Both the House and Senate were out of session.
The House is scheduled to be out of session. The Senate will vote on a “mini-stimulus” bill to address the impact of COVID-19 (see below)..
Supreme Court Vacancy
Four full days of hearings in the Senate Judiciary Committee did nothing to alter the pathway for Judge Amy Coney Barrett’s nomination to the Supreme Court. The next step in the process is a vote in committee, which is scheduled for next Thursday. Her nomination will be approved in a party-line vote (the 12 Republican members will support her nomination and the ten Democrats will oppose it). A vote before the full Senate would then occur the following week, and we currently do not see any reason why she won’t be confirmed in that vote.
COVID-19 Stimulus Bill.
There was some progress last week in ongoing efforts to forge a compromise on COVID-19 stimulus, but negotiations stalled this week and appear at an impasse. A deal before the election remains elusive despite the fact that there is a relatively narrow difference between what House Speaker Nancy Pelosi (D-CA) and the White House are willing to spend. The White House has offered nearly $1.9 trillion, while the Speaker is holding out for a bill that spends no less than $2.2 trillion. The two sides also disagree on how the money should be spent. The remaining differences on the size and allocation of additional stimulus seem manageable, but both sides face pressures and incentives that make further compromise difficult. Speaker Pelosi may prefer to wait until January when she could be working with a Democratic President and Senate on an even larger bill. Meanwhile, President Trump’s interest in a larger package that is close to $2 trillion is at odds with the preferences of many Senate Republicans. These are the main reasons for the current stalemate, which is likely to carry over to election day.
Mini Stimulus and Senate Vote
The Senate will vote early next week on a smaller stimulus bill – about $500 billion – that contains additional funding for many of the bipartisan measures contained in previous stimulus bills. Small businesses, the unemployed, reopening schools and health care workers are among the targeted beneficiaries. The bill also would provide a new round of tax rebate checks to certain individuals and liability protections for schools, hospitals and other entities. The bill will be rejected by Senate Democrats as insufficient. The fact that both the House and Senate continue to vote on partisan stimulus bills that have no or little support from the other party is indicative of the lack of progress on a more comprehensive and bipartisan bill. These exercises are intended to be a way for the members of the majority party in each chamber to show voters that they are not the ones to blame for a lack of further stimulus funding.
Financial Transaction Tax
We recently discussed New Jersey’s ongoing consideration of a financial transaction tax (FTT) proposal that would help the state rebuild its COVID-depleted budget. State lawmakers will hold a hearing on Monday on a proposal to apply a tax on financial transactions that take place on servers located in New Jersey. These efforts have caught the attention of Texas Governor Greg Abbott, who is interested in attracting financial services companies to the Lone Star State with a more tax-friendly environment. This may or may not affect the appetite among New Jersey officials to move forward on the FTT proposal, though next Monday’s hearing will be instructive in this regard. The FTT proposal in New Jersey, along with planned or proposed tax increases on wealthier individuals and businesses in California and Seattle, foreshadows other tax increases that other revenue-starved states and cities may take in the years ahead.
We have received numerous inquiries in the past few weeks about potential changes to estate taxes under a possible Biden administration and Democratic Senate. If Democrats hold all the levers of power next year, we expect changes to estate taxes as most Democrats believe that the current exemption level and tax rate are far too generous. The current estate tax rate is 40%, with an exemption for estate assets of $11.5 million or less (the level is almost $23 million for married couples). We believe Democrats will increase the tax rate to 50% and reduce the exemption level to the pre-2017 tax law level of $5.5 million (they could go lower to the 2009 level of $3.5 million). Democrats will also consider eliminating step-up basis, which would tax an asset based on when it was first acquired and not at the time of inheritance. Changes to the estate tax would be a key part of any broader effort by Democrats on taxes. Earlier this year, we wrote a more expansive publication on potential tax changes we are keeping an eye on should Democrats win the election.
Over its more than 230 year history, the Senate has been defined by its allowance for unlimited debate where a tactic called the filibuster has been used to block or delay legislation or nominations. For decades, the Senate’s filibuster rules have effectively required a super majority (the threshold was set at 60 votes beginning in 1975) to advance most legislation. In recent years (under both Democratic and Republican majorities), the Senate has taken steps to eliminate the 60 vote requirement for nominations. There is increasing speculation that Democrats would also eliminate the filibuster for legislation if they retake control over the Senate. This would be a drastic and controversial move that would make the Senate the functional equivalent of the House. Ending the filibuster for legislation will not be easy for Senate Democrats, and we expect there to be more than a few moderate Democrats who would hold the line and oppose such an effort. However, they may rally around an effort to add limitations to the use of the filibuster instead of eliminating it entirely. If Democrats control the Senate next year, they could make a decision on this issue at the beginning of the new session or they could wait until Senate Republicans resist their legislative agenda and use that as a basis for trying to make a change.
Shadow Banking Scrutiny
While noting that the banking industry has performed well in the face of the challenges of the pandemic, Federal Reserve Vice Chairman for Supervision Randal Quarles echoed concerns of other regulators about segments of the shadow banking system. In particular, Vice Chairman Quarles highlighted the pressures faced by prime money market funds (MMFs) during the market turmoil in March and noted that some of the Fed’s emergency facilities were designed to backstop the market in the face of those pressures. Vice Chairman Quarles is leading work by regulators internationally to better understand the circumstances of the market turmoil and to begin work on potential policy responses. A changeover in administration would only heighten the scrutiny of shadow banking. A Biden administration could use the Financial Stability Oversight Council to direct regulatory action on certain products and activities (particularly MMFs, but also hedge funds, private equity and leveraged lending) and even once again designate large nonbank companies as systemically important.
The 2018 mid-term elections featured the most ballots ever cast in a mid-term election and the highest turnout by percentage of eligible voters since 1914. The expectation has been that 2020 would continue that trend and set records for voter turnout, though the pandemic has created some uncertainty. Throughout this year, most states have significantly expanded their access to voting by mail, increased early voting periods and introduced safety measures to help ensure in-person voting is done as safely as possible. Early returns (see below) of mail-in ballots and early in-person voting are now coming in at a record pace and voter attention and enthusiasm in polling, a key metric for predicting turnout, are the highest they have been in recent memory. While voter turnout expectations today are far different from six months ago, turnout is expected to surpass that of the 2016 election and could break record levels.
By the Numbers
With the election now only 18 days away, voting (early in person, by mail or both) is well underway in nearly all states. To date, over 21 million ballots have been cast, just over 12% of the total ballots cast in the 2016 election. Additionally, five states (MN, SD, VA, VT and WI) have already cast 20% or more of their 2016 total. While not all states report their vote by mail request and return rate with party registration included, 13 states do at this point. Of those returned ballots, a little over four million have come from registered Democrats, slightly fewer than two million from registered Republicans and one and a half million from those registered in neither of the major parties. While the total votes cast can be a little misleading due to the fact that the heavily Democratic California is included in the figures, we can see that Democrats are returning requested ballots at a slightly quicker pace than Republicans (18% return rate compared to 12.7%), and both are returning them at a much faster rate than those not affiliated with either party (10%). One other important trend evident in North Carolina is that older voters (66+) are returning their ballots at a much more consistent rate compared to younger voters (18-25), 45.8% compared to 22%. While this is not surprising as older voters typically are more reliable voters and cast their ballots earlier, it is likely worrying for Democrats who typically rely on younger voters more. If these trends continue, expect the Democratic narrative to change from optimism about the large leads in early voting to worry about the disproportionately large number of younger voters who have not returned their ballots.