Washington Weekly: Defensive Difficulties

The House passed dozens of non-controversial items and approved a procedural motion to advance the National Defense Authorization Act (see below). The Senate approved judicial nominations but rejected the nomination of Judy Shelton to serve as governor of the Federal Reserve.

The House and Senate will be out of session to celebrate Thanksgiving.

COVID-19 Stimulus Bill. 

Congressional leaders made no clear progress this week in efforts to craft the next stimulus bill, though we spoke to plenty of lawmakers over the past few days who remained sanguine on the prospects of a bill moving forward at some point. The ongoing spike in COVID-19 cases, hospitalizations and mounting death toll in the US have not yet generated urgency in Washington regarding another bill. However, that may come soon once vaccines receive federal approval since Congress will need to provide funding to support the mass production and distribution of vaccines. From a political perspective, Congressional Democrats may have an incentive to wait until the results of the Georgia Senate run-off elections are known. If Democrats win both seats, they will have a majority in the Senate and would then have a better chance of passing a bill more to their liking. If Republicans win at least one seat – and therefore the majority in the Senate – the political tug-of-war over the stimulus bill’s price tag will resume. We are bullish on the passage of another stimulus bill regardless of what happens in Georgia but think it is more likely to pass in January or February than in the waning days of this year.

Trump-Biden Transition. 

The Trump-to-Biden transition continued this week and will continue over the next two months. President Trump is not legally required to concede and indeed he may not. He may think that a lack of concession helps him personally and politically by allowing him to continue to call the election results fraudulent and maintain his political base, which would give him a foundation for launching a cable news network and/or another presidential run in 2024. Nonetheless, the Biden transition will chug along, and we do not envision any serious complications in the transfer of power. President-elect Biden named various officials this week for senior roles in his White House (none of these roles require Senate confirmation). We expect the cabinet selections to start becoming public as early as next week. A few names will be announced at a time, beginning with those for the most prominent cabinet posts.

Final Nomination Approvals. 

Senate Majority Leader Mitch McConnell (R-KY) continues to focus on approving remaining Trump nominees for federal judgeships (which are lifetime appointments) and for certain federal regulatory positions (including at the Federal Reserve and the Federal Communications Commissions) that a Biden administration would have difficulty removing. If the Republican majority in the Senate was able to approve two pending Trump nominees (Judy Shelton and Christopher Waller) to the Federal Reserve, the Biden administration would be confronted with a completely filled Board. The Senate tried but was unable to approve Shelton’s nomination this week given that three Republican Senators have come out in opposition to her nomination and that others were unable to vote due to COVID-19-related quarantines. With the Senate going on recess until after Thanksgiving and with a Senate seat in Arizona set to flip to Democrat on November 30 (Senator-elect Mark Kelly will be seated earlier because he won a special election), the Shelton nomination now seems likely to fail. However, the Waller nomination is less controversial and likely will be approved by the Senate early next month. Even without the addition of Shelton, the ongoing presence of various Trump appointees on the Federal Reserve Board may function at least temporarily as a brake on more aggressive regulatory actions going into next year and beyond.

Defensive Difficulties. 

The only other item that Congress needs to pass this year besides a government spending bill is the National Defense Authorization Act (NDAA), which sets policy and strategic direction on approximately $740 billion of defense spending. Congress took steps this week to formally launch a conference committee to iron out differences between the House and Senate versions of the NDAA, though negotiations already have been going on behind the scenes for weeks. At a time of growing tensions with China, the NDAA includes provisions that would bolster US capabilities in the Pacific, strengthen US supply chains and investigate threats posed by Chinese technology, among others. The House version of NDAA, in particular, is a vehicle for some important non-defense-related measures, including bills to modernize the anti-money laundering (AML) requirements and to de-list Chinese companies on US exchanges. Although there is interest in focusing the NDAA just on security-related issues, these items, which have bipartisan support, still will likely make their way into a final agreement. The biggest potential pitfall for the NDAA is ongoing controversy concerning a provision to remove any reference to the Confederacy in federal defense facilities. With President Trump threatening to veto any NDAA with this provision and with run-off Senate elections in Georgia looming early next year (Fort Benning in Georgia is among the bases that would need to be renamed), there is concern in the Capitol that Congress will be unable to pass a defense authorization bill for the first time in 60 years.

