Bevy Of Economic Issues Await Congress

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Renee Montagne talks with Wall Street Journal editor David Wessel about what impact the election results will have on the economy.

RENEE MONTAGNE, host:

And to find out more about how those big budgetary questions will play out, we turned to David Wessel. He's economic editor of the Wall Street Journal.

Good morning.

Mr. DAVID WESSEL (Economic editor, Wall Street Journal): Good morning.

MONTAGNE: Now, first I say will play out. How about might play out. But let's get some thoughts here. First, the current Democratic-controlled Congress will be there for two more months. I mean, is it possible, David, that they would do anything significant?

Mr. WESSEL: Oh, yes. I think they'll have to. I mean, Congress passed a temporary spending bill for the current fiscal year. And that expires December 2nd. And as - without action the government will shut down. As Senator-elect Lee said, the Republicans have decided to avoid that.

So at the very least, the lame duck session will have to fund the government temporarily, and emboldened Republicans - though still a minority - may try and deliver a down payment on their promises of spending cuts.

The other big thing, of course, is that President Bush's income tax cuts expire at the end of the year unless Congress extends them. The betting right is that Congress will act in the lame duck to extend them all temporarily. And there's a chance, but only a chance, that maybe they'll do something more, like some of the business tax cuts that President Obama proposed.

MONTAGNE: So - but let's look ahead to January when the newly divided Congress gets to work. What are we likely to see in the way of priorities?

Mr. WESSEL: Well, the Republicans campaigned very clearly on cutting spending and keeping taxes down - but that was all generalities. The Republican House leaders had this Pledge to America that talked about cutting $100 billion in spending the first year. They said there'd be what they called Common Sense Exceptions for seniors, for veterans, and defense and homeland security.

Well, they're going to have to pick some losers now. And it's a lot harder to cut spending, specifically, than in general. Of course, even if they zero out all these domestic spending bills that they like to attack, there'd still be a big deficit. The big bucks are in Social Security, Medicare and Medicaid, and no politician likes to talk about cutting them during an election.

Repealing the Obama health bill isn't going to solve the deficit either. And then they're going to have to come to terms with the tax question: Are they really against all tax increases, even those that would involve closing loopholes and eliminating credits; because it's going to be very hard to get deficit down without doing some of that.

MONTAGNE: Later today, the Federal Reserve is expected to announce action to stimulate the economy. Will this election effect what the Fed does?

Mr. WESSEL: Well, that's a good question. The short answer is not now. The Fed is looking at gridlock in Congress and Federal Reserve Chairman Ben Bernanke figures he has to do something to give the economy a lift. So the Fed most likely will announce that they're going to buy another $500 billion worth of U.S. Treasury Bonds to try and push long-term interest rates even lower, and make people borrow or encourage people to borrow a little more.

It's not clear it'll do much. But, as I say, he figures doing nothing is the wrong thing. But going forward, the Fed has to take into account; is Congress going to cut taxes, or cut spending, or whatever? My guess is that they'll have to make some assumptions, but we'll see much more from Bernanke about why cutting the budget deficit is important.

He was kind of quiet on that during the campaign. He didn't what to get caught up in it. But he thinks the deficit is too big and that makes things - puts the economy at risk. And I expect he'll toughen his anti-deficit rhetoric quite a bit in the next couple of months.

MONTAGNE: David, thanks very much.

Mr. WESSEL: You're welcome.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal.

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