The congressional lame duck session resumed Dec. 5 as the 109th Congress returned to work on a set of long-deferred tax and budget items. However, Congress will likely postpone action on the bulk of these issues until the next session and quickly pass a continuing resolution (CR) that will last until early 2007. The Budget Though the first two months of the fiscal year are already over, Congress hasn't been able to finish work on ten of the 12 appropriations bills providing funding for the federal government in FY 2007, passing only the Defense and Homeland Security spending bills. With insufficient time - and even less political will - remaining this year to complete work on the outstanding bills, GOP congressional leaders have announced they will extend the current CR to keep the federal government operating until Feb. 15, 2007, pending an agreement with Democrats. The impetus to block progress on the spending bills came chiefly from Sens. Tom Coburn (R-OK) and Jim DeMint (R-SC), who argued the CR would eliminate what they claim are "nearly 10,000 earmarks, or member-sponsored pork projects, larded throughout the spending bills Congress is currently considering, [which] could save taxpayers a cool $17 billion." Under the CR, discretionary programs would be funded at the lowest of the FY 2006 level (last year’s spending level), or the level passed by the House or the Senate for this year, thereby killing any proposed new spending, including all earmarks. This also means there is no inflation adjustment for agencies, the equivalent of cutting program resources. Were the CR to be extended to cover all of FY 2007, nominal cuts totaling about $7 billion in school breakfast and lunch programs, housing vouchers, assistance to veterans, and other social program spending would result. The current CR expires this Friday, Dec. 8. If not extended, most of government will need to shut down. Yesterday, Dec. 4, on National Public Radio, Senate Minority Leader Harry Reid (D-NV) indicated this week’s lame duck session will not address program cuts resulting from the CR, and a full fiscal-year extension (through Sept. 30, 2007) of the CR was under serious consideration by Democrats. He noted the Democrats cannot address two years of appropriations bills in such a short time, and instead, they would focus on dealing with finishing appropriations bills for the start of the following fiscal year (FY2008) on Oct. 1, 2007. Others have speculated the Democrats could wait until the last day of the CR and send the president a gigantic omnibus appropriations bill, lumping all the individual appropriations bills together, in a take it or leave it approach. The president has vowed to veto anything over $873 billion in total discretionary spending, but would be forced into shutting down government if he were to veto an omnibus spending bill above his bottom line. Tax Extenders It appears that after months of delay, a package of popular tax break extensions known as "extenders" will finally get an up-or-down vote, possibly with additional tax "sweeteners" that have been promised to specific members of Congress throughout 2006. Among the central elements of the package are:

• the research and development credit for business
• an exemption on federal income tax forms for state and local sales tax in those states without a state income tax
• incentives for employers to hire former welfare recipients
• deductions for restaurant improvements
• a deduction for out-of-pocket teacher expenses
• the college tuition deduction

This package failed in the Senate in July when it was tied to a poison pill, a proposed permanent estate tax cut. On a stand-alone basis, the package would cost nearly $20 billion to extend retroactively through the end of 2006 and close to $40 billion if extended through 2007. This time, the package is widely expected to include a provision to forestall a scheduled five percent cut in Medicare payments to physicians, scheduled to take effect in January. The provision would cost an estimated $10.8 billion over five years. Also under consideration is a leftover "sweetener" provision from the first vote - a tax cut for timber industry capital gains - as well as an unrelated amendment that would grant permanent normal trade relations with Vietnam. Uncertainty still exists regarding both the term and content of the package, but it is possible the House could vote on it as early as Tuesday, Dec. 5, and the Senate one day later. Darkhorse Fixes: Agricultural Disaster Aid and the AMT Patch The Senate has scheduled a vote today on a $4.5 billion agriculture disaster aid package proposed by Senate Budget Committee ranking member Kent Conrad (D-ND). However, according to Congress Daily (subscription required), Senate conservatives have threatened to drag the bill down with dozens of amendments, and President Bush has vowed to veto it unless offsets are provided. Congress may also seek to provide a "patch" for the Alternative Minimum Tax (AMT), which would hold harmless the 20 million new taxpayers who next year would otherwise join the 3.5 million taxpayers currently paying the tax. The patch would be a heavy $40 billion lift, but some Democrats in Congress may be inclined to attach it to the extenders package this week rather than wait until next year, when revenue-neutral (PAYGO) budget rules may be in place and $40 billion in offsets would be required to pay for it. More likely, however, the GOP leadership will take no action, adding this item to the lengthy list of thorny tax and budget issues that will confront the Democrats when the 110th Congress convenes in early January.