The House passed legislation to fund harbor improvements, a bill to impose sanctions on Turkey (see below) and a measure to set guidelines for impeachment proceedings (see below). The Senate approved a comprehensive government spending bill that includes fiscal year 2020 funding for seven major departments.
The House will be on recess for the week, although the impeachment proceedings will continue. The Senate will try to pass another round of government spending bills covering the Defense Department and three other departments.
Financial Services Issues
Ex-Im Fight Continues.
Efforts to reauthorize the Export Import Bank (Ex-Im), a government agency that extends lines of credits and guarantees to U.S. exporters, remains bumpy. Back in June, the leaders of the House Financial Services Committee (HFSC) struck a bipartisan deal to reauthorize the agency for seven years, but that agreement came under fire from some Democrats on the committee and from business groups concerned about new restrictions on Ex-Im (including limitations on transactions involving state-owned enterprises in China) and major corporate recipients of Ex-Im support (particularly Boeing, which itself was the subject of intense scrutiny at two Congressional hearings on the 737 Max crashes). After a lengthy and contentious mark-up this week, the HFSC barely passed a different reauthorization bill that significantly scales back these provisions and provides a longer-term extension of 10 years. Republicans opposed the bill, as did several progressive Democrats who wanted to add stronger environmental protections to the bill. The House can move forward by passing an Ex-Im bill on a mostly party line basis, but a longer-term extension will need to be paired with reforms that Republicans want in order to advance in the Senate. While a bipartisan Ex-Im bill was introduced in the Senate over the summer, it is unlikely that a deal can come together before Ex-Im’s existing charter expires on November 21, meaning that another short-term extension for Ex-Im will be part of any broader agreement on government funding.
Other Issues in Play
House Speaker Nancy Pelosi (D-CA) surprised many people this week by scheduling a vote on a measure to formalize the process for impeachment. The House passed the resolution on a mostly party-line vote yesterday. Speaker Pelosi argued that the measure is consistent with past impeachment proceedings and ensures public hearings, while Republicans derided it as insufficient and too late. To date, the House Intelligence Committee (HIC) has held nearly a dozen hearings that have been closed to the public. The information gleaned from witnesses in those hearings, not the upcoming public hearings, is expected to serve as the foundation for the underlying articles of impeachment on which the House will ultimately vote. With the HIC holding three hearings this week alone, the effort to impeach the President will continue to move quickly. While the exact timing of a House vote to impeach is still uncertain, we expect a vote to occur between Thanksgiving and the end of the year.
Prescription Drug Pricing Reforms.
With three separate House committees now having finished their work on Speaker Pelosi's prescription drug pricing reform legislation, a House vote on a final package likely will occur in the coming weeks (the exact timing will depend in part on the pace of the impeachment inquiry and vote). We have outlined below the major provisions of the operative bills in the House and Senate. The House and Senate ultimately will have to reconcile the differences between their bills, which will be a significant challenge since they are very different. If a final prescription drug agreement can emerge in this contentious political environment (which we doubt will happen), it will need to be more aligned with the Senate bill.
The bill requires Medicare to negotiate drug prices directly with pharmaceutical companies, which bill proponents believe will significantly lower the cost of drugs. Negotiations on the pricing of the most expensive and widely-used drugs would be prioritized. Private health plans would have the option of also adopting those negotiated prices. The applicable pricing for drugs in other developed nations (often far lower) would serve as a price ceiling for those negotiations. The bill also imposes a $2,000 out-of-pocket maximum cost on beneficiaries in Medicare's Part D program (covering prescription drugs). Bill advocates believe the federal negotiations and the cap on prices envisioned in the bill would result in far lower prices for drugs, while opponents believe the bill would unfairly "fix" prices and therefore stifle the innovation needed to research, develop and manufacture important drugs.
A bipartisan Senate bill championed by Finance Committee Chairman Chuck Grassley (R-IA) does not mandate a similar system of government negotiation of drug prices. Rather, it would require drug companies to rebate Medicare if drug prices exceed the rate of inflation. To incentivize lower prices, it would increase transparency in the entire chain of drug pricing and rebating, which spans the manufacturer, pharmacy, insurance company and individual customer. It also caps Medicare Part D out-of-pocket costs but at a less-generous level of $3,100. While we have doubts that this issue ultimately will gain traction, the Senate bill will be the operative vehicle given President Trump's preference for it and given the imperative of having bipartisan support for legislation to advance in the Senate.
Government Funding Bills.
While the new fiscal year (2020) for the federal government began a month ago, Congress has still not passed bills to fund the departments and agencies for the year. The government is operating off of last year's spending levels via a continuing resolution that expires on November 21. This deadline will not be met, and Congress will have to act before then to extend that deadline to the end of the year at the earliest. This week, the Senate passed four of the 12 funding bills needed to fully fund the government. Most of the 12 funding bills should be able to pass within the new timetable. One notable exception is the defense funding bill, which contains funds for the contentious southwest border wall. Overall, this process will result in the government fully funded and without a real threat of a government shutdown, but the Congress' habitual tardiness in the funding process is getting very old and threatens the continuity and effectiveness of government programs
Sanctions on Turkey.
The House passed a bipartisan bill imposing economic sanctions on Turkey for its military operations in northeast Syria. Another bipartisan bill is pending in the Senate. Although it has significant support, it will likely be delayed for the time being to determine whether developments on the ground in Syria are improving. Both bills impose tough sanctions, but the Senate bill specifically sanctions Turkish President Erdogan. The sanctions in the Senate bill are effective immediately, while the House bill imposes them two weeks after the bill is passed into law. Sanctioning the Turkish president personally is significant, since Turkey and the US are NATO allies that are required by treaty to come to the military defense of the other under certain circumstances. Furthermore, President Erdogan is scheduled to visit Washington on November 13, which will be very tense. There is a chance this visit could be postponed. Regardless, tough days are ahead for this important relationship given the diverging security interests of the two countries.
State and Local Taxes.
We regularly get asked if Congress will provide relief from the cap on the state and local tax (SALT) deduction. Many readers live in high tax states like New York, New Jersey, and California and are understandably more familiar with this cap than those who live in lower tax states. Senate Democrats recently forced a vote that would have blocked Treasury regulations that prevent states from helping taxpayers get around this cap. While that vote failed, House Democrats also have been huddling to come up with a potential solution. No concrete decisions have been made, but we think they will settle on an increase in the cap to $20,000 and try to force that cap into a year-end tax bill. This is possible, but we remain skeptical given that an increase in the SALT cap would partially remove the funding Senate Republicans used to generate to pay for tax cuts and reforms included in the 2018 tax bill.
The Final Word
With the House passing its impeachment resolution yesterday, it becomes more and more likely that President Trump will be impeached by the House. Should this happen, then there will be two members of the Senate who are able to provide extra insight into the process given that they voted on the impeachment of President Clinton in the House and were jurors for his trial in the Senate. Current Senate Minority Leader Chuck Schumer (D-NY) and Senator Mike Crapo (R-ID) were both sitting House members who had just won their elections to serve in the Senate when the impeachment vote occurred in the House in December of 1998. One month later, both Senators Crapo and Schumer were sworn into the Senate and tasked with voting on a possible conviction of the president shortly thereafter. While the two were on opposite sides during the last impeachment proceeding (and likely will be this time as well), they will forever be linked in history due to an anomaly that will likely not be repeated.