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Economic Issues Facing the New President and Congress

- January 2009

ECONOMIC ISSUES FACING THE NEW PRESIDENT AND
CONGRESS [added January 2009]

Unfinished Business from the last Congress:

As has become standard practice, the 111th Congress convened in January 2009 facing the unfinished spending business of the preceding Congress. Although statute requires that the Congress adopt a budget resolution by mid-April of each year, and complete action on each of the individual appropriation bills by the end of the fiscal year on September 30th, they have not met these statutory obligations in years.

Congress did pass a budget resolution in 2008, but in an ironic admission of how broken the system is, the Chairmen of the House and Senate Budget Committees each boasted that it was the first time since 2000 that Congress had succeeded in adopting a budget in an election year – and even in this case they acted almost two months after the statutory deadline.

While passage of the Congressional Budget theoretically set the spending limits that the appropriators were to use in writing their spending bills, the appropriators were not as successful as the Budget Committee in getting their work done. While Congress has passed all of the appropriations bills on time only three times since 1948, 2008 was notable for its complete failure – Congress did not pass a single appropriations bill (at least the previous Congress has managed to complete action on one bill, funding the Defense Department).

Failing to enact the individual spending bills, Congress instead combined three security-related bills into a single appropriations measure, packaged that bill with a “continuing resolution” funding the rest of government through March 6, 2009, and punted the whole problem to the 111th Congress. So the new Congress will have to complete action this year on last year’s appropriations bills -- almost half-way through the fiscal year – even as they are confronted by unprecedented financial crises in the new year.

Challenges for 2009:

The struggling economy will obviously consume most of the time and energy of the new Administration and Congress at least in the beginning of the year. The President is required by law to submit a proposed Budget to Congress on the first Monday in February. Although it has been traditional after presidential elections for the outgoing president to submit a budget to Congress before leaving office and for the incoming president to revise that budget, President Bush announced after the election that he would not submit a budget for Fiscal Year 2010, allowing President Obama to propose his own spending priorities to the new Congress.

In addition to finishing the fiscal 2009 spending bills and beginning the fiscal 2010 budget and spending process, Democratic Congressional leaders announced in December that they plan to work through the month of January to pass a huge new bill to stimulate the economy. As of this writing it is uncertain just how large this spending bill is likely to be, although $750 billion or more is possible. Also, Congressional leaders announced early January that they plan to include significant tax cuts in the bill, but as of this writing, it is not known what these tax previsions will be.

The Republicans in Congress announced in December that they hoped to be able to work with the Democratic majority and President Obama to pass a bi-partisan bill, but said they would insist on an open and “transparent” process to ensure that the legislation does not turn into a spending “Christmas tree” filled with pork-barrel spending projects and earmarks. Democrat leaders acknowledged that they would need the cooperation and votes of Republicans to achieve their objectives, setting the stage for the opening days of the Congress in January.

Enactment of a massive stimulus bill will be Congress’ first priority, but it is expected that they will also respond to the collapse of the mortgage market and Wall Street by proposing potentially broad and far-reaching new regulations of our financial markets. NAW will be part of a newly-formed coalition of business organizations formed to watch closely and participate in the formation of new regulatory policies to ensure that Congress and the Administration do not use the current economic crisis to overreach and establish a government industrial policy.

Finally, further action is likely in response to the collapse of the Big Three automakers. The Republican minority in the Senate blocked enactment in December of a Detroit bailout bill, in large measure because the United Auto Workers refused to agree to wage concessions as part of the package. Despite the rejection of the bailout by Congressional Republicans, President Bush negotiated a smaller package of emergency aid, while imposing requirements that the companies accepting the aid agree to restructure their businesses, lower their debt, lower compensation and benefits, and prove their viability. The companies are required to produce restructuring plans and proof of vialibity or will be required to repay the government loans. This issue will be back before Congress and the Obama Administration by March 31st.