PROSPECTS 2005: Focus in US on tax, energy and tort

Analysis

Last month's elections have left the Republican Party in control of the White House, with a strengthened grip on the Senate (55-45 compared with 51-49) and a moderately enhanced majority in the House of Representatives (probably 233-201-1).

The Republican congressional leadership and the administration have a substantial legislative wish-list. This includes:

• making permanent President George Bush's earlier tax cuts, many of which are scheduled to lapse in 2011;
• a more fundamental overhaul of the entire federal tax code;
• the part-privatisation of social security and reform of Medicare (see UNITED STATES: Fiscal woes trim 'Ownership society' - November 25, 2004);
• an overhaul of energy policy (including permission for fresh drilling in presently protected parts of Alaska) (see UNITED STATES: No change in store on oil policy - October 29, 2004);
• renewal of certain provisions of the Patriot Act, which have sunset clauses; and
• a new push for tort reform (see UNITED STATES: Hurdles ahead for tort reform - November 29, 2004).

Legislative enactment. This agenda covers a vast proportion of public policy and will not be enacted in its entirety. With no congressional or presidential elections in 2005 and enhanced Republican majorities in the House of Representatives and Senate, the prospects of enacting a substantial body of legislation next year are larger than at any time since 1993, the first year of the Clinton presidency (see UNITED STATES: Bush on cusp of all-round victory - November 3, 2004). That possibility is enhanced by:

• the close ties forged between the White House and the congressional leadership during the first Bush term -- an effort that involved a degree of party discipline rarely seen in the United States; and
• the perception that the president's personal popularity in southern states enabled his party to make several critical congressional gains in that region in last month's elections.

Political restraints. The ability of the Republican leadership to enact its agenda is subject to three restraints:

1. Senate Democrats. In most areas other than budgetary policy, the rules of the Senate permit a blocking minority of 41 senators to obstruct legislation by declining to allow legislation to reach a final vote on the Senate floor. The Democratic minority has 45 votes which it could muster if it proves sufficiently determined and united. While the party caucus has shrunk from 49 to 45 members, it has become more ideologically cohesive. Centrist figures such as Louisiana's John Breaux, South Carolina's Ernest Hollings and Florida's Bob Graham have retired and been replaced by Republicans.

   The new Senate Minority Leader, Nevada's Harry Reid, is a more conservative figure than his predecessor. However, he is unlikely to stray far from the majority sentiment of his colleagues. An element of bi-partisanship will therefore be important if much of the legislation that Republicans would like to see enacted is indeed to become law.

2. Republican divisions. There are considerable differences within and between Republicans in the House and the Senate. In particular, there are a number of moderates and fiscal conservatives in the Senate who are cautious about enacting far-reaching measures with uncertain financial consequences. Internal bargaining will have to occur even in areas of policy where the Democratic minority cannot obstruct the will of the majority in the Senate. This will moderate policy output.
3. Budget deficit. This is especially true in the context of the substantial budget deficit inherited from the first Bush term. The scale of the deficit will encourage senators such as Arizona's John McCain, Ohio's George Voinovich, Rhode Island's Lincoln Chafee, Nebraska's Chuck Hagel, and Maine's Susan Collins and Olympia Snowe to act independently of party colleagues.

Narrowed agenda. These political realities, and the need for the White House to establish clear priorities, indicates that the passage of some measures is more plausible than others. The overhaul of the tax code, Medicare reform and the part-privatisation of Social security will be hard to enact in comprehensive form in 2005, although more incremental progress is perfectly possible. The administration will need to have the Patriot Act provisions renewed, but will need to offer concessions to Senate Democrats to do so at the speed which it desires. Legislative attention is thus likely to be concentrated in three main areas.

1. Tax cuts. The White House is likely to secure most, but not all, of what it wants in this field. However, it will be counterbalanced in other aspects of the federal budget. Huge increases in defence spending and homeland security since 2001 will be hard to maintain during the Bush second term (unless there is another spectacular al-Qaida attack on US soil). Similarly, the relatively austere budget adopted for discretionary domestic spending in fiscal 2005 is likely to be repeated in 2006.
2. Energy policy overhaul. Republicans narrowly failed to enact a major overhaul of energy policy in the last Congress. They will return to that objective in 2005 with more confidence that they can pass legislation.
3. Tort reform. The prospect of tort reform has bonded together the business community and Republicans. The party's leaderships in Congress are well aware of the need to be seen to be actively pursuing legislation. However, while passage in the House is highly likely, the fate of the tort reform measures in the Senate is less predictable.

Supreme Court. A key wildcard in domestic politics in 2005 concerns the composition of the Supreme Court (see UNITED STATES: Next president will reshape judiciary - August 24, 2004). The president has had no opportunity yet to nominate a Supreme Court justice, and more than a decade has passed since the last appointment. Supreme Court Chief Justice William Rehnquist, perhaps along with at least one other justice, will probably retire in 2005. Rehnquist is a conservative and Bush will presumably nominate a like-minded justice to replace him. The White House would seek to frame the debate by asserting that the balance of the court will be unaffected and hence any nomination process should be deemed uncontroversial. However, Democratic Party and liberal interest groups and activists will not be that accommodating.

Real controversy would be triggered by the death or retirement of a more liberal member of the court, including Justice John Paul Stevens, who is 85 in 2005. If Stevens dies or retires, Bush would nominate a more conservative justice as his replacement. The ensuing confirmation contest, unless handled exceptionally well by the administration, would be a bruising episode and might have opportunity costs in terms of congressional time and partisan relations.