Washington Weekly: Top Issues to Watch From Washington in 2020

Congress this week opened the second session of the 116^th Congress at the same time that close to 20 candidates from both parties continue to compete in this year's presidential election. With this backdrop, we outline the policy and political developments that we believe will dominate the new year. They are listed below in a rough chronological order.

We believe House Speaker Nancy Pelosi (D-CA) will formally send the House-approved articles of impeachment to the Senate any day now, and the Senate will hold its trial this month. Senate Majority Leader Mitch McConnell (R-KY) will be able to pass rules governing the start of the impeachment process on the basis of Republican votes once Speaker Pelosi transmits the articles to the Senate. Democrats have called for witnesses (notably former National Security Advisor John Bolton), but the Senate rules package will postpone debate and any votes on witnesses until after both sides have made their cases as part of the trial. Speaker Pelosi's ongoing hold of the impeachment articles may have the effect of pushing the trial into February. Whatever the timing, the outcome to acquit in the Senate is as predetermined as the vote to impeach was in the House. Nevertheless, even with tensions rising with Iran, the drama and political maneuvering around impeachment will dominate news coverage out of Washington throughout the trial and likely for weeks and even months following its conclusion. If Speaker Pelosi continues to hold the articles of impeachment and stall a Senate trial, the drama will significantly escalate.

To a large degree, the politics of the President's impeachment are already evident. The vast majority of Americans already have strong views on whether President Trump should be impeached and removed from office, and those views will likely withstand any new information that may come to light. Only a very small group of Americans – between 5% and 10% – remains undecided. This is the group that Speaker Pelosi and Senate Minority Leader Chuck Schumer (D-NY) are targeting in their current efforts to demand witnesses as part of the impending Senate trial. Separately, we expect US Attorney John Durham to release a report over the next few months on the origins of accusations of Russian "collusion" against Donald Trump and his presidential campaign. The Durham report, which is being done at the request of Attorney General Bill Barr, is not intended to address or counter the articles of impeachment, though it likely will provide more detail on how the government decided to investigate collusion charges in the first place and on the extent to which this investigation was mishandled by the Department of Justice and FBI. The report may put into context President Trump's preoccupation with these charges throughout his presidency. There is likely still impeachment-related information not yet public that could affect the election outcome even if the universe of voters likely to be swayed by such information is presently very small.

The President's annual address to Congress will take place on February 4. With Speaker Pelosi's hold on the articles of impeachment and the exact length of a Senate trial still to be determined, it is unclear whether the impeachment process will be completed or will still be ongoing by that time. Regardless, this year's State of the Union address could be a very awkward event. We suspect at least some House Democrats will not attend the address given their strong views on impeachment. State of the Union addresses are often conciliatory and are typically designed to outline a bipartisan legislative plan for the year. Will the President strike a unifying or defiant tone under current circumstances? We suspect we will hear a defiant tone from a President enraged about impeachment and gearing up for a contentious election.

The US-Mexico-Canada Trade Agreement (USMCA), which the House passed late last year, will be the Senate's highest priority outside of the impeachment trial. The agreement should easily pass the Senate. It is a very important initiative involving the US and its two largest trading partners. This will be a very positive and bipartisan vote but likely overshadowed by the impeachment drama. This vote likely will be the Senate's best and biggest act of bipartisanship all year.

US and Chinese trade negotiators are planning to sign a phase one trade agreement on January 15. That's good news. Both countries, as well as the financial markets, need a time out from this prolonged spat. The phase one agreement provides that reprieve for at least the time being. The challenge will be with the implementation and enforcement of the deal. Both sides will nitpick over exact details, and there will certainly be disputes along the way that will call into question whether the deal can survive. Despite the current euphoria over the impending phase one deal, we believe US-China trade issues will continue to be very strained this year. The US will press strongly for a phase two agreement, but we have very little confidence that a subsequent agreement will be struck before the US elections in November, if one happens at all.

A dozen popular federal health care programs expire on May 22, and many lawmakers are hoping that an extension of these programs can provide an impetus to address other pressing health care needs, such as surprise medical billing and prescription drug pricing reforms. We believe the health care programs could be extended by then and paid for by enactment of surprise billing legislation, which is expected to lower patient costs during emergency room visits. However, we are far less optimistic that a meaningful prescription drug pricing reform bill can be added to this legislation. That is a far bigger issue that involves separate dynamics and different constituencies. Although President Trump and congressional Democrats agree on some elements of what could be in a final drug pricing bill (including capping prescription drug prices in some ways), we believe the political environment is just too toxic now for the two sides to sit down and strike a deal.

The Supreme Court is currently in the process of hearing oral arguments and will announce its decisions on various cases this summer. The court will release decisions on cases involving immigration, LGBT rights, abortion rights, free exercise of religion, separation of powers and second amendment rights, among others. It may also agree to hear a case involving the repeal of the entire Affordable Care Act (ACA). How the court rules on these cases will have significant political ramifications since these decisions will be announced in the midst of what will no doubt be a heated political battle between President Trump and the Democratic nominee. The Supreme Court's decisions, which will address many divisive social issues, could drive voter turnout among some key segments of the public in November.

