The 112th Congress returns Tuesday Nov. 13 to begin its lame duck session in the wake of last week’s election results. 

The election results show that in the new 113th Congress Republicans will maintain control of the House, but will lose a net of at least four seats.  The Democrats majority in the Senate will increase by two seats (53 Democrats and two Independents, who are expected to caucus with the Democrats). 

But, before the new Congress convenes in January, work remains for the 112th Congress in December.  During the first week of the lame duck session, Congress will likely accomplish little more than leadership selections by both parties and orientation programs for newly elected members.  However, if the news stories are any indication, discussions have begun on what substantive work can be completed in the limited time remaining.

The lame duck congress will have less than seven weeks to complete action on a rather large number of outstanding legislative actions.  However, by far the most important is what to do to avert the so-called “fiscal cliff” (reduced federal spending from sequestration and higher taxes resulting from expiration of the Bush tax cuts).

The Fiscal Cliff:  Unless Congress acts on an alternative to sequestration or votes to delay its implementation, $105 billion in automatic cuts will go into effect on January 2, 2013 (about $55 billion each for defense and nondefense program).  Also, the Bush tax cuts will expire on December 31, 2012.  If this happens, taxes would increase for most Americans.  Many analysts (including the Congressional Budget Office) have predicted that the combined effect of these events would seriously impede what is still considered a very fragile economic recovery.

During the election campaign, Democrats resisted any compromise proposal that would cut entitlements or make large domestic spending cuts without increasing taxes on incomes over $250,000.  Republicans rejected any proposal that would increase taxes and pushed for large domestic cuts.  With the election, many now believe that an agreement can finally be reached.  President Obama, House Speaker John Boehner (R-OH), and Senate Majority Leader Harry Reid (D-NV) have issued conciliatory statements since the election that indicate a softening in the opposing strident positions.  Even so, there is little optimism, so far anyway, that anything more than a temporary agreement can be reached; one that would delay the cuts until a final compromise reached in the 113th Congress. 

But, the “fiscal cliff” is not the only issue demanding congressional attention.  The lame duck agenda may also include at least some “leftover” legislation.

Tax issues:  Many more taxpayers will have to pay the Alternative Minimum Tax (AMT) unless Congress provides relief.   Targeted tax credits (e.g., the research and development tax credit and credits to incentivize corporate charitable giving) are set to end by December 31, 2012.  And, the capital gains tax rate will increase to 20 percent from the current 15 percent next year.

Medicare “Doc fix:”  Medicare reimbursements to doctors are set to increase by 27 percent by the end of the year.   

Long-term unemployment benefits:  Under an agreement reached early this year, benefits for long-term unemployed are set to end on December 31, 2011.  The continuing high unemployment rate may build pressure on Congress to extend these benefits.

Payroll tax cut:  The temporary two percentage point reduction in the payroll tax (from 6.2 to 4.2 percent) will end December 31, 2011 after being in place for two years.  Many in Congress are reluctant to continue this reduction, but some may propose an alternative to mitigate the effect this increase.

FY2013 Defense Authorization bill:  The House and Senate Authorization Committees have both approved their versions of the FY2013 Defense Authorization bill, although the House total funding level is $4 billion lower than the Senate.  Defense Secretary Panetta has identified passage of this bill as a priority for DoD, which may place added pressure on Congress to act.

Cybersecurity legislation:  Secretary Panetta has also identified passage of cybersecurity legislation as a high priority.  Public pressure and the results of the election may end some of the congressional gridlock on cybersecurity legislation.  However, lack of floor time, the problem that faces many other legislative issues, may force this to be held over into next year.

DoD military leadership confirmations:  Secretary Panetta has also urged the Senate to confirm General John Allen to be Supreme Allied Commander Europe and General Joseph Dunford to be Commander of the International Security Assistance Force (ISAF) in Afghanistan.  Senate Armed Services Committee chairman Sen. Carl Levin (D-MI) has scheduled a confirmation hearing for General Allen and General Dunford on Nov. 15, 2013 and a confirmation vote in the Senate will likely occur before adjournment..

Other legislation:  The  Farm bill and Postal Reform received much attention over the past year, but progress toward agreement remains elusive.  There is probably not enough time to finish complete bills, but the final agreement on any sequester deal may include some pieces of each bill.  Appropriations committee staffs have been working on final conference agreements on some FY2013 Appropriations bills.  However, because the FY2013 Continuing Resolution carries through until March 27, 2013, it is doubtful that any final agreements will be reached on appropriations until next year.  The devastation caused by Hurricane Sandy may strain the funds budgeted for the Federal Emergency Management’s (FEMA) disaster assistance fund.  However, if it is clear that existing funds are not enough to cover the bill Representatives and Senators from affected states may press for emergency funding.