With fewer than 30 working days left before Congress adjourns for its August recess, the legislative branch is once again faced with a pile of must-pass legislation and a ticking clock. Before the end of 2010, Congress must pass a spate of bills to renew a set of expiring tax provisions, prevent stiff pay cuts for Medicare doctors, fund the wars in Iraq and Afghanistan, and prevent the expiration of the Bush tax cuts for the middle class. Congress is likely to truncate its legislative calendar so that members can return to their districts to campaign for this year's elections, lowering the odds of passing other "big-ticket" legislation like climate change policy and immigration reform.

The most prominent bill giving Congress difficulties is the so-called tax extenders bill, which is a collection of miscellaneous tax provisions like biodiesel and R&D tax credits that must be renewed every year. While the extension of these core tax provisions would cost about $32 billion, other provisions, such as an extension of unemployment insurance and continued increased Medicaid funding to states, pushed the total cost of the Senate version to $109 billion. Many Democrats strongly back the unemployment insurance and Medicaid spending to continue fighting the effects of the recession, but fiscal conservatives in the Senate continue to balk at the bill's cost.

Also proving contentious are provisions in the bill added to offset its ultimate cost. Most controversial is a loophole-closer that changes treatment of investment fund managers' income from being taxed at the capital gains rate of 15 percent to the regular income tax rate (up to 35 percent for high-earners). Bowing to the demands of Wall Street, real estate, and venture capital lobbyists, the Senate bill would only partially close this "carried interest" loophole by taxing only a little more than half of fund managers' income at the regular income tax rate.

As of June 25, Senate Democrats tried to pass the bill three times, each time with a more trimmed-down cost, and each time Democrats failed to reach 60 votes to end debate on the bill. The last version of the Senate bill cost $109 billion, adding $33 billion to the deficit through extended unemployment insurance.

The House passed its version of the extenders bill in May, and it included a 19-month fix to the Medicare reimbursement formula, the so-called "doc fix." Without it, doctors would see steep cuts to their Medicare reimbursements, as much as twenty-one percent. But Senate leaders were forced to scale the 19-month solution down to six, despite the fact that the House version was already pared down from a more expensive five-year fix. Ultimately, the Senate passed the short, six-month fix as a separate measure so that wrangling over the larger package would not prolong the pay cut for doctors serving Medicare patients.

While the House reluctantly passed the Senate's compromise, it only serves to delay the inevitable. Congress will have to pass a long-term extension of the Medicare reimbursement formula at some point, and it will be no easier, and no cheaper, during December's lame-duck session.

The problems facing Congress are not all the Senate's fault, however. The House has been having problems of its own. In particular, the House has not been able to pass a supplemental spending bill that would fund the wars in Iraq and Afghanistan. Surprisingly, the Senate passed its version of the war supplemental bill before the Memorial Day break, but anti-war Democrats in the House are holding up the House bill, demanding a timetable for withdrawal from Afghanistan before they will vote on any new funding for the war. At the same time, Defense Secretary Robert Gates has warned House Speaker Nancy Pelosi (D-CA) that delaying passage of the bill beyond July 4 would have dire consequences for military operations.

The situation is further complicated by the fact that House leadership planned on attaching a deeming resolution to the war supplemental that provides a budget blueprint for the fiscal year that starts Oct. 1. Since the House will not be passing a budget resolution in 2010 (the first time this has happened since Congress passed the Budget Act in 1974; see our previous Watcher article on this matter), the deeming resolution would put in place FY 2011 spending caps for appropriations committees that are usually set by the budget resolution. The deeming resolution also allows Democrats to avoid providing estimates for the deficit.

Because the war supplemental is considered "must-pass" legislation, thanks to Gates' insistence, House leadership believed it would be easier to attach the deeming resolution to the war supplemental than to pass a stand-alone bill. Like other must-pass legislation, the war supplemental will likely serve as a vehicle to move other provisions, such as a $23 billion proposal offered by House Appropriations Chair David Obey (D-WI) to prevent the layoff of thousands of teachers due to state budget shortfalls.

With the current problems the supplemental is facing, however, congressional appropriators may have to wait even longer for FY 2011 budget levels before they start their work, greatly increasing the chances that the 12 spending bills required to fund the federal government's operations will not be passed by the Oct. 1 deadline.

Finally, there is the thorny issue of the Bush tax cuts, which expire at the end of 2010. President Obama has pledged, with Democratic congressional leadership concurring, to not let these tax cuts expire for families earning less than $250,000. However, with the prospect of a tax increase for high-income taxpayers on the horizon, members of Congress are getting an earful from lobbyists representing individuals in the highest tax bracket. Nervous about the prospects of being tarred with such labels as "job-killing tax-hiker" during an election-year, many members of Congress may hesitate at passing a limited extension.

Income tax rates are not the only Bush tax cuts that are set to end on Dec. 31. Since Jan. 1, the nation has been without an estate tax, thanks to another Bush tax cut, which steadily phased the tax out over nine years and completely eliminated it for 2010. The tax will return in 2011 and will revert to rates found in the law prior to the Bush tax cuts, which approximate 2002 levels. 2010 marks the first time the nation has been without an estate tax since its inception in 1916 and the first year that a billionaire has been able to pass on his entire estate to his heirs tax free.

At the end of 2009, the House passed what would have been a permanent extension of the exemption levels and tax rates in place that year, but the Senate has been unable to follow through with a similar bill. With only 41 votes needed to block passage of an estate tax fix, the fate of such a bill remains unclear.