By Contributor
msnbc.com
updated 1/4/2007 9:47:52 AM ET 2007-01-04T14:47:52

The Democrats have regained control of Congress — and the power to set the agenda on financial issues, from college loans to health care. But with a narrow majority and a Republican president who still has veto power, do they have the ability to pass consumer-friendly legislation as promised? Here's a look at some issues on their agenda that may affect your wallet:

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Tackling taxes
The chairmanship of the House Ways and Means Committee, which writes and initiates tax-law changes, is expected to go to outspoken Charles Rangel, D-N.Y. But even if the tenor of the debate changes, action is uncertain because both Republicans and Democrats worry about the same thing: Voters upset over tax increases or favorite tax breaks being taken away.

The biggest issue to tackle is the alternative minimum tax or AMT, and whether to overhaul or eliminate it. Americans are supposed to calculate their tax bills under both the regular tax rules and the AMT rules, then pay whichever bill is higher. But ironically, while President Bush's tax cuts have trimmed what most Americans owe under the regular tax, millions now wind up owing the AMT instead, many of them with incomes between $75,000 and $100,000.

“Congress has dealt with the AMT on a stop-gap basis by increasing the exemption level every year,” said Roberton Williams, a senior research associate at the Tax Policy Center in Washington. “Nothing is covered for 2007 yet, so it must be addressed.” If not, he said, the AMT will hit 19 million taxpayers, compared with 4 million in 2006.

If Democrats stick to their "pay-as-you-go'' pledge, eliminating the AMT would force Congress to raise nearly $1 trillion to offset the projected revenues from the AMT through 2017. Raising that kind of money would probably dent some of America's favorite tax breaks.

Another issue raising its head is what to do about estate and gift tax breaks scheduled to expire after 2010. Congress had originally approved a schedule increasing the amount an individual can leave to heirs tax-free, from $2 million in 2007 and 2008, to $3.5 million in 2009. But if that law expires, the estate tax will revert to 2001 levels of $1 million. With 401(k) accounts compounding, and life insurance benefits thrown into the pot, it's not hard for a working couple to be subject to the estate tax.

Even though Democrats have talked about undoing tax cuts for the wealthy, Williams doesn’t think this Congress will do it. “There’s no reason for them to address this before the Presidential election, because it will only make their lives tougher.”

Minimum-wage hike
Raising the minimum wage is a top priority during new House Speaker Nancy Pelosi’s so-called "first 100 hours" legislative agenda. After nine years with no increases, Democrats want to raise the minimum wage from $5.15 to $7.25 an hour, and President Bush has signaled he's willing to make a deal.

Cutting college loan costs
Cutting student loan interest rates — possibly in half — is also high on the agenda. Under the Republican Congress, federal student loans moved up to a fixed rate of 6.8 percent. Democrats hope to roll them back to 3.4 percent. But financial-aid experts think Democrats may back off  because of funding difficulties, plus the fact that the change won’t actually increase access to higher education. What’s more likely to pass are plans to restore an expired tax deduction for families paying college tuition, and raise the limit on Pell grants from $4,050 a year to $5,100.

Credit-card reform
This will be a big issue in the Senate, according to Ellen Cannon, assistant managing editor of Bankrate.com, who covers the credit card industry. Sen. Christopher Dodd, D-Conn., is a "long-time battler of the credit card business," she said, and as new chairman of the Senate Banking Committee he is expected to push for reform.

“He is sympathetic towards helping the average consumer, so he’ll most likely look at the issues of consumer debt and credit-card abuse," Cannon said.

Sen. Carl Levin, D-Mich., is leading the fight to put credit card disclosure in plain English, changing the gobbledygook to a fourth-grade reading level that anyone can understand.  He also wants credit card issuers to stop some bad practices, such as universal default, under which a cardholder's rate can be raised for late payments to other creditors, such as phone and utility companies. Levin also is seeking a reduction in card fees.  Late payment fees and over-limit fees have risen to $34 and $31 respectively from about $13 in 1995.

Levin has said that he’s hoping the credit card industry will police itself, like the auto industry did with emissions regulation, but Cannon said the industry may not follow his lead.

“MBNA, the largest credit-card issuer, was also the largest donor to Bush’s 2004 presidential campaign,” she said. “I think the industry will have a ‘let’s wait and see’ mode and then react to whatever gets proposed.” 

For seniors — and anyone who takes prescription drugs — lower drug costs are another high priority on Pelosi’s “first 100 hours” plan. Democrats want to rewrite the Medicare reform bill so that it will be a mandate for the government to negotiate lower prescription drug prices.

Nora Super, the senior legislative representative at the American Association of Retired Persons federal affairs division, said support in the House is very high but is less certain in the more divided Senate.

“Whether they pass it, and whether the President signs it, really depends on the effect of public support, which is strong,” she said. If it does pass, it may take a while for consumers to see the impact at their pharmacy counter, but faster action could be taken for individual drugs considered to be the only panacea for certain conditions.

Another item on the slate is a plan to expand the State Children's Health Insurance Program, a  decade-old federal health insurance program for children up for renewal in September, which could set off a debate about  providing universal health care for all children in the U.S.

Despite the looming budget deficit, Congress will also try to raise the issue of health insurance reform again, which it hasn’t addressed since then First Lady Hillary Clinton crashed and burned with her proposal in 1992. Chances are still slim, said Power.

Is gridlock good?
Realistically, radical changes on big issues like taxes or health care are unlikely with a Republican in the White House. But gridlock comes with a silver lining for middle-class Americans, said Williams of the Tax Policy Center.

“Gridlock is not necessarily a bad thing. There'd be no more tax cuts and a limit on spending increases," he said. "They'll do things they have to — like patching the AMT to keep it from affecting too many middle-class taxpayers — and not much else.''

And investors can also have hope: Even though Democrats nor Republicans have control over the financial markets, history shows that stocks actually do better under a divided government.

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