Tax winter is coming: 5 cold hills lawmakers need to climb

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House Minority Leader Kevin McCarthy, who could face a rocky road to the presidency next year if Republicans win a majority, will work with slim margins and a group of conservative bomb-throwers who could wield enormous influence. Meanwhile, in the Senate, both parties will be forced to tackle these massive budget issues together, as Democrats are far from a filibuster-proof majority.

“Having had to graze US rescue plan across the House by a margin of four votes, I would say they have their work cut out for them if they want to accomplish anything,” the outgoing House budget speaker said. John Yarmuth (D-Ky.) said of his fellow Republicans. “If they want to do anything, they’re going to have to work with the Democrats.”

Here are the five tax hurdles Congress must clear in the lame duck and beyond:

Government funding

Congressional leaders appear willing to strike a bipartisan year-end spending deal that avoids a Dec. 16 shutdown and boosts federal agency budgets, wiping the slate clean before the new Congress in January.

But lagging election results could mean delayed work on the massive $1.5 trillion-plus package, as lawmakers postponed negotiations until after the midterms. Homeowner aides on both sides of the aisle say they are on track to meet their mid-December funding deadline, despite the lack of talks.

The next government funding deadline Congress will face is likely October 1 of next year, when fiscal year 2024 begins. Some House Republicans are determined to cut federal spending, but any appropriation package will require bipartisan support to pass through the Senate.

The debt ceiling

The United States will reach its borrowing limit next year if Congress does not act. The midterm elections could increase pressure on congressional leaders to lift the debt ceiling during the lame duck, to avoid an intense partisan gridlock in 2023.

Republicans have threatened to use the debt ceiling as leverage to cut social spending programs, such as Social Security and Medicare, an idea hated by the other side.

Democrats could unilaterally raise the debt ceiling over the next two months using the filibuster-proof process known as budget reconciliation. But such a tactic would take up valuable floor time, so Democrats might find it necessary to pursue a fine-grained deal with Republicans instead.

“Everyone could benefit from having the debt ceiling taken care of so that Republicans don’t have to do it in the next Congress and Democrats don’t have to worry about the influence of Republicans,” said David Wessel, director. fiscal and monetary policy at the Brookings Institution. “It could be one of those lame ducks where a lot of stuff is going on.”

Yarmuth has said he’s ready to face the debt ceiling in the lame duck, though he’d rather get rid of it altogether – an idea President Joe Biden opposes.

Ukrainian aid

Current speaker Nancy Pelosi has already promised to include additional aid for Ukraine in the year-end government funding agreement, while more Republicans have calmed down when it comes to doling out additional military aid.

Ukraine’s war against Russia, however, could drag on for the foreseeable future. Both sides may be forced to consider more funding for the country in what would amount to an arduous bipartisan push next year. Even if the war results in a ceasefire or ends, Ukraine may need continued economic assistance from Congress to stay afloat.

Recession relief

The United States is likely heading into a recession that would hit next year and, unlike past economic crises, it may not be possible for the next Congress to pass legislation that funnels hundreds of billions of dollars into households in difficulty.

Messy politics aside, the fiscal conservatism of the likely GOP majority in the House would preclude costly congressional intervention that would itself run counter to Federal Reserve actions to stifle inflation, resulting in a another disaster for the economy. Lawmakers could potentially focus on areas of relief that target families most in need, such as food aid.

“Republicans and Democrats may feel like it’s imperative to do something to help people in a recession, but this is going to be one of those hard-fought negotiations,” Wessel said.

Medicare cuts

Congress must act over the next two months to waive billions of dollars in Medicare cuts that would take effect next year — a side effect of Biden’s $1.9 trillion U.S. bailout. The cuts are required by the 2010 pay-as-you-go budget rules, which require lawmakers to offset the cost of the legislation.

Congress routinely waives such cuts, but the issue became a political hot potato last year. Lawmakers instead deferred the issue to 2022, with Republicans unwilling to help Democrats avoid the slices caused by the passage of their massive party-line bill.

Now, it looks like lawmakers will quietly deal with the issue before the end of the year. A recent bipartisan letter from 46 senators, ranging from Sens. Rand Paul (R-Ky.) to Elizabeth Warren (D-Mass.), urged congressional leaders to stop the cuts.

“I think people think it’s almost a done deal that we’re going to find out,” Yarmuth said. “Nobody’s really freaked out about it.”

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