Washington Weekly: State of the Union

The House passed bills to strengthen rights relating to union organization and collective bargaining and provide $4.67 billion disaster relief funds for Puerto Rico. The Senate completed its impeachment trial of President Trump (see below).

The House will pass legislation to protect 740,000 acres of wilderness in Colorado and vote on a resolution to remove the deadline for the ratification of the Equal Rights Amendment. The Senate will approve various Trump administration executive branch nominations.

Rate Caps.

The House Financial Services Committee this week held a hearing on a bill to establish a federal interest rate cap of 36 percent (on an annualized basis) on consumer loans. The bill is opposed by Republicans and has split Democrats, with some expressing concerns that it would choke off credit to needy individuals. Proponents, on the other hand, argue that the legislation is needed to clamp down on lending arrangements that they charge are designed to evade state usury laws. A 2015 court case raised uncertainties about such arrangements by calling into question the ability of banks to transfer debts to third parties. In response, the FDIC and OCC late last year issued a proposal that would allow the applicable interest rate on a loan to carry over even when it is sold to a buyer in a state with an interest rate cap lower than the rate on the loan. Republicans argued that this regulatory action is needed to provide certainty in the marketplace, while some Democrats expressed opposition to this proposal and also separately attacked the Director of the Consumer Financial Protection Bureau for weakening regulation of payday lenders. This issue will continue to be in focus given ongoing actions at the state and federal levels, but the split even among Democrats means that a federal rate cap bill will make only limited legislative progress.

Senate Impeachment Trial.

After 15 days, it is over. It will take some time for both parties to move beyond impeachment, particularly as Congressional committees continue investigations on relevant issues. The wounds are just too raw, and they will take time to heal. The short-term impact is more polarization in the House and Senate that will discourage bipartisan cooperation on legislation. The gloomy state of affairs does present a longer-term opportunity for those lawmakers willing to work across the aisle on solutions to pressing issues. Perhaps a few new stars from both parties can emerge over time, though we don't expect significant breakthroughs to occur along these lines this year. Instead, the prevailing dynamic in Washington will continue – party-line votes on Democratic priorities in the House, the approval of Republican judges in the Senate and a flurry of executive action from the Trump administration as the only game in town in Washington.

State of the Union.

President Trump spoke primarily about his priorities and accomplishments during his State of the Union address this week. He also cited a few big ticket issues that he would like to see Congress act on this year, including prescription drug pricing reforms and infrastructure funding. There is strong bipartisan interest in addressing both issues this year, but the sour political atmosphere likely will preclude action on either. However, another issue he mentioned – surprise medical billing – has the potential to move forward on a bipartisan basis. Both sides agree with the need to prevent large and unexpected medical bills that often are triggered by emergency room visits and other services provided by medical providers outside of the insurance coverage networks of patients. This is fairly low hanging fruit for Congress and can pass if lawmakers resist the urge to tie the bill to broader and more contentious health care issues, such as prescription drug reforms or reforms to the Affordable Care Act (Obamacare).

Trump Budget for 2021.

Next week will start the annual budget process in Washington for 2021 that will go through various stages and likely wrap up in November or December. The President will submit his draft budget to Congress on Tuesday. The House and Senate then will hold hearings throughout the spring to discuss his funding requests. The President's budget request is largely dead-on-arrival, and Congress ultimately will write its own spending bills. The President's budget request nevertheless has importance in that it reflects his priorities in key areas. The media will focus primarily on his funding requests for defense and southwest border wall projects. They also will be interested in any new requests (e.g. his request for funding for military projects in space received attention last year). The President's sparring with Democrats over his budget priorities will culminate in a fight later this year over government spending that once again will raise the risk of a government shutdown. Washington goes through this process every year and it is never easy.

New US Trade Deals.

The US is planning new trade agreements with India and Kenya in addition to the widely-reported deals also in play with the United Kingdom and European Union. Kenya may seem like an odd choice, but the US would like to make a deal with Kenya that it can use as a model for other African countries. US exporters in aircraft, machinery, plastics and agriculture, among others, could see a surge in exports if a deal comes together. India is a much larger market, and President Trump hopes to announce an outline of a deal when he visits the country later this month. The US will push hard for more exports of agriculture, manufacturing and medical devices to India. The US presently has a trade deficit with both India and Kenya. Neither trade deal would require approval from Congress, which should allow negotiations to move forward quickly and with less fanfare.

Farmers and Trump.

Note the priority given to US agricultural exports in the potential trade deals mentioned above. Agricultural exports also were featured prominently in the US-China phase one deal and in the US-Mexico-Canada Trade Agreement. Farmers in the Midwest have been hurt badly by the series of higher tariffs the President has imposed on Chinese imports since 2018. Indeed, we have viewed the sentiment of farmers as an important bellwether for whether the President would keep the tariff increases intact or relent on them in his battle with China. Farmers have generally stuck with Trump throughout this period, and it appears that patience has paid off for them, at least in part, with the passage of these trade deals and the impending expansion of their export markets. The word we hear from Midwestern and western lawmakers is that farmers are much more confident today about their economic prospects for the next year. As long as farmers remain supportive of the President, expect him to maintain his tough pro-tariff stance in negotiations with other trade partners in his efforts to force concessions to benefit US trade interests.

Climate Change.

While the 'Green New Deal' has failed to advance in the House or Senate, House Democrats intend to pick up individual initiatives and move them forward this spring. More specifically, Democrats are interested in passing legislation that would provide tax incentives for green energy with a goal of net zero carbon emission by 2050. House Democrats have their eye on passing the bill by Earth Day, which falls on April 22. While there will be media interest in the bill, it will be ignored by the Senate. Democrats want to campaign on this issue in the summer and fall and give their presidential nominee a green energy bill to rally around. This is an early skirmish in what will be a longer term battle over the future of US energy that will last over the next decade.

A New First in Nation?

With Democratic presidential candidates having shifted gears from the debacle of the Iowa caucuses to the upcoming New Hampshire primary election, the ramifications of delayed results from the Iowa caucuses may not become fully apparent until well beyond this week. Leading candidates did not benefit from the traditional momentum boost, while underperforming candidates may have had the silver lining of having a bad showing overlooked. Moving forward, it's likely that the delay will cost Iowa its first in the nation status in the 2024 Democratic primary. Even before this year's mishaps, there had been growing discontent among Democrats with having Iowa be the first to vote. The reasons vary but typically include concerns about the degree to which Iowa's demographics represent those of the nation as a whole and concerns about the workability of the caucus process (it is complex, requires a large time commitment and has much smaller participation than a traditional primary election). Iowa Democrats may express a willingness to switch to a primary election, but it may not matter. When all these factors are combined with the growing mistrust of the Iowa caucuses from this year, we don't expect Iowa to lead the nation off for Democrats in the 2024 contests.