Washington Weekly: Making the Final Cut

The Senate approved various executive branch nominations and passed an extension of a domestic surveillance law (see below). Later today, the House will approve a $3 trillion "stimulus 4" bill to counter the health and economic effects of COVID-19 (see below). The House will also approve a resolution to allow voting by proxy during the COVID-19 crisis.

The Senate will consider a number of executive branch nominations. The House is not scheduled to be in session.

Stimulus 4 in the House.

House Speaker Nancy Pelosi (D-CA) earlier this week unveiled a $3 trillion stimulus proposal, which will be approved in the House later today. The bill is significant because it will begin the process of formal negotiations with the White House and Republican leaders in the Senate on a path toward a final stimulus 4 bill. The actual content of the House bill, which costs more than the four previous bills combined, is less significant given that most provisions will not be included in the final bill. A summary of the bill, as outlined by House Democrats, is included here. We believe a stimulus 4 bill will be successfully negotiated by the House, Senate and White House in June, but it will be scaled back significantly from the measure that will pass the House later today. We also believe it will be the last significant stimulus bill to pass before the election.

Making the Final Cut.

What may be included in a final bill to be negotiated over the next few weeks? We believe the following provisions will be in a final bill: (1) more funding for state and local governments with some conditions prohibiting the funds' use for financially-troubled state pension systems; (2) limited and temporary liability protection for small businesses, universities, healthcare workers and front-line workers; (3) changes to the popular Paycheck Protection Program (small business loans) that will make program terms more flexible and generous, but no additional funding for the program; (4) more funds for hospitals and front-line medical professionals; (5) more funds for testing; and (6) tax incentives for US companies bringing back manufacturing jobs from overseas (with a focus on China). Other issues are in the mix, but these six items seem particularly plausible now based on the status of the COVID-19 crisis and the political realities that surround the negotiations.

No Infrastructure.

The House bill does not contain significant spending on infrastructure programs (except for a combined $36 billion for highways, transit and broadband), likely closing the door on any hope of getting a comprehensive infrastructure bill included in stimulus legislation this year. The Senate has always been cooler on adding infrastructure to the stimulus bill. However, we expect the Senate to advance a relatively small infrastructure bill later this year dealing with waterways, water projects, roads, highways and "surface transportation" projects as part of a regular reauthorization effort. This bill will provide nearly $300 billion for these infrastructure improvements. We will report on this once the Senate begins to move the bill forward.

More Retirement Policy Changes?

The CARES Act (stimulus 3) had several retirement provisions, including a suspension of the required minimum distribution (RMD) for 2020 and a waiver of the early withdrawal penalty for coronavirus-related distributions. Building upon that effort, the House Democrats' latest stimulus bill has over a dozen additional retirement changes. Most notably, the bill would waive RMDs for 2019 and waive the 60-day rollover rule for 2019 and 2020. Senate Republicans have also expressed an interest in increasing contributions limits as a means of boosting retirement savings. We know the Senate stimulus 4 bill will be far more limited than the House version, but whether it contains many of the retirement issues mentioned above is an open question as of now. Some provisions may make it into a final bill, but the more ambitious proposals (e.g. lifting the contribution limit) are likely out of reach.

Surveillance Extension.

The Senate this week took up some unfished legislative business by passing an extension of key aspects of a domestic surveillance program originally created in the wake of the September 11^th attacks. The House passed a bipartisan agreement in March that coupled the extension with more civil liberty protections and greater accountability and oversight. However, the program lapsed on March 15 given the Senate’s inability to pass the House legislation at a time the entire Congress has largely been out of session due to the coronavirus crisis. While the House bill has bipartisan support, there are many Democrats and Republicans who would like to see stronger privacy and civil liberty protections. In that context, the Senate approved one of three amendments to bolster these protections before passing the overall bill. While the bill was negotiated and supported by Attorney General William Barr and other administration officials, it still is not a foregone conclusion that President Trump, who has argued that the surveillance program was abused during the 2016 campaign, will sign it. Regardless of what he decides, there will continue to be significant scrutiny of the program given the lingering concerns and misgivings about it going into a contentious presidential election.

Supreme Court and Trump Records.

The Supreme Court heard oral arguments this week in cases relating to the public's access to President Trump's financial records. Three House committees and New York State have specifically subpoenad the President's records, including his tax returns over the last ten years, but lawyers representing the President have challenged that action in the courts. At question is whether the request for information serves a legitimate legislative or investigative need or is primarily motivated by politics. We don't know the Supreme Court well enough to know how it will decide. However, the important thing to note is that the court likely will render a decision this summer that will determine whether the President's financial records need to be publicly disclosed. Such a revelation could have a big impact on the November presidential election. This is one of likely many potential surprise developments that isn't on the public's radar screen now, but that could affect many voters this fall.

US-UK Trade Agreement.

US and UK negotiators met remotely for the second straight week to outline potential terms of a free trade agreement between the two countries. Both countries want a formal agreement in view of their overall strong alliance and the UK's departure from the European Union at the end of this year. While President Trump and Prime Minister Boris Johnson are on very good personal terms and are optimistic about reaching an agreement, these negotiations will not be easy or quick. There are plenty of areas (including financial services, health care and agriculture) where the two could expand trade relations, though conflicts could emerge in health care and on greater US access to UK's agricultural markets. Negotiations will be further complucated by the two sides' separate trade initiatives with the European Union. Both the UK and the US are negotiating separate deals with the EU, and the coordination of these deals will be challenging. Nonetheless, the US-UK talks will continue all year and will not be resolved until next year. The winner of the November presidential election will be the president who puts the finishing touches on this agreement.

US and the WTO.

Senator Josh Hawley (R-MO) is pushing the Senate to consider a resolution that would withdraw the US from the World Trade Organization (WTO). Similar legislation was introduced in the House by Congressmen Peter DeFazio (D-OR) and Frank Pallone (D-NJ). These resolutions are "privileged," which means they must receive votes, though the timing of those votes remains uncertain. However, the resolutions will fail when they receive votes. The vast majority of lawmakers from both parties want to reform the WTO, not remove the US from it. We would even be surprised if President Trump, a frequent critic of the WTO, would support the resolution. Until reforms to WTO are made (which won't be soon), calls for a US removal will occasionally be heard, but they should not be taken too seriously.

Hunter Biden is Back.

Next week, the Senate Homeland Security Committee will vote whether to issue a subpoena for a consulting firm that represented Burisma, the Ukraine natural gas company whose board included Hunter Biden. We expect the subpoena request to be approved given the Republican majority on the committee. We don't know if the subpoena will produce potent evidence, whether from a legal or political perspective, but it will put impeachment-related issues back in the news. Next week's committee vote will commence a Senate investigation of Hunter Biden that has seemed inevitable for a long time.