt Hike, Sequestration

By John Shaw

WASHINGTON (MNI) – In a more orderly world, Congress would spread
out its considerable fiscal workload evenly over the coming 12 months.

But this is not an orderly world, especially on Capitol Hill, so
lawmakers and congressional observers expect two periods of intense
activity in Congress and a long middle period of little action and much
partisan acrimony.

The House returns to Washington Jan. 17 while the Senate reconvenes
Jan. 23.

Lawmakers will return to tackle a pair of issues leftover from
2011: talks on a payroll tax cut extension package and congressional
consideration of a “motion of disapproval” regarding the final $1,2
trillion tranche of last year’s deal to increase the debt ceiling.

President Barack Obama and congressional leaders have said they
want to pass a one-year extension of the payroll tax cut, but they
differ on how to pay for the nearly $200 billion package. There are also
disputes over GOP efforts to overhaul the unemployment insurance
program.

Congress could not agree on a full year payroll tax cut extension
before recessing for the holidays, and instead approved a two-month
extension in December that expires at the end of February.

“This is going to be a very tough negotiation,” says Bill Frenzel,
a former Republican congressman who is now a guest scholar at the
Brookings Institution.

“(House Speaker) John Boehner is dealing with a pretty restless
crowd of House Republicans who are in no mood to compromise, as we saw
last December. He is going to have a pretty tough time rounding up
Republican votes for any kind of compromise,” Frenzel said.

The House is expected to vote on a motion to disapprove of the
final installment of the August debt ceiling agreement in late January
and which is likely to pass in the lower chamber, as it did last fall.

But the Democratic-led Senate is unlikely to pass the debt ceiling
disapproval resolution, and even if it did, Obama is certain to veto the
bill.

The net effect of these votes will be to kick the debt ceiling
issue until late in the year, after the November elections.

After this early flurry of activity, Congress and the White House
are likely to settle into months of partisan fighting over fiscal
policy, with few prospects for a major deficit reduction agreement.

The Congressional Budget Office will release its updated budget and
economic report for fiscal years 2012 through 2022 late this month. No
release date has been scheduled yet, but the report is likely to come
out either the week of Jan. 23 or Jan. 30.

Obama will give his State of the Union Address Jan. 24 and then is
scheduled to release his budget in early February, probably Feb. 6. The
president is also expected to nominate a candidate to succeed Jack Lew
as White House budget director, after Obama named Lew as his new chief
of staff, replacing Bill Daley.

The House and Senate will hold months of hearings of Obama’s budget
and the overall economic outlook. The House and Senate Budget Committees
are charged to craft congressional budget resolutions this spring to
outline spending and revenue goals and to make deficit projections.

House Budget Committee Chairman Paul Ryan is expected to offer a
House GOP budget outline in March. Ryan is likely to present a slightly
revised version of last year’s resolution which called for sweeping
changes to Medicare and Medicaid.

Ryan also will push this winter and spring for a package of
proposed changes to congressional budget procedures, such as biennial
budgeting. These reforms are unlikely to become law this year.

It is unclear if Senate Budget Committee Chairman Kent Conrad will
even offer a Senate Democratic budget alternative.

In addition to these activities, the Senate’s so-called “Gang of
Six” will probably continue to hold informal talks in an effort to turn
the Simpson-Bowles $4 trillion deficit reduction package into
legislative form. A companion effort may take place in the House.

Budget experts say these bipartisan fiscal talks, while unlikely
to lead to a consensus deficit reduction package this year, will serve
to keep alive efforts to cut the deficit.

Both the Senate Finance and House Ways and Means Committees are
expected to continue to hold tax reform hearings this year, but few
lawmakers expect a major tax reform push until after the presidential
and congressional elections in November.

After the elections Nov. 6, Congress is expected to return to
Washington for a Lame Duck Session. That session could consider such
high-profile and consequential issues as the fate of the Bush tax cuts
which expire at the end of the year, an increase in the debt ceiling
which could be required in November or December, and the fate of the
across-the-board spending cuts that are set to be triggered in January
in the aftermath of the failure of the Super Committee to reach a
deficit-reduction agreement last fall.

“There are lots of huge issues that are likely to be stacked up
until the end of the year,” says Frenzel of Brookings.

“It’s hard to know whether they will get resolved in a Lame Duck or
pushed back into early next year. Congress does have a habit of delaying
things that are complicated or difficult,” he added.

** Market News International Washington Bureau: (202) 371-2121 **

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