Politics and policies, US economy Washington Weekly: Debt Ceiling Hangover. Crypto Action

Debt Ceiling Hangover. Some Republicans in the House Freedom Caucus (the most conservative bloc of House members) continue to be angry with the debt ceiling agreement negotiated by House Speaker Kevin McCarthy (R-CA) and President Biden. Eleven of them this week expressed their frustration by opposing a motion to vote on a Republican bill to prohibit the banning of gas stoves. Their votes were enough to temporarily sidetrack the legislation and disrupt other votes for the week. This action was solely designed to get the attention of the House Republican leadership. These members are interested in leveraging their actions to get concessions on future policy and procedural issues, particularly as they relate to the upcoming battle over fiscal year 2024 government spending. More broadly, it raises the question of whether this unhappiness will result in a vote to potentially replace the Speaker. We don’t think Speaker McCarthy is in danger of losing his job at the moment, but these Freedom Caucus members will continue to apply pressure on the Speaker to move the House agenda more to the right.

This application of leverage is probably more useful to these members now than insisting on a vote to replace McCarthy, which could end badly for all House Republicans.

Bipartisanship on Entitlements? The debt ceiling didn’t include the creation of a bipartisan commission to study tax or spending reforms to reduce the budget deficit, but there is some interest on the Hill in potentially forming one. House Speaker McCarthy has signaled his support for efforts by a bipartisan group in the House Budget Committee to stand up a commission focused on reforms in Social Security and Medicare. This idea would need cooperation in the Senate and from the White House to be credible (and neither has supported the idea yet).

Identifying and then passing reforms in this area is a very heavy lift, and while we are not predicting this will happen any time soon, it’s notable that at least a few lawmakers are interested in getting that ball rolling in the face of tough political headwinds.

More Crypto Action. Late last week, House Financial Services Committee Chairman Patrick McHenry (R-NC) and House Agriculture Committee Chairman Glenn Thompson (R-PA) introduced legislation to delineate more clearly jurisdiction over the digital assets between the CFTC (commodities) and the SEC (securities). The latter committee reviewed the bill in a hearing this week, while the former will do so next week. Amidst this activity, SEC Chair Gary Gensler brought lawsuits against the two major digital asset exchanges, Binance and Coinbase. Chair Gensler has argued that the SEC already has clear authority to regulate many digital assets as securities and that these exchanges should be registering with the SEC as securities exchanges. Many Democrats are supportive of Chair Gensler’s stance, and while CFTC Chairman Rostin Behnam and some Democrats are supportive of having legislation to provide greater regulatory clarity, they currently aren’t on board with the Republican bill. The current plan is for the committees to advance this bill (along with potentially another bill dealing with stablecoins) in July, though it will take some adjustments for the bill to garner support from Democrats.

Even if there is some progress on digital asset legislation in the House, the prospects look bleak in the Senate.

An Unexpected Supreme Court Decision. The Supreme Court yesterday issued a very surprising decision when Chief Justice John Roberts and Justice Brett Kavanaugh joined with the three liberal members of the court to uphold a key part of the Voting Rights Act. The majority’s decision struck down Alabama’s new congressional district map because it didn’t adequately protect Black voting rights. As part of the decision that was penned by Roberts, the court ruled that Alabama will likely need to create a second majority-Black congressional district. This decision is a major curveball given that it was commonly assumed that the decision would validate Alabama’s current map. This ruling will not only help Democrats flip an additional House seat in Alabama, but it is likely the precursor to a flurry of challenges in other southern states such as GA, LA, NC and SC. Those states may now need to rethink their maps.

With Republicans maintaining only a five-seat majority in the House, the creation of 2-4 new Black majority districts likely to vote Democratic could be the deciding factor for which party is in control following the 2024 elections.

For more, see Washington Weekly, 9 June 2023.