The House and Senate passed legislation providing $8.3 billion to combat the coronavirus in the US (see below). The House also passed a bill to extend collective bargaining rights to some Transportation Security Administration employees.
The House will pass several bills, including one to limit the administration's authority on travel bans, another to ensure the availability of counsel to illegal immigrants and a reauthorization of legislation on various federal intelligence surveillance programs (see below). The House also may take up a resolution to limit the President's ability to wage war with Iran without congressional authorization. The Senate will likely vote on energy legislation (see below).
Financial Services Issues
Coronavirus and Financial Services.
The novel coronavirus (COVID-19) outbreak has been at the front of mind for financial institutions and their regulators amidst concerns from financial markets and the broader public about the potential spread and economic impact of the virus. Most notably, the Federal Reserve took swift action to allay market fears by cutting its benchmark interest rate. Senator Elizabeth Warren (D-MA) called for the Fed to go further by providing an emergency lending program to help companies cope with supply chain disruptions. Meanwhile, financial institutions have huddled with their supervisors to ensure that they are taking appropriate steps to strengthen the operational resiliency of their institutions and the financial system writ large. To help guide firms’ actions, the banking regulators are expected to refresh guidance from 2007 on planning for and responding to pandemics. The SEC also announced that it will give companies affected by COVID-19 additional time to file financial reports. Even with the focus on the coronavirus, regulators will continue to move forward with their broader agenda, as reflected by the Fed’s final approval this week of an important and longstanding initiative to integrate stress testing into its capital rules in the form of a stress capital buffer.
Other Issues in Play
Congress advanced an $8.3 billion emergency funding bill that will address COVID-19 in the US. The funding will be used for a variety of purposes, including efforts to accelerate the development of a vaccine to counter COVID-19, reimbursement of state and local governments for their responses to the virus threat and purchases of emergency equipment and tests. After a brief spat between the two parties over the cost and availability of the vaccine (which is expected to take between 12-18 months to develop and test), the House passed its bill late this week. The Senate quickly and overwhelmingly followed suit. It's important for Congress and the administration to demonstrate to the American people that they are working quickly, cooperatively and decisively to address this crisis despite their political differences. While they will continue to fight over who is acting more responsibly and who has better ideas on how to respond, the two sides at least demonstrated this week that they can approve a funding plan that should help contain the virus.
This was a week of legislative activity for the Senate, which has been primarily focused on judicial and executive branch nominations. In addition to passing the COVID-19 funding bill, it began consideration of a bipartisan energy bill. Specifically, the bill would modernize various energy laws, promote renewable energy, make federal buildings more energy-efficient and promote new technology in energy use and development. This is a fairly modest bill that sidesteps the more contentious energy issues like ongoing fossil fuel use, alternative energy development and climate change. It is not controversial and should pass the House later this year after passing the Senate next week. However, House Democrats may be tempted to add climate change provisions to the bill, which would doom it. The energy industry and consumers alike support the Senate bill, which is a solid bipartisan accomplishment, even if it will not have a significant impact on most of the energy industry or fundamentally alter the contours of the broader debate on the future of energy policy.
Fiscal Stimulus Coming?
As reflected by the content of the funding bill passed this week, Washington has primarily been focused on the health impact of COVID-19. On the heels of the Fed's aforementioned rate cut, lawmakers are starting to consider whether fiscal stimulus also makes sense. The White House has joined the discussion and proposed a one-year suspension of the payroll tax, which was quickly shot down by House Democrats. Senator Elizabeth Warren (D-MA) has proposed a $400 billion stimulus bill that includes paid emergency sick leave. Other ideas have included providing a one-time tax credit for companies that bring manufacturing jobs back from China and increasing availability of lending to small businesses. Lawmakers will become more cognizant of the economic impact as they witness disruptions to daily life. There is no consensus behind any one fiscal stimulus plan at this time, but we expect additional ideas to percolate in the coming weeks as the virus' economic impact becomes clearer.
Digital Services Tax.
