The House passed legislation reinstating a Federal Communications Commission "net neutrality" rule imposed and then rescinded over the last three years (see below). The Senate confirmed a group of Trump administration nominees.
Both the House and Senate will be out of session until April 29.
Financial Services Issues
The House Financial Services Committee (HFSC) has been working on legislation to modernize the existing Bank Secrecy Act (BSA) regulatory regime for combatting money laundering. One bill would update existing requirements to, among other things, promote greater application of new technologies toward BSA/AML compliance and greater cooperation between banks and law enforcement. Another would try to fill a gap in the current system by requiring business entities to provide details on their beneficial ownership to a new federal registry. The beneficial ownership proposal, which is supported by the banking industry but has been criticized at times on privacy and other grounds, continues to be refined. The HFSC held a hearing on these bills last month (the topic also surfaced at this week’s hearing with the CEOs of large US banks) and will approve them as soon as the end of this month. The Senate is separately working on its version of BSA/AML reform. While it still has a long way to go and faces a more uncertain future in the Senate, BSA/AML reform has the potential to be a significant bipartisan achievement for this Congress in the financial services arena.
Big Bank Hearing.
The long-awaited hearing featuring seven large bank CEOs before the House Financial Services Committee occurred this week. New HFSC Chairwoman Maxine Waters (D-CA) has for a long time been eager to have the CEOs appear before the committee so they can account for their business activities, operational risks and regulatory compliance. Some committee members were interested in probing more delicate areas, such as CEO compensation, the pay gap between junior and senior executives and business with politically-disfavored industries (weapons, tobacco, carbon-based energy, etc.). While informative in many ways, the hearing lacked the "gotcha" moment that many expected and was tamer than the one a month ago with the departed Wells Fargo CEO. A key takeaway is that Chairwoman Waters said she will ask the CEO panel to return next year, which suggests ongoing oversight of big banks for as long as she holds the gavel.
Other Issues in Play
House Democrats are reviving their effort to tax "carried interest" as ordinary income rather than at the lower capital gains rate. While they could move this proposal forward in the House, it will ultimately be blocked in the Senate. Some Senate Republicans may be willing to end preferential tax treatment for carried interest as part of a much broader tax deal, but such a deal won't materialize anytime soon. We continue to believe that the preferential tax treatment of carried interest is safe, for now.
The House passed legislation this week to reinstate "net neutrality" rules rescinded by the Trump administration. The original regulation, which was put in place in 2015 during the Obama administration, mandated that broadband providers treat all internet content equally. The bill is the first House Democratic effort to reverse a Trump administration regulatory reform. While this bill has no chance of advancing in the Republican-controlled Senate, Democrats believe this is a winning issue with millennials. The net neutrality rules were vehemently opposed by broadband service providers (such as Verizon, AT&T and Comcast) but generally supported by internet content companies (such as Facebook and Google, among others). While this exercise is out of the way, the technology industry remains in the hot seat on Capitol Hill and will be busy with legislative efforts in data privacy and other areas.
Modest Prescription Drug Pricing Bills Moving.
Amidst significant speculation that bipartisan action on prescription drug pricing could occur despite the difficult political environment, some modest measures are moving forward in the House. One committee recently advanced a series of bipartisan bills to promote better access to generic drugs, while another just this week passed a bill to enhance transparency in the pricing of prescription drugs. The bills are the proverbial "low hanging fruit." House Democrats and Senate Republicans will separately consider more impactful measures later this year, but there isn’t yet any bipartisan agreement on a specific course of action. A consensus could well emerge this year or next, and we are especially paying attention to efforts in the Senate, where we think a compromise bill is most likely to emerge. As part of a comprehensive review of the prescription drug distribution process that spans the manufacturer down to the consumer, a Senate committee held a hearing this week on the midstream role of pharmacy benefit managers. A bipartisan bill will likely emerge in the Senate after the summer. While this legislation will certainly include modest provisions like those noted above, it remains to be seen whether there will be sufficient buy-in for more far-reaching proposals.
Higher Education Reforms on Deck.
Education policy issues have been a sleeper this year, but lawmakers are making progress behind the scenes on reforms to the higher education system. These efforts are likely to be further bolstered by the recent college admissions cheating scandal. The legislation will focus primarily on federal student loan program default rates, incentives to lower college costs, campus security and student data collection. More contentious issues, such as broad student loan forgiveness and federal aid to colleges, are also in play but the partisan divide may be too wide to find agreement on them. The retirement next year of Senator Lamar Alexander (R-TN), who is the chairman of the Senate committee that oversees education issues and would like to pass a bill before he departs, gives a sense of urgency to these efforts. A bipartisan higher education reform has a fighting chance of passing this year or next, which would be a solid bipartisan accomplishment in a session where not many other bipartisan measures will pass.
First 100 Days.
House Democrats celebrated their first 100 days in power this week. They cited a wide range of accomplishments, including the passage of equal pay legislation, a funding bill to end the last government shutdown and a comprehensive government ethics and campaign fundraising reform bill, among others. House Speaker Nancy Pelosi (D-CA) has done a good job in keeping her Democratic members unified on most issues so far, but fissures emerged this week in the delay on a vote establishing budget spending caps for fiscal years 2020 and 2021. The House Progressive Caucus, which boasts 90 members, wanted more spending for domestic programs, while a smaller group of moderates fretted over the impact that the additional spending would have on the budget deficit. The inability of the Democrats to resolve this issue is a flashback to similar problems Republicans had following the Tea Party's emergence in 2011. The frequent inability of former Speakers John Boehner (R-OH) and Paul Ryan (R-WI) to corral their members into unified positions on key issues will weigh on their legacies. With the emergence of House Democrats' own version of a tea party, maintaining unity will be a major challenge for Speaker Pelosi, who very much wants to avoid suffering the fate of her two predecessors.
The Final Word
Senator Bernie Sanders (I-VT), a 2020 presidential candidate, recently announced that he would be releasing by April 15 his tax returns from the last ten years. Senator Sanders is under pressure to disclose his returns because he didn't disclose much personal financial information in his 2016 run and because of the Democratic primary election's focus on full tax return disclosures. Moreover, he can't effectively argue that President Trump should be subpoenaed to disclose his returns if his own record is spotty. Senator Sanders indicated that his latest tax return would reveal that he is a millionaire and therefore part of a wealthier group that he has frequently used as a touchpoint for criticism and populist outrage. With more than half of Senators having a net worth of more than $1 million, Sanders is hardly unique on this count in the upper chamber. With a $245 million net worth, Senator Mark Warner (D-VA) has been the Senate's wealthiest member over recent years, though we suspect that new Senator Mitt Romney (R-UT) may be in that ballpark too. Senator Sanders will not be the only millionaire candidate in the Democratic primary either and is joined by former Congressmen John Delaney (worth $232 million) and Beto O'Rourke ($9 million), former Colorado Governor John Hickenlooper ($5 million) and Senator Elizabeth Warren ($4.7 million), among others. Senator Sanders' disclosures over the next few days will draw special scrutiny given his attacks on millionaires and billionaires as a basis for many of his economic policies.