–Power Struggle Looms Between Obama, House GOP, And Senate Democrats
–Unclear How Lame Duck Session Will Deal With Bush Tax Cuts
–President Obama To Meet With Hill Leaders on Nov. 18
–Senate Minority Leader McConnell Calls for Extension of Bush Tax Cuts
–Senate Majority Leader Reid Says Full Extension ‘Won’t Happen’

By John Shaw

WASHINGTON (MNI) – Just when it appeared that the challenges facing
American fiscal policy were as daunting as they have been in several
generations, they grew more complicated following the mid-term
elections.

With the American economy stalled, budget deficits lodged north of
$1 trillion and the public debt poised to grow to dangerous levels, the
mid-term elections have left a politically damaged president, a much
emboldened new House Republican majority and a narrow Democratic
majority in the Senate. This Senate is unlikely to be able to pass major
legislation — but can block virtually anything that passes the House.

Tough fiscal issues will confront the outgoing Lame Duck Congress
which reconvenes the week of November 15 and will still have a
Democratic majority.

President Obama has invited congressional leaders to the White
House on November 18 discuss the Lame Duck agenda.

Obama repeated Thursday that he wants Congress to extend the middle
class portions of the Bush era tax cuts that expire at the end of 2010.
“It’s very important we extend those middle class tax provisions,” Obama
said.

But at about the same time that Obama was speaking to the TV
cameras after a cabinet meeting, Senate Minority Mitch McConnell was
calling for the renewal of all Bush era tax cuts. Repeating the exact
words he has been uttering nearly every day for the last three months,
McConnell said it would be wrong to “raise anyone’s taxes in the middle
of a recession.”

When asked about the possibility of tax reform next year, McConnell
said, “the first thing we have to do is make sure taxes don’t go up.
That needs to be resolved first.”

McConnell said repeatedly during a speech at the Heritage
Foundation that Republicans are willing to work with the administration
and Democrats in Congress — provided Democrats make the concessions.

“They will have to move in our direction,” he said.

Senate Majority Leader Harry Reid, in a Wednesday conference call
with reporters, said he wants to work with Republicans on various issues
next year, but repeated that he strongly opposes extending all of the
Bush era tax cuts.

Reid said that Democrats still support extending Bush era tax cuts
for “the middle class” — which Democrats have defined for months as
those individuals making up to $200,000 and couples making up to
$250,000.

But Reid said McConnell’s plan to extend all of the Bush era tax
cuts would cost up to $4 trillion over a decade and “won’t happen.” He
urged Republicans not to “block” a bill that extends these tax cuts for
the middle class.

The Lame Duck session will have to pass a stop-gap funding bill
since the current one expires Dec. 3. None of the 12 annual spending
bills for the 2011 fiscal year have been passed by Congress and it
appears that the next Congress will have to, as one of its first
responsibilities, complete work on the FY’11 budget. The 2011 fiscal
year began Oct. 1.

During the Lame Duck session, a presidential panel on deficit
reduction will issue its final report.

That panel, chaired by Erskine Bowles and Alan Simpson, is charged
to produce a report by December 1 about cutting the deficit. However,
any recommendations must win the support of 14 out of the panel’s 18
members.

Budget experts have said it’s unlikely the panel will achieve
enough internal consensus to issue specific recommendations on how to
cut the deficit. But, they say, the panel could issue a report that
outlines the dimensions of the nation’s fiscal problems or Bowles and
Simpson could issue a “chairman’s report” that sets out their personal
recommendations.

But Bowles, in an interview this week in the New York Times,
sounded more optimistic. “We’re going to put a very serious proposal out
there that lots of people will find areas to pick at. But in total it
will address this deficit problem that we face, and will lay a predicate
out there for what the country has to do to get its fiscal house in
order.”

After the new Congress is seated in January of 2011, all eyes will
be on House Republicans who will likely pass a raft of fiscal
legislation with spending cuts.

But it remains uncertain the Senate will take up, let alone pass,
any of these bills.

The fiscal battle is likely to extend to an effort later in 2011 to
pass legislation increasing the statutory debt ceiling. If the past is a
prologue, Republican leaders are likely to put major chunks of their
fiscal agenda in legislation raising the debt limit, pressuring Obama to
either accept their plans or veto the debt ceiling hike bill.

Debt ceiling brinksmanship was a central feature of the 1995 budget
battle between President Bill Clinton and a Republican Congress. After
months of threats and temporary extensions, the GOP eventually relented
and passed the debt hike bill that Clinton wanted.

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

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