Several European countries, notably France, have targeted American companies, such as Facebook, Amazon and Google, with a Digital Services Tax (DST). A DST would target online activity that takes place in a country where such a company has no physical presence, which is a common nexus for taxation. The Trump administration has retaliated by threatening to place tariffs on French products, such as French wine, cheese and handbags, which has led to a détente for the moment. The Organization for Economic Cooperation and Development (OECD) is trying to drive consensus on a framework for digital taxation, which could result in a compromise to address this US-European spat. In the absence of such a deal, the White House’s strong pushback on this issue will likely discourage similar proposals from other countries and give the US tech industry a tax respite at least for the time being.
Following 9-11, Congress gave federal law enforcement officials new tools to combat domestic terrorism threats, including the use of surveillance of citizens' phone calls if they are suspected of having ties to terrorism. Not surprisingly, this authority has proved controversial. National security experts believe the authority has been extremely useful in uncovering domestic terrorist plots over the last two decades, while President Trump and most privacy advocates believe the authority is ripe for exploitation. Remember that the FBI's direct surveillance of a former Trump campaign aide during the 2016 presidential campaign to assess his (and potentially Trump's) ties to Russia has been at the center of much of the controversy relating to Russia and Ukraine that has dogged the President throughout his term in office. This surveillance was later deemed inappropriate by the Justice Department's inspector general. This surveillance authority involving the text messages and phone calls (as well as a few other security measures) expire on March 15, and feelings are mixed on Capitol Hill regarding whether to extend it. With the looming expiration date, it will get more attention next week. We believe these authorities will not be extended on a long-term basis because of opposition from the President and a gradual loss of support for it over the years.
Flavored Tobacco Ban.
Following up on the enactment of a law last year to raise the legal age to buy tobacco from 18 to 21, the House recently passed legislation that would ban all flavored tobacco products (including menthol) and impose taxes on e-cigarettes. The bill would also ban online sales of e-cigarettes and impose advertising restrictions. While most House Democrats viewed the bill as an effort to help limit e-cigarette use among youth, a group of House Democrats voted against the bill due to concerns that it would discriminate against some tobacco users. Despite ultimately passing the House, the bill faces an uphill climb and is unlikely to pass the Republican-controlled Senate. While this particular bill will not advance, Congress will continue its efforts to discourage the surge of youth e-cigarette use (over 5 million middle and high schoolers reportedly used e-cigarettes in 2019).
The Final Word
The Power of Endorsements.
Perhaps the most significant factor in the change in the trajectory of Joe Biden's campaign was the endorsement of House Majority Whip Jim Clyburn (D-SC) days before the South Carolina Democratic primary. According to exit polls, 61% of the Democratic voters said that Clyburn's endorsement was an important factor in their voting decision, with 27% of them saying it was the most important factor. Biden's dominant win in South Carolina reset the course of his campaign and established him as the leading moderate candidate in the Democratic primary. The dominant win helped pave the way for both Pete Buttigieg and Amy Klobuchar to drop out of the primary and quickly endorse Biden on Monday. Their endorsement, along with that of former presidential contender Beto O'Rourke, helped quickly consolidate more moderate Democratic primary voters around Biden. Biden exceeded expectations on Super Tuesday and notched wins in Klobuchar's home state of Minnesota and O'Rourke's home state of Texas, two states in which Biden had been behind. Biden is not the only candidate to benefit from impactful endorsements. Shortly after Bernie Sanders' heart attack last year, Congresswomen Alexandria Ocasio-Cortez (D-NY), Ilhan Omar (D-MN) and Rashida Tlaib (D-MI) endorsed Sanders' presidential bid and helped boost his lagging campaign. At the time, Sanders was consistently behind in polls to Elizabeth Warren, but following the endorsements, he saw a noticeable increase in the polls. Within a month, he would once again overtake Warren as the leading progressive candidate. In a day and age where campaigns are more and more nationalized and the role of social media continues to increase, endorsements from important figures within the party can still carry a tremendous amount of weight.