Washington Weekly: Government Funding Bill

The House approved and the Senate debated both the annual defense authorization bill that has drawn a veto threat from President Trump (see below) and a week-long extension of a continuing resolution that will fund government agencies through December 18 (see below).

The Senate will pass the defense authorization bill early next week, if not sooner. Both chambers will focus on the government funding bill, which may contain a stimulus bill (see below), and a vote to overturn a possible veto by President Trump of the defense authorization bill.

COVID-19 Stimulus Bill. 

If an acceptable bipartisan compromise can be agreed to over the next few days on a new stimulus bill, it will be added to the government funding bill mentioned above and below. To provide further time for negotiations, lawmakers voted to extend government funding by one week, which makes December 18 the current effective deadline for action on a possible stimulus bill. Bipartisan negotiations picked up this week but made only limited progress. While both sides seem to acknowledge that only a smaller bill can advance this year (under $1 trillion), there are still serious disagreements over other issues, including spending priorities within that amount. Republicans have insisted on liability protections to help businesses weather the pandemic and reopen more confidently, while Democrats have insisted on more aid to state and local governments, which have seen their budgets depleted by COVID-19 revenue challenges. Those are the two key areas of disagreement as of today. Despite the tough talk from party leaders over their various demands, we believe a final bill will come together this month.

Government Funding Bill. 

Following the Senate’s impending approval of the government funding bill, Congress will have a deadline of December 18 to pass a longer-term government funding bill. Congress will have to act again, with or without the inclusion of a stimulus bill, on this broader bill to keep government agencies funded beyond the deadline. Congress will tout any funding bill as a victory, but government funding without additional stimulus is otherwise unremarkable (though necessary).

SALT Deduction. 

As the year comes to a close, we have received questions about the potential of a return of the full state and local tax (SALT) deduction, which was capped at $10,000 by the tax bill that Republicans passed in 2017. Republicans still defend the cap on the grounds that the full deduction primarily benefits those with higher incomes. Democrats argue that a full reinstatement of the deduction is necessary to help residents, primarily in blue states, deal with a higher cost of living, but that argument has not gained traction in a divided Washington. If Democrats win both Georgia Senate seats on January 5, there is a small opening for changes in this area, but relief is likely to be limited, especially for higher income individuals. Bottom line: if you are in a high tax state with a high income, don’t plan on relief from the SALT cap anytime soon.

First Veto?

Last week, House and Senate negotiators came to agreement on a final version of the National Defense Authorization Act (NDAA), a must-pass bill that sets policy and strategic direction on approximately $740 billion of defense spending. Congress has passed the NDAA for 59 years in a row, and it has traditionally been one of the few consistent areas of bipartisan legislation. This week, the House passed the NDAA on an overwhelming and bipartisan basis, and the Senate soon will follow. However, President Trump has threatened a veto of the NDAA. As we mentioned last week, his veto threat has been animated by a concern that the bill does not repeal Section 230 of the Communications Decency Act from 1996, which has protected social media platforms from being sued for publishing offensive content posted by their users. This is an issue that Congress is separately examining (the Senate Judiciary Committee held a hearing this week on a bill to curb Section 230 protections) but did not want to address in NDAA. If President Trump were to veto the NDAA, there would be sufficient votes to override the veto, though executing a veto-override may be challenging given the limited legislative calendar remaining for this Congress. Alternatively, the bill automatically would become law after 10 days (not including Sundays) if the President didn’t take any action. The NDAA, which provides a pay raise for military service members, will become law though its exact path remains uncertain.

Typical Busy Week on US-China Front. 

There continues to be high-level chatter in Washington on US-China issues. We wanted to highlight some key developments, some of which were somewhat below the radar screen. White House economic advisor Larry Kudlow said no new tariffs were planned on Chinese imports to the US through the remainder of the Trump presidency, deflecting rumors to the contrary. Biden National Security Advisor-designate Jake Sullivan condemned China for its arrests of civil rights leaders in Hong Kong, which is the first official statement made by a Biden official on a specific US-China policy issue. The condemnation was strong and is an early signal that Biden, as expected, will take a tough stance on China. More lawmakers announced support for a US-Taiwan free trade agreement, a move that would surely anger China. Trump administration officials gave tough speeches on China, with Secretary of State Mike Pompeo announcing that the US was ending five cultural exchanges with China. And Senator Marco Rubio (R-FL) is close to brokering an agreement on bipartisan legislation to prevent US companies from involvement in any forced labor in Xinjiang. Every week is filled with a new hostile speech, announcement or retaliation as these superpower tensions continue to increase.

Biden Cabinet Moves. 

President-elect Biden continued this week to name his choices for senior positions, including cabinet heads and key White House slots, in his administration. It is important to remember that none of the White House positions will be subject to Senate confirmations next year, which gives the President-elect more latitude in his choices for these posts. Some of his White House picks would likely not win Senate confirmation. Biden’s choices for cabinet positions will all require Senate confirmation. It is expected that Biden’s choices for Secretaries of the Treasury and State will have their confirmation hearings in January with votes close to the January 20 inauguration date. We view it as almost inevitable that some of his cabinet choices will be tripped up in the Senate confirmation process in the first quarter of next year or withdrawn before then if their confirmation prospects in a closely-divided Senate look troubled.