The House voted to impeach President Trump on two charges (see below). The House and Senate acted on a number of year-end issues that we highlight below.
Both the House and Senate will be on recess until the week of January 6.
Financial Services Issues
Marijuana Banking Concerns.
Although many states have legalized marijuana in some form, businesses in this growing industry face impediments and risks, including an inability to access banking and other financial services, due to conflict between state and federal laws. There has been bipartisan interest in Congress to address this problem with a safe harbor to banks and other financial institutions to serve covered businesses. The bill, called the Secure and Fair Enforcement (SAFE) Banking Act, passed the House in October by a 321-103 vote. In the Senate, Banking Committee Chairman Mike Crapo (R-ID) indicated his interest in having a committee vote on a relevant bill by the end of the year. However, Crapo and other Senate Republicans have concerns about the House-passed bill and this week issued a request for public feedback on those areas of concerns, including public health and safety, legacy cash, money laundering and interstate commerce and banking. Addressing these concerns would require an extensive rewrite of the existing bill and would cover complicated issues well beyond banking and the jurisdiction of the Banking Committee. Prospects for successful Senate action in this area in the coming year are quickly fading.
Other Issues in Play
President Trump is Impeached.
On largely partisan lines, the House voted to impeach President Trump on two counts – obstruction of Congress (229-198 vote) and abuse of power (230-197 vote). All but two of the 233 House Democrats supported impeachment on both counts, while a third objected to the obstruction of Congress charge. Congresswoman Tulsi Gabbard (D-HI), a presidential candidate, voted "present." None of the chamber's 197 Republicans voted for either count. The impeachment process will now move to the Senate, which will likely begin its trial on January 6. Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY) have disagreed on how the trial should be structured, but the majority leader's views likely will prevail. As such, we still expect a fairly short trial that lasts through January and features no outside witnesses.
End of Year Free-for-All.
Congress routinely tries to pass legislation before going home for the year-end holidays. This year has been no different. We discuss some of the more notable accomplishments below.
- Government Funding Bills. Congress passed two separate spending bills that will fully fund the government through September 30 of next year and therefore avert any threat of a government shutdown until then. To accommodate the diverse priorities of lawmakers on both sides of the aisle, the final agreement increased overall spending to $1.375 trillion (a $49 billion increase from last year). Throughout the process, neither party showed any real concern about the contribution of increased spending to a growing budget deficit.
- Bummer for Young Smokers. One of the spending bills contains a provision to raise the legal age for those who can purchase tobacco products from 18 to 21.
- Wall Money. The spending deal contains $1.375 billion for further construction of physical barriers (including walls) along parts of the southwest border, the same amount that was included in last year's spending bill. The Trump administration was also given flexibility to move funds from other federal accounts to supplement the wall project.
- Obamacare Funding Decimated. One of the spending bills also eliminated key funding sources for the federal exchanges established under the 2010 Affordable Care Act (Obamacare), which collectively provide health insurance to 8.5 million people. In particular, Congress repealed a tax on high-cost health insurance plans that was unpopular with both business and labor groups as well as separate taxes on medical device manufacturers and the health insurance industry. This is typical of Congress – create an expensive federal benefit and then subsequently remove the ability to pay for it. This action will cost taxpayers nearly $400 billion over the next decade.
- Annual Defense Authorization Bill. Congress has passed an annual defense reauthorization bill for the past 59 years. Passage of this bill is important for the Pentagon as it needs predictable planning for its manpower, weapons and research needs. Republicans secured more defense spending in the bill, including the establishment of a Space Force and pay raises for service members, while Democrats were able to establish more generous family leave policies for federal employees.
- Tax Extenders. Congress extended dozens of tax credits and deductions due to expire on December 31. The big winners in this package are the biodiesel and short-line railroad industries, which saw their tax incentives extended through 2022. Others, like the depreciation schedule for racehorses and a credit for the construction of new energy efficient homes, were renewed through 2020. These provisions are important to the relevant industries but not more broadly impactful.
- SECURE Act Secure. The SECURE Act also was included in the final spending package. The bill includes an increase in the required minimum distribution age from 70½ to 72, a repeal of the age limitation on contributions to a traditional IRA and an effective elimination of "stretch IRAs." Contact Shane Lieberman for more information.
- US-Mexico-Canada Trade Agreement (USMCA). The USMCA was passed in the House with bipartisan support and will be considered in the Senate in February after the impeachment trial. It should comfortably pass the Senate.
US-China Trade Deal, the Week After.
Two things seem clear as the dust settles on last week's announcement of a phase one US-China trade deal. First, there is the positive and important development that both sides publicly agree that a deal has been made in principle. Second, there still is some confusion between the countries on the scope and specifics of the agreement. The US has publicly identified details on which China has demurred. Our sense is that some of the rumored provisions, including Chinese purchases of US products, will need to be adjusted as the agreement is fleshed out in an official document over the coming weeks. While there appears to be broad consensus on most issues, we believe there will continue to be some frictions in certain areas that may call into question whether a deal has really been struck.
Trump Judges Adding Up.
We often cite the Senate's work in approving the Trump administration's judicial nominations, which are all lifetime appointments. The approval of a few judges every week may not always seem like a big deal, but three years of Senate approvals has had a very significant cumulative effect on the federal courts even beyond the shift of the Supreme Court to a conservative-leaning body through the approval of two Trump nominees. The Senate recently approved its 50th circuit (appellate) court nominee. In President Obama's eight years in office, he nominated and secured Senate approval for 55 judicial nominees. Circuit judges nominated by Republican presidents now outnumber those nominated by Democratic presidents by a 98-81 margin. Next up for the Senate is to approve a backlog of 80 nominees for district court vacancies, where Democratic judges have a majority of 319-279. President Trump has gotten approval for 121 district judges over the past three years and will likely push past the 319 mark by the end of next year. When history summarizes President Trump's time in the White House, his reshaping of a more conservative federal judiciary will be a prominent accomplishment.
The Final Word
Congressman Jeff Van Drew (D-NJ) announced his change of party affiliation from Democratic to Republican due in part to his opposition to the impeachment of President Trump. Not many members of the House or Senate switch parties while serving since it puts them in a more politically-perilous situation. Their former party is motivated by revenge to defeat them, while the new party doesn't always trust them. Since 2000, there have been five members of the House and one senator who have changed their party affiliation to the opposite party, and an additional two senators and one representative who changed their party affiliation to independent. Of this group, only two of the House members who faced an opponent in their primary and general re-elections were re-elected with their new party affiliations. Party-switching involving current members of Congress is always a big media splash the day it is announced, but it doesn't usually lead to longer-term political success.