Democrats to Push Pocketbook Issues

Democrats also will have to reconcile their policy goals with their promise to find ways to cover new spending through additional revenue or cuts elsewhere in the federal budget. "There is, as is often the case, an element of schizophrenia there," said Robert D. Reischauer, president of the Urban Institute and a former director of the Congressional Budget Office. "You have an expansive programmatic agenda that you're trying to reconcile with a desire to be fiscally responsible."

The necessity of some GOP votes, combined with the austere fiscal climate, has influenced how Democrats plan to proceed in their first weeks. Rep. Nancy Pelosi (D-Calif.), the next speaker of the House, has said that one of the first domestic issues she will bring up will be an increase in the minimum wage by $2.10 per hour, to $7.25. The cost of that would largely be borne by private employers, not the government. President Bush has supported similar proposals, said Dana Perino, a White House spokeswoman.

Other changes would be far more expensive and divisive. Democratic leaders have vowed to protect middle-class households from the alternative minimum tax. For now, they are planning a one-year fix. They have not decided on a permanent reform. "That's a tough one. It's easy to say, 'We are going to do away with it.' The challenge is how to pay for it," said former senator John Breaux, who co-chaired a presidential tax commission last year that estimated that eliminating the tax would cost $1 trillion over the next decade. The White House favors reforming the tax only if Congress considers other tax changes, which Democrats might not like.

The tax is one of several priorities that the Democrats have not determined specifically how to address. To make college more affordable, they want to cut interest rates on student loans, but they have not decided whether to make that change for all loans or only federally subsidized ones for low-income students.

On other issues, it is not clear whether the Democrats can even agree among themselves. Many in the party want to change Medicare's new drug benefit so the government can negotiate prices directly with pharmaceutical companies. Incoming Senate Finance Committee Chairman Max Baucus (D-Mont.) remains unsure. "We need to be very honest in getting the facts" about whether such a switch would be helpful, he said. And Baker, of Rutgers, predicted that energy policies could "erode Democratic cohesion."

"These will be years of testing," said William A. Galston of the Brookings Institution, who was a domestic policy adviser to President Bill Clinton. "The American people are going to be watching very carefully."

Staff writers Peter Baker, Lori Montgomery and Steven Mufson contributed to this report.