Congress Gets Failing Marks on Economy

By Laura Litvan - Dec 17, 2011 2:38 AM GMT+0700

Congress is ending what may be its least productive year on record after government shutdown threats, the collapse of debt-reduction talks and little action to fix the worst U.S. economy since the Great Depression.

Just 62 bills were signed into law through November this year, meaning that 2011 may fall short of the 88 laws enacted in 1995, the lowest number since the Congressional Record began keeping an annual tally in 1947. In 1995, as in this year, a new House Republican majority fought a Democratic president’s agenda.

This year’s partisan battles brought the U.S. to the brink of a government shutdown four times, caused a two-week furlough of Federal Aviation Administration workers and led Standard & Poor’s to lower the nation’s credit rating after it said lawmakers didn’t do enough to reduce the federal deficit.

“It’s been one of the worst Congresses in modern history,” said Representative Jim Cooper, a Tennessee Democrat. “We have failed to meet our minimum standards of competency and endangered America’s credit rating. We have failed to pass key legislation on time. And there is very little hope for improved behavior.”

Voter approval ratings for Congress are at record lows. Republicans, ranked lower than Democrats, insist both parties are to blame.

“People have a right to be frustrated and disappointed, so next year may be a good year for challengers,” said Senator Jon Kyl of Arizona, the No. 2 Senate Republican leader.

Risks to Economy

The inaction by Congress poses risks to the economy, said Ed Yardeni, president of Yardeni Research Inc. in New York. While the unemployment rate hovered around 9 percent most of the year, he said Congress did little to stimulate job growth. Lawmakers also were unwilling to make deep budget cuts or raise taxes to rein in the deficit.

“Usually gridlock is seen as a good thing from the stock market’s perspective, but clearly the out-of-control federal deficit needs to be addressed and there is no political will to do it,” Yardeni said.

S&P, in its ratings downgrade, said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied.

The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was 1.84 percent at 2:35 p.m. New York time today.

Voters Critical

The public is less sanguine. Seventy-six percent of registered voters in a Nov. 28-Dec. 1 Gallup Poll said most members of Congress don’t deserve to be re-elected, the highest percentage in the 19 years Gallup has asked that question.

A Dec. 7-11 Pew Research Center poll found 40 percent of adults blame Republican leaders for a “do-nothing” Congress, while 23 percent blame Democrats.

“It’s more likely that Republicans will be hit harder than Democrats,” said David Rohde, a political scientist at Duke University in Durham, North Carolina.

In a year dominated by budget clashes, Congress passed a few significant measures.

Congress approved free-trade agreements with South Korea, Colombia and Panama. The South Korea deal was the biggest since 1993’s North American Free-Trade Agreement.

Patent Overhaul

Congress overhauled the patent system, long sought by companies such as International Business Machines Corp. (IBM) and Microsoft Corp (MSFT), and extended the USA Patriot Act until 2015, providing law enforcement continued power to track suspected terrorists.

Such output pales compared with 2010, when Congress approved a health-care overhaul, the biggest rewrite of Wall Street rules since the Great Depression, a nuclear arms reduction treaty with Russia and ended a ban against openly gay men and women serving in the military.

This year’s trade and patent bills, while important, are sideshows in the broader economic context, said Ross Baker, a professor of political science at Rutgers University in New Brunswick, New Jersey.

“Those are not insignificant things, but none of them get to the meat of the economic crisis,” Baker said.

Most of President Barack Obama’s $447 billion job-creation agenda was opposed by Republicans and some Democrats who rejected his proposed new spending and tax increases on the wealthy to help pay for it.

Tax Credits

Congress approved tax credits for companies that hire unemployed veterans and canceled a requirement that federal, state and local governments begin withholding 3 percent of payments to contractors in 2013. This week, lawmakers are working to extend a payroll-tax cut for workers through 2012.

House Majority Leader Eric Cantor, a Virginia Republican, said a “fundamental divide” with Obama and a Democrat- controlled Senate stymied House Republicans, who sought to repeal the president’s health-care overhaul and create a Medicare voucher system.

House Speaker John Boehner of Ohio heralded a shift toward cutting the size of government after Republicans forced $38.5 billion in budget cuts this year and Congress agreed in August to reduce deficits by $2.4 trillion over a decade.

Social Security ‘Conversation’

“For the first time in my 21 years here there has been a serious conversation about dealing with the entitlement programs” such as Social Security and Medicare, Boehner said at a Dec. 14 breakfast sponsored by Politico.com, a political news web site. “We are talking about real change,” he said, adding that he wasn’t surprised the public has a low opinion of Congress.

Democratic leaders see it differently. House Minority Leader Nancy Pelosi, a California Democrat, told reporters today it was a “year of missed opportunities and made-up crises.”

The nation has “been engrossed in a year of manufactured crises, with multiple threats of a government shutdown and an increase of uncertainty for business and in our markets as a result of the debt ceiling being held hostage,” said Democratic Whip Steny Hoyer of Maryland.

Independent analysts say that on the matter that dominated -- deficit reduction -- the results are murky.

The nonpartisan Congressional Budget Office said the $38.5 billion in spending cuts in this year’s budget, agreed in April to avert a government shutdown, cuts the deficit by just $352 million this year, with most savings coming later. Some money cut from programs wouldn’t have been spent anyway, so it wouldn’t do as much to curb a $1.3 trillion deficit, the CBO said.

Automatic Spending Cuts

The debt-reduction measure adopted in August relies on automatic spending cuts for about half of its $2.4 trillion in savings over a decade. A congressional supercommittee’s inability to agree on at least $1.2 trillion in cuts kicks the debate over specifics into next year. To achieve the rest of the deficit reduction, lawmakers must stick with annual caps on spending for a decade.

Based on experience, Congress won’t stick with the deficit- reduction deal for more than a few years, said Stan Collender, managing director of Qorvis Communications in Washington and a former House and Senate budget committee aide.

“Budget deals are always modified, seemingly in seconds after they’re enacted,” he said.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net