ELECTION 2002

8 Things to Look for in the New Congress

On issues ranging from Iraq to the deficit to drug benefits, Democrats could have a tough year.

By Jeffrey H. Birnbaum

President Bush bet big on the midterm elections. In the closing weeks of the campaign, he put his prestige on the line as he stumped relentlessly for Republican congressional candidates. In effect, he nationalized the race--and the result was a huge personal victory. The last President whose party gained seats in both chambers of Congress during a midterm election was Franklin Roosevelt in 1934, when the thrill of the New Deal and his first 100 days were still fresh. No one is comparing Bush to F.D.R., but by winning control of the Senate and gaining seats in the House, he clearly has the momentum and mandate to dictate the government's agenda and to accomplish many of his legislative goals.

Bush used the country's war footing and his broad popularity--roughly 60% of Americans approve of the way he's doing the job--to inspire Republican loyalists to go to the polls. The Democrats helped his efforts by failing to present a credible alternative vision, especially on the economy, where he might have been considered weak. The consequence was a GOP sweep. That gives Bush the wherewithal to reduce regulation, keep taxes low, and spend as much on the military as he wants. Here's what to expect.

1. Tax cuts are coming
To hear the talk, you'd think that, even though they are in the minority, Democrats won't rest until they repeal or trim the tax cuts enacted in 2001. But they don't have the votes. Republicans are equally resolved to make the cuts permanent. (They are set to expire in 2011.) But they don't have the votes either, at least for now.

In the meantime, the $1.35 trillion in tax cuts passed last year, and still being phased in, is safe. In 2004 the top tax rate will fall one percentage point, to 37.6%; the inheritance tax will decline two points, to 48%. And that's not all. Without much notice, Democrats like Missouri Congressman Richard Gephardt and Connecticut Senator Joseph Lieberman have called for tax reduction as a way to stimulate the stagnant economy. Many Democrats want to cut payroll taxes; the administration says cutting income tax rates provides more economic stimulus. But that's a detail. What's interesting is that tax cuts are on the agenda of both parties. That means relief is probably on the way.

What about reform? Don't expect much. Although the current tax code is widely despised, proposing radical change would cause a political bloodbath of the kind Bush will want to avoid as he approaches reelection. Instead the administration will probably propose tax-simplification steps that are small tax cuts in disguise. One possibility is to help investors by allowing them to write off market losses against regular income. Both parties will also embrace pension-law changes to lessen the tax bite on contributions to retirement savings. Most likely to succeed: raising the $11,000 tax-free contribution maximum for a 401(k) to $15,000 and increasing the top contribution to IRAs from $3,000 to perhaps $5,000.

2. It's fiscal policy, stupid
Remember when Congress used to argue about what to do with the surpluses of 2014? Oops! Last fiscal year, after four years of surpluses, the government tumbled into deficit again, to the tune of $159 billion. Republicans and Democrats alike agree that is unfortunate. They also agree on what they should do about it: Make the problem worse.

Despite tough rhetoric about fiscal discipline, especially from Bush, neither party has restrained its impulses. In 2001, Congress passed the $1.35 trillion tax cut; in 2002 it increased discretionary spending 13.9%. Nor has it proved adept at the grunt work of fiscal policy. For only the second time in 26 years, Congress has failed to approve a budget, and it has passed just two of 13 appropriations bills. Bush preaches parsimony but doesn't enforce it. He has yet to veto a single piece of legislation. President Clinton used the veto an average of five times a year, and Bush's dad, 11 times a year.

With Republicans running the Capitol, George W. may be able to slow nonmilitary spending growth--if he wants to. The GOP-dominated House has already sent the Senate appropriations bills for fiscal 2003 that are not far from the $760.5 billion limit in discretionary spending that Bush asked for, a 2% boost over last year. But what Republicans deny themselves in extra spending they are likely to make up in tax cuts, such as a proposal to allow small businesses to write off more of their expenses each year. In addition, with the economy flagging, both parties will embrace a variety of add-ons, such as extended unemployment benefits and maybe some new Medicare spending aimed at helping hard-pressed hospitals and physicians. And who will complain? Both sides will say that deficit spending isn't so bad; it stimulates growth.

The budget may be a bugbear for Bush, but trade won't be. The President will press for approval of free-trade agreements under negotiation with Chile, Singapore, Morocco, South Africa, and five Central American countries. Talks with Southeast Asia and South America are also getting started. While free trade divides Democrats between pro-labor loyalists (who favor a more protectionist policy) and the sizable minority who come from the Clinton camp of free-traders, Republicans are solidly for it. That leaves plenty of room for a rare commodity: relatively easy approval on Capitol Hill.

3. Gridlock rules
Thanks to the Founding Fathers, who designed the legislative process so that new laws would be easier to block than to pass, Congress generally doesn't act unless it's faced with a crisis--and sometimes not even then. That will still be true for the next two years.

The main reason is the Senate. The Republicans have a majority, but that isn't enough. Nothing important passes in the Senate without 60 votes--the number needed to stop a filibuster. Until one party or the other has a majority of that supersize, the minority will always have a veto. "Will our new majority make a difference?" asks a senior White House aide. "Yes. Will it increase our chances of bringing issues forward? Yes. Will we get everything we want when we want it? Decidedly no."

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