The 14 candidates still running for the Democratic presidential nomination will finally get to face each other in real caucuses and primary elections beginning February 3, when Iowa will hold its caucuses. Primary elections will follow in New Hampshire (February 11) and South Carolina (February 29), while a caucus in Nevada will be wedged in between (February 22). On March 3, 14 states, including some of the largest states such as California and Texas, will hold their contests on what could be a decisive "Super Tuesday." Given that the Democrats have changed their rules to award delegates based on proportionality and to reduce the role of "super-delegates" in the early phase of the election, we may not see a true Democratic front-runner emerge for a more extended period of time. Indeed, under the dynamics of these rules and an overall close race, it is possible that no candidate will have amassed the needed majority of pledged delegates going into the convention in July. This would set up a contested convention whereby a candidate would need to be chosen at the convention, likely with considerable influence of the aforementioned super-delegates (unpledged delegates that are typically elected officials and other party officials). This has not happened in a Democratic convention since 1952. We will report more on this scenario in a future publication.

Held in Milwaukee over July 13-16, this convention could be historic if it begins without an apparent nominee. We don't believe this is a likely outcome at this point, but it is also not a remote possibility. If a front-runner emerges from the 14 candidates and wins the nomination outright earlier, he or she would likely do so by late April. The convention then would be a more typical affair. A key question will be whether the eventual nominee can sufficiently excite the party's different factions and effectively mobilize their votes to defeat President Trump in November. While Democrats generally have a strong desire to defeat Trump, the onus will be on the Democratic nominee to excite some of the party's biggest factions – particularly younger and Hispanic voters – to get them out to vote in sufficient numbers.

The Republican convention, which will be held in Charlotte from August 24-27, will likely be less newsworthy, since President Trump's re-nomination won't be seriously contested. In his acceptance speech, the President will lay out his argument for re-election and why voters should reject Democrats up and down the ballot. What will be most newsworthy is how he frames that argument. He'll certainly focus on his accomplishments, including tax and regulatory reforms, a strong economy, full employment across age and ethnic groups, a transformed federal judiciary, passage of the USMCA and toughness with China on trade. It will be up to the small group of undecided voters on whether to focus on that record or his controversial governing style. His overriding themes will be to not risk undoing the economic expansion and to choose capitalism over socialism.

The technology industry will sit in a hotter seat this year than the already hot seat it sat in last year. Both House and Senate committees will continue to hold hearings on big tech business models, privacy protections, industry competitiveness, encryption practices, their roles in political advertising and other contentious subjects. Overriding all of this activity is the potential release of the results of separate investigations by the Department of Justice and the Federal Trade Commission over anti-trust and competition issues relating to the industry behemoths, including Facebook, Google and Amazon. We don't believe legislation will pass addressing any of these issues. Rather, the glare from the ongoing investigations, which could be wrapped up later this year, and critical hearings will further dim the industry's reputation in Washington and among consumers. It will also force them to continue to change various business practices. Will all of this oversight activity slow the strong market performance of the tech sector from last year? We don't think so now, but the federal investigations could prompt legislative activity in 2021 depending on the outcome of the elections.

The House and Senate will spend much of its time this year trying to pass the 12 separate government spending bills to fund government agencies in the new fiscal year, which begins on October 1. This process is never easy, especially in the current environment, because it requires significant compromises by lawmakers from both parties. Both chambers have largely abandoned the longstanding practice of passing the bills individually in advance of October 1. These days, lawmakers routinely miss the October 1 deadline, forcing them to pass short-term measures to avert government shutdowns. When they do come to a longer term agreement, they typically package the bills into one or two large measures. President Trump has decried this process and repeatedly threatened to veto these spending behemoths if Congress continues this practice. Whether this White House-Congress confrontation will occur will be the most interesting thing to watch in this year's budget fight, which won't really kick into high gear until September.

In the financial services world, separate measures that have passed the House to provide a safe harbor to banks serving marijuana businesses and to modernize the anti-money laundering regulatory regime will face an uphill climb in the Senate during an election year. While a bill to lift the cap on the state and local tax deduction passed the House in December, the Senate will not act and there will not be relief for taxpayers from high-tax states in this area. A bill addressing higher education reforms, particularly student aid programs, could get some momentum as a nod to its author, retiring Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-TN). The Senate will continue to remake the federal judiciary by approving judicial nominees of the Trump administration, particularly district judges from around the country. Certain federal surveillance laws, put in place after 9-11, face a March expiration unless Congress extends them, which we think is unlikely. Lawmakers will continue to press for new sanctions against Russia, China and Turkey, and possibly other countries, but these measures will face some resistance from the Trump administration and will depend on world events. Now that the US-China trade conflict has cooled a bit, the US will spend more time trying to address trade frictions with the European Union. This will occur on several fronts and be very contentious throughout the year.