The 2010 mid-term elections ushered in a Republican majority in the House (a gain of 60 seats), and a new House Majority Leader, John Boehner. Republicans won an additional 6 seats in the Senate, but not the majority. The Republicans said they want to reduce the deficit, keep the Bush tax cuts for everyone and reduce or even eliminate health care reform. Even though these changes don't take place until the new session starts in January, it can affect the lame-duck session in November and December. What changes are likely to happen, and how will they impact the U.S. economy?
The stimulus package extended unemployment benefits an additional 47 weeks. This extended benefit expires at the end of November, hurting 800,000 out of work Americans if the lame duck session of Congress doesn't pass a further extension. Why wouldn't they? In June, the Republicans allowed them to expire, arguing that the cost should be covered by budget cuts elsewhere. This despite research showing that every $1 spent on unemployment benefits stimulates $1.73 in economic growth.
The benefits were extended in July. They may pass this time if they're atttached to any must-pass spending bills or to an extension of the Bush tax cuts to win Republican support. (Source: Reuters, "Congress Starts Lame Duck Session," November 15, 2010)
The lame duck Congress will probably pass a one or two year extension of the Bush tax cuts by mid-December, when the IRS must issue 2011 tax withholding tables. When the rubber meets the road, no politician will want to be the one who potentially threatened the economic recovery with a renewed tax burden. This hard decision will be delayed for two years - just in time for the Presidential election. It will also add around $700 billion to the budget deficit, and put further downward pressure on the dollar.
Experts predict that, at current rate of spending, the debt will reach the $14.3 trillion limit in March or April. Congress will probably increase that limit - as it has been doing no matter which party is in the majority.
Republicans haven't offered any specific plans to reduce the largest budget areas: Military Spending ($895 billion) and Social Security ($730 billion). Instead, House Speaker John Boehner has suggested rolling back domestic spending, outside of Mandatory programs like Medicare and Social Security, to 2008 levels. Overall, this Pledge to American promises to cut $100 billion. It will cancel unspent Stimulus Funds ($220 billion) but this will be offset by extension of the Bush Tax Cuts, and additional tax cuts to businesses.
The Pledge to America advocates a small businesses tax deduction equal to 20% of their business income. This is a great way to help stimulate jobs, since small businesses create 65% of all new jobs. This would be a welcome addition to the Small Business Stimulus bill passed in 2010, which included $12 billion in tax credits for equipment purchases, an increase to SBA loan guarantees from $2 million to $5 million, and a $30 billion loan program for community banks.
- Enact medical liability reform.
- Grant consumers the freedom to purchase coverage across state lines.
- Expand Health Savings Accounts.
- Strengthen the doctor-patient relationship.
- Ensure access for those with pre-existing conditions. (Is already in the Health Care Reform Act).
- Permanently prohibit federal funding of abortions.