Student Loans. 

Earlier this year as COVID-19 reverberated throughout the economy, President Trump used executive authority to pause federal student loans payments for this year as a means to help approximately 35 million borrowers. During this period, interest has not accrued on these student loans. However, this temporary relief is scheduled to expire on December 31. President Trump could extend the grace period, but the White House has remained silent on any extension. House Democrats have included student loan relief in their most recent stimulus bill, but the most recent Senate Republican bill has not included any extension of this relief. At the same time, President-elect Biden is being pushed by progressives for a more generous student loan plan, including calls to cancel billions of dollars in student loan debt. That may be a step further than Biden will go, but we expect more relief on student loan debt in the coming months.

Minimum Wage Increase. 

There is a lot of chatter in Washington about the possibility of a minimum wage increase to $15 per hour next year under a Biden administration. This action would require the passage of a bill and cannot be effectuated via executive action. The House passed a bill to increase the federal minimum wage to $15 per hour by 2025 this past summer. Currently, 392,000 workers in the US are paid the federal minimum wage of $7.25, though many more are paid higher minimum wage rates set by their states (29 states and the District of Columbia have set higher rates than $7.25). The debate over raising the minimum wage hasn’t changed over the years. Advocates believe it gives affected workers a better and fairer standard of living, while opponents believe it will force employers to eliminate jobs. A minimum wage increase to $15 may have more support in the White House next year, but we are not convinced there is more support for it where it counts – in Congress. A combination of more Republicans in the House (12 as of now) and a possible Senate Republican majority doesn’t bode well for the minimum wage increase supported by Democrats ($15/hour), but a smaller wage increase (closer to $10/hour) may be possible if the political will exists next year for a compromise.

Foreign Interference in Elections. 

One of the biggest anticipated stories from the 2020 elections – more foreign interference – never seemed to happen, at least in a meaningful way. Certainly some level of interference was attempted and successful but whether it was even noticed by the ordinary voter is another matter. There has been no evidence thus far that any voting systems were hacked to the extent that actual votes were changed or voter data altered. Foreign actors were likely active on social media to post provocative stories and their own dark spin on the news, but the US doesn’t need foreign actors for that. We do it all the time ourselves. US voters consume significant amounts of news every day – some likely true and others false – and the information planted by foreign actors simply adds to the mix of information voters absorb rather than dominating it. On a more positive note, US law enforcement authorities were much more on guard this year than in years past on foreign interference issues. Technology companies also blocked much more foreign content peddled on their platforms this year than in the past. As technology evolves, foreign actors will alter their methods and this effort to infiltrate and affect US elections will almost certainly continue into the future.

Election Impact on Redistricting. 

One often overlooked reason the 2020 elections were especially important was their impact at the state level on the upcoming redistricting process. Every decade, the latest census figures are updated and states engage in the process of re-drawing their congressional districts to reflect population adjustments. How the geographic makeups of the 435 seats in the House are altered – and which party they benefit – are determined largely by which parties control the state legislatures and governorships. Given that the redistricting process begins in each state next year, this year’s state and local elections were critically important. GOP gains in 2010 led to very favorable maps for Republicans this past decade, and Democrats had hoped for a blue wave this year that would extend to state races. However, that wave did not materialize and it was Republicans who ended up with gains following the election. The GOP gains were modest but nevertheless important as they now have control in the redistricting process that will determine the makeup of 181 congressional seats as opposed to Democrats with 76 districts. The remaining 178 seats will be determined either by independent redistricting committees established in ten states or will require bipartisan agreement as the state legislature and governor’s mansion are controlled by different parties. The bottom line here is that Republicans will have a significant advantage in competing for House seats for the next decade due to their state level majorities.