This Year’s “Lame Duck” Congress May Not Be So Lame

Fall 2010

Congress often reconvenes in the aftermath of an election, prior to newly-elected members being sworn-in the following January, to address unfinished legislative business.

Typically, in these so-called "lame duck" sessions, the House and Senate have primarily dealt with routine and uncontroversial matters, such as unfinished spending bills. For a variety of reasons, however, this year’s lame duck session may not be so lame after all. On the contrary, it could well result in very consequential policy and legislation that would have a profound impact on the NAIOP agenda and on NAIOP’s members.

With a sour economy and with low popularity ratings, Democrats as the party in control are expected to take the brunt of voter anger this year, losing a number of seats and possibly even their majorities in one or both legislative chambers. Back in July, White House spokesman Robert Gibbs uttered what many consider to be political reality, and engendered the anger of House Speaker Nancy Pelosi (D-Cal.), when he said the Democrats could lose control of the House of Representatives. Republicans have already ratcheted up the election-year rhetoric, warning that if Democrats suffer at the polls, they could try to push through controversial legislation -- such as bills on climate change, union "card" check, and other hot button issues -- in the subsequent lame duck session of Congress.

Regardless of what the House does after the election, however, 60 votes will still be required in the Senate to shut off debate and pass legislation. It is unclear why Republicans who have opposed these measures in the past would suddenly allow them to advance, particularly after an election where they have gained seats. Realistically then, the likelihood that extremely controversial measures actually make it into law is low.

The Continuing Tax Debate

The story is different, however, when it comes to fiscal and tax policy. The reasons for that distinction are objective and not subject to rhetorical grandstanding. Unless extended, the tax cuts signed into law under President Bush in 2001 and 2003 will expire at the end of 2010, raising capital gains and ordinary income taxes on millions of individuals, families and businesses. Tax provisions important to business that are routinely renewed in "tax extenders" legislation -- sometimes retroactively -- lapsed in 2009 and have not yet been renewed, resulting in lost jobs to the economy. Included in these are NAIOP-supported provisions such as 15-year qualified leasehold depreciation and expensing of brownfields remediation costs. On December 1, 2010, President Obama’s bipartisan fiscal commission will issue recommendations on addressing the nation’s deficit problems, which will require an up-or-down vote in the Senate.

The across-the-board tax increases that would result from inaction on extending the Bush tax cuts is also a scenario that most members of Congress want to avoid. Nothing advertised the inability of Congress to address tax issues more than the unexpected death of Yankees owner George Steinbrenner earlier this year. Because Congress failed to act last year, the estate tax disappeared in 2010. It is due to return in 2011 unless Congress addresses the issue, at a rate of 55 percent. With impeccable timing, along with several other billionaires who died in 2010, the Yankee boss ensured that his heirs took advantage of Congressional inaction.

Without action before the end of the year, beginning on January 1, 2011, the highest income tax bracket will increase from 35 percent to 39.6 percent. The lowest income tax rate will increase from 10 percent to 15 percent. Capital gains tax rates will increase from 15 percent to 20 percent. And the top tax rate on stock dividends will increase from 15 percent to 39.6 percent. For his part, President Obama wants to extend income tax cuts permanently for individuals making less than $200,000 annually (less than $250,000 for married couples). Republicans would like to extend these for all taxpayers. On a bipartisan level, there is concern that tax increases should be deferred at least until the economic recovery takes firm hold. But the public’s growing anger over the nation’s debt makes extension of the current tax rates politically risky for those advocating fiscal responsibility because such action would increase federal deficits. Making permanent the middle-class tax cuts alone, along with some other provisions such as relief from the marriage penalty, would add $1.3 trillion over 10 years. As a result, as of mid-July, House and Senate Democratic leaders had not yet agreed on how to proceed legislatively with renewal of these tax provisions.

A Follow-up on Tax Extenders

Regarding tax extenders legislation, Congress has grown tired of the annual search for revenue offsets to pay for extension of current provisions, as required by Congressional budget rules. The House-passed version of the bill, the "American Jobs and Closing Tax Loopholes Act" (H.R. 4213) included several tax increases that undermined the traditional support for the bill, including a dramatic tax hike on partnership "carried interest" that would have had a disproportionate impact on the real estate industry and which NAIOP strongly opposed. The Senate failed on three different occasions prior to leaving for the July Fourth holiday recess to overcome opposition to the carried interest and other tax increases in the extenders bill.

The deadlines for action and the impact that resulting dramatic tax increases would have on the overall economy means that both Republicans and Democrats have an interest in addressing the problems before year end, but not necessarily prior to the election when members would have to defend any political compromises needed to pass legislation. With both Senate and House members eager to return home by early October to focus on their re-election campaigns, many in Congress are anticipating that the growing number of politically difficult tax issues will be left for the lame duck session of Congress to deal with after the November elections are complete.

Because of the existence of the deficit commission and its December 1 deadline to make its recommendations, this lame duck session of Congress could very possibly be presented with a bipartisan proposal that entails politically difficult votes, but affords enough "political cover" for members of both parties to allow them to compromise on the nation’s long-term fiscal problems. Under the commission’s charter, 14 of 18 members must agree to the panel’s recommendations. House Speaker Pelosi and Senate Majority Leader Harry Reid (D-Nevada) have both pledged to take up the commission’s recommendations prior to the end of the year, although the House would act only after Senate passage. Because of the deficit commission, Senate Budget Chairman Kent Conrad (D-North Dakota), in an interview with the periodical Congress Daily, said that a lame duck session this year could be "one of the most significant lame duck sessions in the history of the United States."

As Senate Finance Committee member Ron Wyden (D-Oregon) commented regarding the fiscal and tax debate for the remainder of 2010, "It’s going to be a rollicking few months."