A News Years Eve, 1965, Time magazine article quoted iconic free-market economist Milton Friedman as saying, "We are all Keynesians now." Friedman later explained that the quote was taken out of context. He meant that even though the language of John Maynard Keynes—famous for recommending fiscal policy as a tool to manage the economy—had pervaded popular consciousness, most people had no idea what this meant.

The leaders of both the House and Senate are exploring options for an economic stimulus plan they would unveil if the economy continues to weaken in 2008, TaxVox has learned. The talks, still in their early stages, could trigger a major election-year battle over fiscal policy. While neither party has settled on a plan, congressional Republicans are likely to propose new tax breaks as well an extension of the 2001 Bush tax cuts. Democrats are looking at a mix of tax cuts and other measures that they'd attach to targeted relief for those hardest hit by the mortgage mess.

Congress and the President have finally left town. But they left quite a legacy. Here are our nominees for the five biggest fiscal losers of 2007. The AMT Patch: Sure, Congress finally agreed to keep 20 million middle-class families off the AMT for one more year. But it never paid for the $50 billion temporary fix and ignored proposals to permanently resolve the mess. Just wait until next year, when they do it all again.

In the aftermath of Sept. 11, 2001, Congress created a program in which taxpayers would backstop private insurance in the event of another major terror attack. The program, called the Terrorism Risk Insurance Act (TRIA), was supposed to be a temporary effort to both stabilize the insurance industry and prevent a broader economic meltdown after insurers stopped writing property and casualty coverage for many urban commercial developments.

"Creditors would be prohibited from … extending credit without considering borrowers' ability to repay the loan." This is not a joke. It is part of proposed new Federal Reserve Board regulations aimed at stopping banks from repeating the shockingly bad lending practices that led to the still-worsening mortgage mess. Perhaps they could call the new rule "stop me before I lend again."

When the Senate passed a long-awaited energy bill yesterday, I flashed back to a fascinating off-the-record chat I had back in 2004 with a top executive of a major oil company. He was in Washington to help make sure that the energy bidness got its piece of an especially hideous tax break called the Sec. 199 production deduction.

A December 10 Wall Street Journal rant against PAYGO asserts that the AMT is careening out of control because "Democrats who designed it failed to index it for inflation and raised AMT rates under Bill Clinton in 1993." To be sure, indexing the AMT exemption would have kept millions of taxpayers out of its clutches but blame for that oversight lies with many Congresses and administrations. Never in the tax's 40-year existence has either Congress or the president seriously tried to permanently index the AMT. And the decision in 2001 to cut regular income taxes without also reducing the AMT has played a huge role in AMT's growth.

Mike Huckabee wants to replace the entire federal tax system with a national retail sales tax of 23 percent. Trouble is, he can't do it and maintain anything like the government that Americans have come to expect.

To the surprise of no-one, the Senate has blinked in the stand-off over whether Congress will pay for the cost of patching the Alternative Minimum Tax for another year. The question now: Will House Democrats stand firm, or will they too cave in to the big-bucks lobbying campaign of the hedge fund and private equity industry?

Late last night, the Senate passed, by a vote of 88–5, a one-year increase in the AMT exemption without the offsetting tax increases in the version that passed the House. The rejected House version would take ten years of small tax increases to pay for a one-year AMT patch, leaving open the question of how to pay for next year's patch, but at least that bill follows the letter of the PAYGO rules. The Senate bill is an outright $50 billion tax cut.