Washington Weekly

Both the House and Senate passed a $4.6 billion package to address the migrant crisis at the southwest border (see below). The House also passed bills to fund various federal departments and agencies in fiscal year 2020 as well as a bill to strengthen election security.

Both the House and Senate will be out of session to celebrate the July 4 holiday and return to Washington the week of July 8.

Ex-Im False Start.

The Export Import Bank (Ex-Im), a government agency that extends lines of credits and guarantees to US exporters, needs Congress to renew its charter before it expires on September 30. The leaders of the House Financial Services Committee – Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) – last week struck a bipartisan deal to reauthorize the agency for seven years. This deal was under fire this week from Democrats on the committee. Some were concerned about new restrictions the bill would impose on both Ex-Im (including limitations on transactions involving state-owned enterprises in China) and major recipients of Ex-Im support (notably Boeing), while others wanted further environmental and labor protections added to the deal. Because of these concerns, Chairwoman Waters needed to yank the bill from a planned mark-up in committee. She now will try to consolidate Democratic support by making changes to the legislation, though that may come at the price of losing the support of Congressman McHenry and other Republicans. While an Ex-Im bill can move forward on a party-line basis in the House, its extension ultimately will need to be paired with reforms of how the agency conducts business in order to get sufficient Republican support in the Senate, something that was underscored this week at a Senate Banking Committee hearing on Ex-Im reauthorization. We expect an Ex-Im package to ultimately advance, but this week’s blow-up shows that the road will be rocky.

US-China Trade.

President Trump will meet with Chinese President Xi tomorrow (EST) in Japan to discuss trade issues. While we don’t know exactly how the conversation will go, we would keep expectations low. The conventional wisdom is that the two presidents will agree to resume negotiations and pause the imposition of higher tariffs. That would be good news for the time being, but it isn’t necessarily indicative of real progress toward a deal. The US wants to resume negotiations from where they were when they broke off in May when a deal seemed feasible and within reach. However, that is not where the Chinese are from a negotiating standpoint. New Chinese negotiators have been appointed for the talks going forward, suggesting that any agreement will have to be written largely from scratch. Additionally, the Chinese are insisting that the US lift the ban on Huawei as part of any deal. This hardening Chinese line combined with the strong US demands for substantive changes to Chinese laws and policies suggest the road ahead will be long and difficult. We are still optimistic a deal can be struck because it would be beneficial to both leaders, but we are doubtful that any deal can be as comprehensive as what the US wants.

Border Crisis.

Both the House and Senate this week passed a $4.6 billion emergency funding bill to deal with the asylum crisis along the southwest border. The bill largely accommodates the Trump administration's requests for help with the crisis and will soon be signed into law. However, the bill applies a mere band-aid to a serious and festering problem. The authorities at the southern border have been overwhelmed by the challenges of processing and detaining nearly 5,000 new migrants a day, which was the daily number throughout May. This crisis can only be resolved through broad changes to US asylum laws. Lawmakers from the two parties generally view the asylum crisis differently. Republicans have more of a law and order perspective and want to control migrant entry more restrictively. Meanwhile, Democrats often highlight the challenging personal circumstances of many migrants who are fleeing their troubled home countries. Accordingly, they generally want to relax entry restrictions. Middle ground will have to be found within those two positions, which has been elusive so far.

Health Care Light.

The Senate Health, Education, Labor and Pensions (HELP) Committee advanced a bipartisan bill designed to lower health care costs that doesn’t touch the politically hot button issues of Obamacare or Medicare for All, which is why it has a chance of succeeding. A bipartisan group of committee members supported the bill, which focuses on surprise medical billing and the promotion of generic drugs as an alternative to pricier brand name prescription drugs. The surprise billing issue addresses the high cost of out-of-network insurance coverage in emergency care so that patients are not surprised with pricier bills later. The bill tackles prescription drug pricing by requiring drug makers to disclose more information on the prices of their products and by promoting generic drugs. Neither of these initiatives are comprehensive enough to change the health care sector in a significant way, but they represent what is possible in a bipartisan agreement at this time. Taken together, they also would result in modest cost savings. We believe the bill will pass the committee and the full Senate late this year, but its prospects in the House are less certain. 

Tax Treaties.

The Senate Foreign Relation Committee advanced four protocols updating existing tax treaties (Japan, Luxembourg, Spain, and Switzerland) this week. Multinational businesses and individuals are interested in seeing these treaties moving forward given that they seek to stop double taxation. The committee has taken this action in previous years. Yet, it has been nine years since the full Senate passed a tax treaty. Senator Rand Paul (R-KY) has objected to tax treaties consistently over this time period due to his concerns over privacy. He is specifically concerned about provisions that allow governments subject to the treaties to exchange information on taxpayers in their jurisdictions under certain circumstances (e.g. as part of a civil or criminal tax case). There is optimism, not confidence, that the Senate will move forward with these four treaties in the coming weeks. If efforts with these treaties are successful, pending tax treaties with Chile, Hungary, and Poland may also move ahead.

College Donations.

In the wake of the college admissions scandal earlier this year, the leading Democrat on the Senate Finance Committee, Senator Ron Wyden (D-OR), proposed legislation that would allow personal donations to colleges and universities to be fully deductible only if the contribution isn’t considered as part of the admission process. Further, the bill would require any school that has students that receive federal financial aid to publicly report how many students admitted to the college are the children of donors. At least one major education group has expressed concern that these requirements would choke off donations to universities. At this time, we can envision the House advancing legislation to deal with the college admission scandal. However, the Senate is likely to be less enthusiastic, particularly with the college admissions scandal having faded somewhat from the public eye as the cases move forward in court. As a result, we believe this scandal will continue to be dealt with as a law enforcement issue that does not trigger meaningful congressional intervention.

Debate Performance.

The first Democratic presidential debates are in the books. The 20 candidates who qualified had exposure on the big stage and performed differently. In our view, 11 candidates did nothing of significance to advance their candidacies. Five candidates made the most of their opportunities and helped push their candidacies forward more than the others. Our collective staff opinion is that those five are, in the order of most effective, were (1) Senator Kamala Harris, (2) former HUD Secretary Julián Castro, (3) Senator Elizabeth Warren, (4) South Bend Mayor Pete Buttigieg, and (5) Senator Cory Booker. These top five candidates must build on their momentum if this week is to have any lasting impact on the campaign. The next debates – on July 30 and 31 – will likely feature the same 20 candidates but debates after that will very likely include only about half of that number, which will help undecided Democratic voters focus on whom they might support as the more competitive candidates get more prime time exposure. We expect the lower polling candidates to take more risks in the July debates as it may prove to be their last opportunity to remain relevant in this race.