Notes from Capitol Hill

Senate Appropriations:  With the sad and unexpected passing of Senator Daniel Inouye (D-HI) on December 17th, the chair of the powerful Senate Appropriations Committee is vacant.  Early speculation had Vermont Senator Pat Leahy as the successor to Inouye.  However, Senator Leahy has declined, preferring to retain chairmanship of the Senate Judiciary Committee.  In addition to the chairmanship, Senator Leahy has also been tapped to become Senate President Pro Tem, which puts him third in the succession line should the President and Vice President be unable to continue their duties.  Senator Tom Harkin (IA) was the next likely Senator to step into the Approps. slot; however, he too declined in favor of continuing as Chair of the Health, Education, Labor and Pensions Committee.  As of this writing, longstanding Appropriations Committee member, Senator Barbara Mikulski (MD) is expected to take on leadership of the full Committee. One of her first duties will be to name a new Defense Appropriations Subcommittee Chair, since Inouye also presided over the deliberations pertaining to Pentagon spending.

Continuing Resolution:  The current Continuing Resolution (CR) expires at the end of March 2013.  Calls are already being made to take up the issue now and pass a single CR to fund Federal Agencies through the end of this fiscal year (i.e., September 30, 2013).  The concern is that fiscal cliff impacts (should they come to pass) would further complicate the ability of Congress to act on any funding measure and Federal Agencies would be left scrambling to try to meet their obligations.  EPA has already instituted a hiring freeze that replaces only 50 percent of vacancies, travel is extremely constrained, and contracts are either not renewed during a CR or have very short term timeframes.

112th Congress:  Just to review the bidding, there are fewer than 5 legislative days left in the 112th Congress.  However, Senate Majority Leader Harry Reid (D-NV) is planning to call his Chamber back to order on December 26th to work on “must pass” legislation and to be ready to act should the “cliff” negotiations come to fruition.  Rep. John Boehner (R-OH), Speaker of the House, has also signaled that Representatives should be prepared to stay in town over the traditional holiday season.

Fiscal Cliff Stakes:  Negotiations on averting the fiscal cliff – or at least making the cliff a few feet lower for those who will be affected by the plunge – seemed, earlier in the week, to finally to be moving in a more positive direction.  The Administration and the Senate both want allow tax cuts to expire for those taxpayers earning more than $200,000 if they’re single and $250,000 if they file jointly, but this may change as President Obama appears to be poised to be willing to increase that base rate to $400,000.  They also want to increase taxes on long term capital gains from 15 to 20 percent.  The Administration wants to see dividends taxed as ordinary income with a maximum rate of 39 percent while Senate Democrats prefer capping the rate at 20 percent.  Personal exemptions and itemized deductions would also begin to be phased out according to both the Administration and Senate approaches.

Meanwhile, on Thursday, the Republican House Majority introduced a bill that would have offered tax breaks to expire for those who earn $1 million or more (for joint filers) and put them into a new 39.6 percent tax bracket (the current top bracket is 35 percent) – while preserving them for everyone else.  The GOP also wants to maintain current capital gains and dividends tax rates, index the alternative minimum tax to the rate of inflation, and preserve the current 35 percent top for estate tax rates which otherwise will rise to 55 percent in 2013.  Houser Speaker Boehner said earlier Thursday that he was confident that his so-called “Plan B” would pass the House, and in the process put pressure on the President and the Democratic-controlled Senate.  However, the measure did not go up for a vote as planned due to lack of support from GOP rank and file.  “The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said in a statement. “Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.”  What this means next in the fiscal cliff talks is unclear.  From here, scenarios range from intensified and ultimately successful talks in the coming days or entrenchment as the fiscal cliff becomes a reality next year, when a new Congress could enter negotiations with the Administration.

Early Predictions for 2013:  As Stan Collender, an editorial contributor to CQ Daily, forecast on December 19, in 2013 “…either the deficit will fall by $600 billion as we go over the cliff and the focus will shift from deficit reduction to getting out of the cliff-induced recession, or we won’t go over the cliff and the economy will grow faster than currently forecast as business and markets rejoice.”  Let’s hope for the latter outcome…