The Wall Street Journal-20080205-Politics - Economics- Congress Has Limited Agenda- Democrats Likely to Act On Medicare Funding- Extend Some Tax Breaks

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Politics & Economics: Congress Has Limited Agenda; Democrats Likely to Act On Medicare Funding, Extend Some Tax Breaks

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The Democratic-controlled Congress isn't going to pass President Bush's budget this year, but it will probably take action in pressing areas such as Medicare spending, certain popular tax breaks and economic stimulus.

Lawmakers rejected Mr. Bush's proposed cutbacks to Medicare, the federal health program for the elderly. In the fiscal year starting in October, Mr. Bush's budget proposed legislative changes that would create $12.2 billion in savings on Medicare. That figure would rise to about $178 billion over five years. Much of the money would come from cutbacks in expected future payments for hospitals and skilled-nursing facilities.

For Medicaid, the federal-state program for the poor, the budget proposes a legislative reduction of $1.77 billion for fiscal 2009 and about $17 billion over five years.

Both parties agree that rising Medicare costs will put heavy pressure on the nation in coming decades. "We're approaching an emergency here," Health and Human Services Secretary Michael Leavitt said in unveiling his department's budget. Federal spending on Medicare and Medicaid amounts to 4% of gross domestic product, and the Congressional Budget Office has projected that that figure will rise to 9% by 2035.

Sen. Max Baucus, a Montana Democrat who is chairman of the committee that oversees health programs and tax issues, said Mr. Bush's Medicare cuts are "dead on arrival with me and with most of the Congress."

Democrats plan to tackle a shorter-term Medicare problem, though not necessarily to Mr. Bush's liking. To avoid a drop in Medicare payments to physicians, which is scheduled to occur in July if nothing is done, Democrats want to decrease payments to other health-care providers, including private health insurers that operate in Medicare Advantage. That is a part of Medicare under which seniors can get coverage from private plans.

Administration officials have opposed the bulk of Medicare Advantage cuts that Democrats in Congress support. Herb Kuhn, the deputy administrator of the agency that runs Medicare, said, "We want to continue the dialogue with Congress to try to find a way to come up with an option" to avoid the cut for doctors.

Health-care industry lobbyists said the White House's proposed cutbacks, while they might not get traction this year, could become part of a future broader discussion about costly entitlement programs.

On taxes, Congress will look to pass some modest measures to deal with looming issues, but nothing sweeping. Both congressional leaders and Mr. Bush support a temporary fix for the alternative minimum tax, to prevent more people from having to pay it for 2008. If Congress doesn't act, about 26 million people will be ensnared by the AMT for this year, up from about four million for 2007, a Treasury spokesman said.

There is also bipartisan support for extending popular tax breaks that expired at the end of last year, such as the research and development tax credit for businesses. Another allows many older people to transfer money directly from their individual retirement account to charity without getting hit by taxes. Charities say that provision has stimulated billions of dollars of additional donations.

To deal with these so-called extenders, lawmakers say they intend to find other tax increases or close tax loopholes to offset the revenue lost to the tax breaks. That could prove to be a sticking point with Mr. Bush and many other Republicans.

One surprise in Mr. Bush's tax proposals: He didn't say Congress should bring back another popular, but expired, tax break that allows people who itemize their deductions to choose to deduct their state and local sales taxes, instead of state and local income taxes. It was especially popular in key electoral states such as Texas and Florida that have no state income tax.

A spokesman for the Treasury said the administration is willing to work with Congress on such matters even if they aren't included in the president's budget.

In the shorter term, an economic-stimulus package enjoys broad support in Congress. Mr. Bush is backing a House-passed plan for rebates to individuals and tax cuts to businesses. The Senate is set to vote on the plan this week, with Democrats pushing changes to the House bill that would require significant Republican support to pass.

The last effective budget of a two-term president is rarely a document that carries much political weight. Mr. Bush's low approval ratings and the fast-moving presidential primaries almost ensure that the White House won't gain much traction.

Democrats lambasted Mr. Bush for including in his request only part of what will be needed to fund the Iraq war and said he wasn't proposing workable solutions to problems such as the growing spread of the AMT. In what is likely to be a highly politicized year, Democrats blamed Mr. Bush for the increasing budget deficit and the debt.

"We'll be going our way, and they'll be going their way, and we won't likely converge," House Budget Committee Chairman John Spratt (D., S.C.), said of Mr. Bush's proposals.