The Fiscal Policy Team and Congress both return to action this week with a number of fiscal policy issues to be tackled during the next five weeks. Below is a rundown of issues coming up soon, with most of the action happening in the Senate:

• Debate continues between Senate Democrats and Republicans over whether to offset the cost of a popular package of tax breaks called the "extenders." The latest development is that Senate Republicans are now challenging Democrats to offset the cost of the package with spending cuts rather than other tax increases. BNA ($)
• The Senate will also resume work on a bill to stave off a cut in payments to Medicare physicians by giving them the same reimbursement levels they had during the first six months of this year. Senate Republicans, who blocked legislation before the July 4 recess by one vote, have agreed to take up the legislation again this week after intense pressure from outside groups, particularly the American Medical Association. AMA Statement, AMA Television Ads
• Legislation to help people hurt by the mortgage crisis was also blocked before the holiday recess by Sen. John Ensign (R-NV), who wanted to have an amendment added to the bill to give tax cuts to encourage the production of renewable energy. The Senate plans to take another crack at that bill this afternoon.
• The appropriations season is well under way in Washington, but not much has been accomplished. With only about 10 weeks left until the start of the new fiscal year, neither the House nor Senate has approved any appropriations bills yet. After a old-fashioned temper-tantrum in the House appropriations committee before the July 4 holiday, prospects for completion of even one appropriations bill by Congress this year seems less and less likely.
• Finally, the Government Accountability Office has a new report out showing the weapons systems currently being developed by the Department of Defense will cost an astronomical $1.6 trillion to complete, of which $335 billion will be needed in the next five years. Yikes! Washington Post

Happy Fourth of July!
Just wanted to let our loyal BudgetBlog readers know we're going on a short hiatus next week. With Congress heading out of town for a short summer recess and the upcoming Fourth of July holiday next week, the Fiscal Policy team is heading out of town in order to escape the heat for some well-deserved vacation. This means, though, that the BudgetBlog will be dormant next week.

But don't despair. Craig and I will return in one short week on July 7 to continue to bring you all the news, gossip, information, and analysis on federal fiscal policy you've come to expect.

Hope everyone has a safe and festive Independence Day next week - be careful with those fireworks.

Yesterday's suspension vote in the House to extend unemployment insurance benefits by at least 13 weeks fell short of the required a two-thirds supermajority by a mere three votes -- perhaps attributable to the eleven members who did not vote.

This afternoon, the House voted again on the proposal as a stand-alone bill and, guess what? It passed precisely by a two-thirds, i.e., veto-proof, margin.

As Speaker Pelosi mentioned in a statement following today's vote, the bill does not only help the nation's unemployed workers, but the rest of us:

Extending unemployment benefits has the potential to help the entire American economy. According to the Congressional Budget Office, it is one of the most cost-effective and fast-acting ways to stimulate the economy because the money is spent quickly. For every $1 spent on unemployment benefits generates $1.64 in new economic demand.

The measure passed with support from 49 Republican House members, who bolted the Bush line opposing the bill, contained in yesterday's veto threat.

Today, the Bush Administration issued a veto threat against H.R. 5794, the Emergency Extended Unemployment Compensation Act of 2008.

Please read the following and see if you can spot the non sequitur:

The Administration is deeply committed to continually fostering an environment where every American who wants a job has a job. The Administration believes the best way to help workers is to create an environment that encourages job creation and to promote effective job training. To accomplish these goals, the Administration urges Congress to create more opportunities for American exporters by passing the pending free trade agreements with Columbia, Panama, and South Korea, make permanent the President's tax cuts that will expire over the next two years, and reform and reauthorize the Trade Adjustment Assistance program and the Workforce Investment Act. The Administration looks forward to continuing to work with Congress to enact these important measures. However, the Administration strongly opposes H.R. 5749. If H.R. 5749 were presented to the President, his senior advisors would recommend that he veto the bill.

Oh, wait -- I think I get it. Those free trade agreements are with some pretty small countries with pretty small economies. In economies of small scale, the blessings of free trade really could make a difference with respect to unemployment...

... in Panama.

Congress has sent the president a bill that would, in addition to forcing free-riding federal contractors to pay payroll taxes, "allow soldiers receiving combat pay to have their money counted as income for the purposes of the Earned Income Tax Credit." (BNA email)

I realize that we blow a lot of cash on the military, but does it strike anyone as odd that some Americans getting shot at in a combat zone in service of their country are paid so little that they qualify for EITC?

As Dana noted in this morning's daily report, the unemployment numbers released this morning were bad enough to put unemployment insurance (UI) benefits extension back in play for the domestic spending section of the FY 08-09 war supp.

But the past couple of weeks have seen the release of a couple of other data points that should increase concern among lawmakers that the U.S. labor force has come into sour times.

• The number of continuing UI claims -- workers receiving UI benefits for more than one week -- has not been this high since March 2004. The number of continuing claims has been sharply increasing since Nov. 2007.

(click to enlarge)

• On Wed. (June 4), the Dept. of Labor reported that productivity in the first quarter was increasing at an annualized rate of 2.6% -- a healthy number. But that number -- the economic output per unit of labor -- is the result of employers scaling back hours, making workers worse off.

It should also be noted that May's 49,000 net job loss was buoyed by the addition of 17,000 government jobs; the private sector lost 66,000 jobs, continuing a six-month decline in private jobs.

(click to enlarge)

When the Treasury Department released a stack of propaganda analyses yesterday on the 2001-2003 Bush tax cuts, they also promulgated a press release to accompany their reports. While their message was nothing more than years-old, warmed over talking points, it has provided yet another opportunity to talk about the continual deepening of income inequality in the United States.

The administration crows about the enormous burden of taxes that upper income groups shoulder, however, it remains typically silent on why they pay such a large share of taxes -- upper income groups earn way more than lower income groups.

From the Treasury's talking points we learn that the individual income tax is "highly progressive" because:

• In 2005, the top 5 percent of taxpayers paid more than one half (59.7 percent) of all individual income taxes, and the top 1 percent paid 39.4 percent; and
• Taxpayers who rank in the top 50 percent of taxpayers by income pay virtually all individual income taxes. In 2005, they paid 96.9 percent of all individual income taxes.

But what remains unsaid is the underlying reason for these numbers:

• Taxpayers in the top 50% earned the overwhelming majority of income. In 2005 they earned 87.2 percent of all income, up from 86.2 percent in 2001; while
• The bottom 50% has not fared as well. In 2005, they earned 12.8 percent of all income, down from 13.8 percent in 2001.

Shawn Fremstad posted yesterday on a new paper released this month by John Schmitt over at the Center for Economic and Policy Research. The paper studies the impact unions have on income and has some interesting findings:

Using national data for 2003 through 2007, we estimate that unionization raises the wages of the typical low-wage worker (one in the 10th percentile) by 20.6 percent, compared to 13.7 percent for the typical worker (one in the 50th percentile), and 6.1 percent for the typical high-wage worker (one in the 90th percentile). The traditional statistical approach applied to the same data produces an estimate of the average union wage premium of 11.9 percent, which is substantially lower than the union effect on low-wage workers (20.6 percent) and somewhat below the effect for the median- wage worker (13.7 percent).