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Congress, White House: Up For Late Summer Fight?

Tuesday, 4 Sep 2007 | 1:47 PM ET
AP

Summer isn't over yet, but the languid pace that has prevailed in Washington since Congress left town in August has now definitively vanished. On every front, the White House and Congress, Republicans and Democrats, are girding for political action that will unfold rapidly with its ultimate consequences uncertain.

Let's look at the most important points of engagement:

--The elephant in the room: the Iraq war. This is President Bush's top priority and there's no close second. Facing resistance from Congressional Democrats, Bush sought a momentum boost with his surprise visit to Iraq in advance of Gen. David Petraeus' testimony on the troop surge in Washington next week. Bush and even some Democrats see signs of military progress; Democratic leaders said the US military commitment isn't leading to political reconciliation that would allow troops to come home.

--The new wild card: the economy. When you have a single issue stirring fear and anxiety among hedge fund markets, pension fund investors, and moderate-income homeowners, there's potential for a powerful political reaction. That's what the mortgage mess has produced. Bush responded last week with his limited assistance proposals, while Democrats want more -- including potential cash bailouts. This may be one area where Democratic and Republican choose to work together.

--The old battle: taxes and spending. Republicans bruised by the unpopularity of Iraq and scandal drama (see: Craig, Larry) are spoiling to battle Democrats over one of their familiar themes. That's what Bush is threatening to veto spending bills from the Democratic Congress, and almost certainly would do the same if Democrats could muster the votes to raise taxes on private equity. The GOP badly needs to reclaim the tax-spending brand.

--The backdrop: the 2008 elections. The campaign trail has almost supplanted Washington as the focus of national attention already. And that trend will only increase. A Wednesday night debate in New Hampshire will showcase the tightrope Republican candidates have to walk between distancing themselves from an unpopular White House and building support among the Republican base. The next morning, the new Republican candidate, Fred Thompson will enter the race in Iowa (having appeared on "The Tonight Show with Jay Leno" on the same night of that GOP debate).

Fall Session in Congress
An investor's guide to the fall session in congress, with CNBC's John Harwood

Can Thompson be the Reagan heir in the race? and can Barack Obama sharpen his change message enough to win a change election against Hillary Clinton in the Democratic primary? I travel to Iowa this afternoon to see both candidates. And I will blog on what I see.

Questions? Comments? Write to politicalcapital@cnbc.com.