–Senate Democrats, Republicans To Re-elect Leaders
–Senate Banking Committee To Vote At 2:30 P.M. On Diamond Nomination
–Bowles-Simpson Deficit Panel To Reconvene Tuesday Afternoon
–Tax Cut Rumors Continue; No Movement Expected Until Hill Meets W/Obama

By John Shaw

WASHINGTON (MNI) – Although little legislative activity will occur
on Capitol Hill Tuesday, Congress is buzzing with activity as the Senate
holds its leadership elections, both the House and Senate continue their
orientations for new members and everyone wonders what will be
accomplished in the Lame Duck session.

The Senate is not in session today. Senate Democrats and
Republicans are selecting their leadership, and Senate Majority Leader
Harry Reid, the Democratic leader, as well as Senate Minority Leader
Mitch McConnell, are expected to retain their posts as party leaders.

The first Senate votes are expected Wednesday.

The House is expected to vote Tuesday on a host of
non-controversial bills on its suspension calendar. A House ethics
subcommittee is meeting Tuesday to discuss the ethics violations charges
that have been made against Rep. Charlie Rangel.

The Senate Banking Committee will meet Tuesday at 2:30 p.m. to
again consider the nomination of Peter Diamond to the Federal Reserve
Board of Governors.

The Banking Committee approved Diamond’s nomination in July on a 16
to 7 vote. But Senate Republicans refused to waive a rule that requires
pending nominations to be returned to the White House if the Senate is
out of session for more than 30 days as it was this past August and
early September.

Obama resubmitted Diamond’s nomination in September.

Sen. Richard Shelby, the ranking Republican on the Banking
Committee, opposed Diamond’s nomination in the summer, arguing that he
has insufficient experience on monetary policy. Diamond is an expert on
tax policy and recently won the Nobel Prize for economics.

Both Senate Banking Committee Chairman Chris Dodd and Shelby are
expected to discuss the Diamond nomination in opening statements and
then vote on the nomination. Shelby is expected to continue his
opposition to the Diamond nomination — a fact which could prevent a
vote by the full Senate later in December

After the vote on Diamond, the Banking Committee will hold a
hearing on mortgage servicing issues.

Later Tuesday afternoon, the National Commission on Fiscal
Responsibility and Reform, will meet to discuss a discussion draft by
the two chairmen of the panel, former senator Alan Simpson and former
White House chief of staff, Erskine Bowles.

Simpson said last week that he and Bowles will reconvene their debt
panel this week to go through their proposal line-by-line. He said
future meetings will determine if there are 14 votes on the 18 member
panel to approve the plan — or some variation of it.

President Obama created the commission on Feb. 18 by executive
order after an attempt by lawmakers to create a panel by statute failed
in the Senate.

The commission is charged to issue a report by Dec. 1 that would
cut the deficit to about 3% of gross domestic product by fiscal year
2015 and begin slowing the growth of debt over the long term. In order
for the panel to issue recommendations, 14 of the 18 members need to
reach an agreement.

The draft budget plan Simpson and Bowles released last week calls
for more than $4 trillion in budget savings over a decade.

Their draft plan, which was presented to their panel Wednesday,
would bring the federal budget deficit down to 2.2% of gross domestic
product by 2015. It would reduce the nation’s debt to 60% of GDP by 2024
and to 40% of GDP by 2037.

The plan would wring deep savings out of every corner of the
federal budget, including defense and Social Security.

The Bowles-Simpson plan would put in place tough discretionary
spending caps that would help achieve about $1.4 trillion in savings. It
calls for $733 billion in entitlement savings and $751 billion in
savings from overhauling tax expenditures over a decade.

The plan calls for fiscal changes that would bring federal spending
down to about 21% of GDP and boost revenues to bring them up to 21% of
GDP. The plan would balance the federal budget by 2037.

In their draft, Bowles and Simpson call for fundamental tax reform
in which the marginal rates are reduced, the tax base is broadened, and
revenue is capped at 21% of GDP.

Another deficit review panel, chaired by former White House budget
director Alice Rivlin and former Senate Budget Committee Chairman Pete
Domenici, will release its findings Wednesday.

Obama will meet with congressional leaders Thursday at the White
House to discuss the Lame Duck agenda — so no decisions about what can
be accomplished in the post-election session will be made until after
that meeting.

The central item on the Lame Duck agenda is the fate of the Bush
tax cuts of 2001 and 2003 which are set to expire at the end of this
year.

Obama has been sending signals since the mid-term elections that he
is willing to back down from his long-held position that the Bush tax
cuts be extended only for those individuals making $200,000 or less and
couples making $250,000 or less.

Earlier this year, incoming House Speaker John Boehner suggested
the Bush era tax cuts be extended for two years and that discretionary
spending be cut back to 2008 levels. But since the election Boehner has
taken a harder line, saying all the Bush tax cuts should be extended
permanently.

Some congressional Democrats have floated another idea: extending
the so-called middle class tax cuts permanently, but extending those for
upper income earners for a year or two.

And while he believes that making permanent the tax cuts for the
wealthy holds no benefit for the economy, U.S. Treasury Secretary
Timothy Geithner said at a Wall Street Journal event Tuesday that an
agreement on tax policy “is very likely.”

Renewing all Bush era tax cuts for a decade would cost about $4
trillion — far more than any spending cut proposal discussed by either
party.

The White House meeting will also consider how to keep the federal
government funded while Congress and the White House try to complete the
budget for the 2011 fiscal year which began Oct. 1.

A stop-gap bill funding the government runs until Dec. 3. Since
none of the 12 annual spending bills have been passed, it appears likely
that another stop-gap spending bill will be needed while work on the
regular spending bills continues.

Some lawmakers have discussed passing another stop-gap spending
bill that would fund the government until February, thus deferring FY’11
spending decisions to the next Congress.

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

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