The House passed legislation to modernize the Bank Secrecy Act, a bill to combat foreign interference in elections and a bill to authorize funding to process DNA evidence in rape kits. The Senate debated government funding and defeated a measure to provide tax relief for those impacted by the cap on the state and local tax deduction.
The House will pass legislation to sanction Turkey for its military operations in Syria. The Senate will continue to work on government funding issues.
Financial Services Issues
Facebook Under Fire.
The House Financial Services Committee grilled Facebook CEO Mark Zuckerberg in a hearing that lasted about six hours. The hearing ostensibly was to focus on Facebook’s leadership in efforts to create a payments system based on a new cryptocurrency called Libra, but the scope of lawmakers’ inquiry was far broader, covering such issues as information privacy, free speech, election interference, antitrust and diversity practices, among others. In the background of the hearing were several financial services bills (including one to block big tech firms from entering financial services) that are unlikely to advance very far despite the frequent criticisms of Facebook. Policymakers around the world have voiced serious concerns (on money laundering, financial stability and other issues) about Libra, and several key members of the Libra Association have bolted in recent weeks to avoid the glare of heightened regulatory scrutiny. In acknowledgement of this, Facebook at the hearing committed to seeking all relevant US regulatory approvals before launching Libra. While some Republican members praised the innovation of Facebook and other technology companies and invoked the specter of China launching its own digital currency, the reality is that the Libra initiative likely will be mired in regulatory concerns for years and may never get off the ground.
Other Issues in Play
House committees continued to hold closed hearings this week to hear from federal officials connected to the US-Ukraine relationship and President Trump’s July phone communication with the president of Ukraine. House Speaker Nancy Pelosi (D-CA), who has in recent weeks said that an impeachment vote before Thanksgiving was likely, hinted this week that a vote could be delayed into December or early next year depending on the work of the investigative committees. This presents a serious problem for the Democratic candidates for president who fear that delayed votes will interfere with the Democratic nomination process early next year. These candidates want to run on their own records and messages and not be overwhelmed by the media’s obsession with impeachment. If the House votes early next year, the Senate would likely hold its trial immediately afterwards and this could mean during the Iowa caucus and the primary election in New Hampshire in early February. This would force the six senators who are running for president to leave the campaign trail at a critical time and participate in a potentially lengthy impeachment trial. The timing of the House and Senate votes have very strong political ramifications, which is why Speaker Pelosi will do everything she can to hold the House vote this year, not next year. If the investigative committees don’t find more of a “smoking gun” in the next few weeks, a request for additional time will pose a problem for Speaker Pelosi that could present serious challenges in her own party.
While Facebook CEO Mark Zuckerberg's aforementioned appearance on Capitol Hill this week elicited predictable sound and fury from lawmakers, we don't think the calls to reform the practices and business models of the leading tech companies should be taken too seriously. Lawmakers aren’t close to passing any legislation to meaningfully affect the big tech companies, primarily because the vast majority of lawmakers don’t have a good understanding of these companies' business models and of the technology they deploy. Members of Congress are quick to vent frustration with tech industry practices, but they are also sensitive about not overreaching and adversely impacting US global competitiveness in technology. Of greater risk to some of these companies are pending anti-trust investigations by the Department of Justice and Federal Trade Commission that are proceeding very quietly and slowly.
Good News on Trade.
While the US-China trade negotiations continue to occasionally inject uncertainty into financial markets, lawmakers and the Trump administration seem to be coalescing behind a vote in the House on the US-Mexico-Canada free trade agreement (USMCA) in the near future. This is perhaps the only pending bipartisan issue in the House that may benefit from the impeachment proceedings. House Speaker Nancy Pelosi (D-CA) is under pressure to hold a vote on this agreement by moderate Democrats who support the agreement. She also needs to counter Republican charges that she is singularly focused on impeachment at the expense of other pressing policy issues. We expect a vote to occur in the House later this year unless impeachment takes significantly longer than currently expected. The House likely would pass the agreement if it comes up for a vote and the Senate would quickly follow the House's lead. A positive vote on this agreement would help President Trump secure a legislative victory and help Speaker Pelosi counter charges that she is ignoring major policy issues while focusing too much on impeachment. More importantly, it would send a signal to the markets that the US is committed to trade expansion and is capable of finding agreement with two of its largest trade partners (US trade with Mexico and Canada involves over 100,000 US companies, many of which readers of this publication invest in).
Paying for Medicare for All.
After being pushed in last week's debate about not having a detailed plan to pay for "Medicare for All," Senator Elizabeth Warren (D-MA) said this week that the details would be forthcoming. When pressed on this point at the debate, Warren repeatedly stated that corporations and the "rich" are going to foot the bill, whereas Senator Bernie Sanders (I-VT) has admitted that such a plan would increase taxes on the middle class. Medicare for All is estimated to cost $32 trillion over ten years. To put this cost into perspective, the federal government only took in $3.3 trillion in revenues in 2018. The lion's share of this amount is generated from income taxes, payroll taxes (Social Security and Medicare) and corporate taxes, but also includes tariffs, fees and other sources of revenue. It is hard to imagine how the staggering cost of Medicare for All could be funded without a significant tax increase for the middle-class, which is a significant reason we see little chance that it can be adopted in the coming years.
Medical Device Tax.
Obamacare's 2.3% excise tax on the sale of medical devices has been suspended since 2015 but is set to go back in effect on January 1, 2020. With this looming date, many lawmakers from both parties are supporting legislation to permanently repeal this tax. Medical device makers like Stryker and Bayer oppose the return of this tax, which is estimated to be a $20 billion tax increase. While the prospects for the passage of major tax measures this year remain uncertain, the medical device issue has the potential to be the glue to bring a more comprehensive, bipartisan deal together. This issue is unlikely to be resolved before Thanksgiving. In the meantime, we will be looking for signs that lawmakers are making progress in averting the application of this significant tax on medical devices.
House Democrats have released a comprehensive plan to make reforms to higher education. The bill would provide funding for states to help eliminate tuition at community colleges, expand Pell Grants, provide loan forgiveness for public service, allow existing student loan borrowers to lower their interest rates and impose new accountability requirements on colleges that receive federal aid. The bill is estimated to cost about $400 billion over ten years and does not currently contain any offsets for new spending. The bill is, however, more modest than what some 2020 Democratic presidential candidates have proposed, with former Vice President Joe Biden's higher education plan carrying a price tag of $750 billion and plans by Senators Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) costing between $1 trillion and $2 trillion. While most House Republicans oppose the bill, there are provisions (like Pell Grant expansion and financial aid application streamlining) in the bill that are similar to those in a Senate bill introduced by Senator Lamar Alexander (R-TN), the chairman of the Senate committee that oversees education issues. While the Democratic bill will likely pass the House, the future of any higher education bill reaching the president's desk will depend primarily on whether lawmakers in both chambers can come together on a compromise, which looks doubtful at this time.
The Final Word
Democratic Debate Interest.
Last week's fourth Democratic presidential primary debate was the least viewed debate to date with only 8.3 million TV viewers. This was a significant drop off from the first and third debates which respectively had 15.3 million and 14 million viewers and a small decrease from the 8.7 million viewers for the second debate. While the size of the drop-off is notable, a decline in debate viewership over time is not a surprising trend. Historically, debate viewership tends to peak with the first debate and slowly decline throughout the summer and into the fall before picking back up in the winter as the first primaries approach in Iowa and New Hampshire. While the next few debates may continue to have lower viewership, we expect interest to pick back up as the number of candidates on stage shrinks and the Iowa caucuses approach.