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Brighter economy raises odds of action in Congress

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WASHINGTON » A strikingly improving labor market, coupled with broad economic growth and a falling federal budget deficit, is improving the prospects of bipartisan cooperation next year — if Republicans and Democrats can seize on easing fiscal pressures to give both sides some of their wish lists.

On Friday, the Labor Department reported that U.S. payrolls rose by 321,000 jobs in November and that hourly wages jumped, easily beating economists’ expectations. This year will be the best for job creation since the boom years of the late 1990s.

But that good news is only the latest in a recent string. Health care spending is growing at the slowest pace since statisticians began tracking it in 1960. The number of uninsured Americans has fallen 30 percent in a year. At an average of $2.71 a gallon, regular unleaded gasoline is at its lowest price since 2010 and is still dropping, according to AAA. Economic growth between July and September was revised upward last month to 3.9 percent.

And the budget deficit, already below its 40-year average as measured against the economy, is likely to fall again this fiscal year, according to the Congressional Budget Office, which said Friday that tax receipts in the first two months of the new fiscal year were 6 percent higher than a year ago, while spending was up only 2 percent. The budget office had already estimated the deficit for the current fiscal year would be 2.6 percent of the gross domestic product, down from 2.8 percent recorded in the fiscal year that ended Sept. 30. But that projection was delivered in August, before the spate of economic optimism.

Taken together, Jason Furman, chairman of the White House Council of Economic Advisers, said Friday, the rapidly improving environment means policymakers no longer have to focus on near-term economic responses, which had divided Washington between Democrats who accepted worsening the deficit in the short run and Republicans who pressed for immediate cuts.

"At least there will be less of a philosophical debate on infrastructure, tax reforms and expanding exports," Furman said. "You can have that agenda because the economy is not in free fall."

In today’s highly charged partisan atmosphere, of course, even good news is still filtered through a political lens. John Boehner, the House speaker, greeted the best payroll growth in 34 months by lamenting that "millions still remain out of work, and middle-class families across the country, including my home state of Ohio, are struggling to get by on wages that haven’t kept pace with rising costs."

Rep. Nancy Pelosi of California, the minority leader, noting that Republicans controlled Washington in the years before the financial crisis, warned "we cannot go back to policies that got us into the deep ditch we were in."

President Barack Obama’s executive action on undocumented immigrants has already inflamed partisan tensions and distrust. Dick Armey, who was House majority leader when bipartisan accords were struck in the 1990s, said Obama would never be the negotiating partner that then-President Bill Clinton was.

"If there is an ideological impediment to growth today, it’s coming from the left," Armey said.

Still, lawmakers, economists and policy analysts see in the burst of good fortune a possible easing of those tensions.

"I do believe there is enough common ground and common sense to go forward" on a range of initiatives, on education, infrastructure and manufacturing policy, Pelosi declared Friday.

They also see lessons from the 1990s. Then, as now, a Democratic president was handily re-elected and Republicans enjoyed electoral success on Capitol Hill. After fiscal showdowns that twice shut down the government, Clinton and a Republican Congress struck a "balanced budget" agreement in 1997 that cut capital gains taxes for Republicans and created the Children’s Health Insurance Program for Democrats — hardly austerity measures.

But Washington could afford such deals with unemployment falling below 5 percent and payrolls rising an average of 284,000 a month.

"There was a little bit of luck but also a lot of pretty methodical effort," said Newt Gingrich, who was House speaker at the time. "Unless you can find a way for a win-win legislative strategy in a split government, you’re not going to get anything done."

That dynamic could repeat itself in the coming year.

The Republican Congress will again want to pursue a balanced budget while also cutting taxes. Authorization for the federal children’s health program even expires next year, but Obama has other programs on his wish list, including higher infrastructure spending. Both sides say they want to overhaul and simplify the tax code.

The White House’s push for fast-track trade negotiating powers — and eventually for a major Trans-Pacific Partnership trade pact — could be eased by growing confidence in the economy and the nation’s ability to compete internationally.

Rising revenue will make that overhaul far easier, said Sen. Ron Wyden, D-Ore., chairman of the Finance Committee.

"Now is exactly the time to move into place the kind of permanent tax reforms that will give people certainty," he said.

Improving budget numbers should also ease pressure on Congress as it deals with deep across-the-board spending cuts that will return automatically in October if nothing is done, said Sen. Patty Murray, D-Wash., chairwoman of the Budget Committee.

"We are in a very different fiscal situation then we were just a few years ago," she said. "We can afford to focus not just on the deficit but in what we need to invest in to grow opportunities for the future."

Still, the analogy to the 1990s can be taken only so far, warned Alec Phillips, managing director for U.S. economic research at Goldman Sachs. It was the president winning a sweeping re-election in 1996 that eased the path to the budget agreement of 1997. This time around, Republicans were the victors in the election, while Obama is finally in a better position to claim credit for an improving economy.

But forcing mechanisms and legislative deadlines that once seemed like surefire political showdowns could prove to be useful negotiating moments, said Joel Prakken, founder of the economic forecasting firm Macroeconomic Advisers.

On May 31, for instance, the highway trust fund is expected to hit empty. If gas prices remain this low, bipartisan proposals to raise the gas tax could become more palatable. Strong job growth could undermine arguments that a weak economy could not handle a higher federal minimum wage. And deals on long-term economic strategies become easier without the urgency of a crisis.

"For a number of years, some of the most pressing economic issues were immediate, the response to recession, the recovery act," Furman said. "Now our biggest economic goal is not to stabilize the economy in the next year but to make it grow in years to come."

Jonathan Weisman, New York Times

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