The House approved a resolution in support of making public the impending report of Special Counsel Robert Mueller. The Senate approved a resolution to block President Trump's emergency declaration for the southwest border (see below), another resolution to end U.S. military assistance in the civil war in Yemen and a handful of Trump administration nominations.
Both the House and Senate will be out of session and return to Washington on March 25.
Financial Services Issues
Best Interest Proposal.
A House Financial Services subcommittee this week held a hearing on the SEC’s proposal to establish a new best interest standard for brokers (called Regulation Best Interest or Reg BI). The SEC issued the proposal last April after a federal appeals court invalidated the Department of Labor’s (DOL) fiduciary rule. Members on both sides praised the SEC for raising standards for brokers while also preserving investors’ access and choice regarding investment advice and products, a major problem with the DOL fiduciary rule. However, some Democrats on the panel argued that the SEC did not go far enough in raising standards for brokers beyond the existing suitability requirement. House Financial Services Chairwoman Maxine Waters (D-CA) is interested in advancing a bill that would delay finalization of Reg BI until the SEC does further testing of enhanced investor disclosures proposed under the rule, but this legislation would be blocked by the Senate if the House passed it. Several states also have proposed their own fiduciary rules, raising concerns about brokers being subject to a patchwork of conflicting state requirements. These state actions have generated even greater urgency for the SEC to finalize its rule, which it is likely to do in the next few months.
Other Issues in Play
Trump Budget for 2020.
President Trump this week proposed a $4.7 trillion budget covering spending for most federal agencies and activities for fiscal year 2020, which begins on October 1. The President's submission to Congress of a budget proposal for the upcoming fiscal year is an annual exercise required by law (the proposal was supposed to be sent to Congress in February, so this week's submission was late). While the proposal won't be acted upon by Congress, it has significance since it reflects the President's budget priorities for the federal government. Not surprisingly, President Trump's budget priorities included defense, homeland security, a southwest border wall ($8.6 billion request) and veterans programs. Meanwhile, his budget generally would allocate less money to domestic programs. Congress instead will try to write its own budget, but it is unlikely to succeed. Indeed, the Congressional budget process has faded in importance over the years, with the real decisions on government spending occurring all too often in year-end showdowns. This year's battle on government spending for the next fiscal year will occur in September at a time the debt ceiling also must be raised. This perfect storm of partisan fighting and chaos could spook markets (if there is uncertainty about an increase in the debt ceiling) and could lead to yet another government shutdown.
Emergency Declaration on Border.
The House and Senate have now both passed resolutions overturning President Trump's declaration of a national emergency on the southwest border, but neither chamber has the votes to overturn a veto of that measure by the President. Given that, the President's reallocation of money to build portions of a wall on the border will stand in the short term. However, the emergency action will face court challenges that likely will put the emergency construction on hold. While we don't know what the courts will ultimately decide, the partisan feud over this issue should fade for the time being while the courts consider the case. That reprieve won't be long since, as noted above, the debate over wall funding for next year (fiscal year 2020) is just beginning.
Pelosi and Impeachment.
This week's announcement by House Speaker Nancy Pelosi (D-CA) that she didn't support impeachment proceedings against President Trump was a surprise to many people. Nevertheless, the Speaker is still encouraging various House investigations into the President to move forward, and she could change her mind if these investigations and the impending Mueller report uncover damaging new evidence. The Speaker will have to put up with flak from some in her party who want to start impeachment proceedings right away, but we think her announcement is politically-shrewd. It sets her apart from some in the far left of her party and puts her above the unpleasant impeachment fray for now. If she changes her mind because of new damaging information against the President, impeachment could have more credibility with some voters if they believe she previously had an open mind on the matter (based on her announcement this week).
CEO March to the Capitol.
This week, the CEO of Wells Fargo appeared before a House committee in a contentious hearing. Two weeks ago, the three CEOs from the largest credit reporting agencies appeared before the same committee. That same week, six pharmaceutical company CEOs appeared before a Senate committee. They were all grilled on their business practices, treatment of customers and pricing strategies, among other topics. The CEOs from the largest US banks are next in line to appear before the House Financial Services Committee on April 10, while the Senate will feature a hearing with health insurance chief executives. We expect the parade of CEOs through Capitol Hill to continue throughout this year in an effort to serve notice to them and other industry leaders that Members of Congress, particularly new House Democratic leaders, are watching and will scrutinize their business practices and models in public hearings.
Big Tech Breakup.
Senator (and presidential candidate) Elizabeth Warren's (D-MA) call to break up the big technology companies made big news but shouldn't be taken too seriously unless, of course, she or another Democratic presidential candidate aligned with her policy priorities wins the 2020 election. Nonetheless, her attack on the big tech sector resonates with a growing and bipartisan body of lawmakers who are suspicious of the companies' business practices and their ambitious collection and use of personal consumer information. The Trump administration won't embrace Senator Warren's proposal, but it did empower the Federal Trade Commission this week to form a technology task force to give the agency new oversight of the sector, with a particular focus on mergers and anti-trust issues. Many Republican senators are also interested in clipping the wings of the big companies, particularly their dependence and use of personal information. Congress won't act on the Warren proposal this year, but the tech sector is on its heels after suffering reputational hits and with lawmakers increasingly interested in abandoning the lighter regulatory touch they have applied to the industry in the past. With those sentiments prevailing on Capitol Hill, new data privacy legislation likely will advance this year, but it is unclear at this time how far-reaching that legislation will be.
Digital Services Tax in the US?
Following a broader European Union (EU) decision to abandon a digital tax late last year, France has now announced its intention to implement a digital tax aimed at technology companies. The French initiative will put some pressure on other EU members and the US to consider a similar tax (Spain, Italy and the UK have made similar proposals in the past). Treasury Secretary Steven Mnuchin has been sympathetic to the concept of a digital tax in the past, but he recently announced opposition to the French proposal. Any form of a digital tax in the US seems very unlikely in the near term, and US lawmakers will watch the French development to see how it works out. We don't see a rush of other countries embracing the French tack, but we believe the likelihood of some form of a digital tax will increase as revenue needs and online commerce grow.
The Final Word
Democratic Presidential Primary.
Just shy of four years ago (March 23, 2015), Senator Ted Cruz (R-TX) became the first major Republican candidate to formally declare his candidacy for president in the 2016 election. Senator Cruz was the first of 17 to announce for the race that spring and summer. With former Congressman Beto O'Rourke (D-TX) declaring his candidacy yesterday and former Vice President Joe Biden likely to throw his hat into the ring any day, it appears that all major Democratic candidates will have announced their 2020 candidacies before the first Republican announced his candidacy for the 2016 race. The Democratic candidates are clearly eager to define themselves and get well ahead of their competition before their first televised debate in June, hence the earlier announcements. All of this means that the presidential election cycle will be longer in 2020 and likely in future elections, which we know makes our readers happy.