The Senate approved two judicial nominations and focused more broadly on crafting a fifth stimulus bill to counter the health and economic effects of COVID-19 (see below). The House passed two bills to increase federal funding of child care services and a package of six individual fiscal year 2021 government funding bills (see below).
The Senate will continue its negotiations over a COVID-19 stimulus bill. The House is scheduled to be out of session.
Stimulus 4: The Next Stimulus Bill
As expected, Senate Republicans introduced their $1 trillion stimulus 4 proposal this week, which was endorsed by President Trump and Treasury Secretary Steven Mnuchin. Democratic leaders quickly declared it a non-starter. Negotiations began this week between the two sides and will continue over the weekend, with a goal of finding an agreement by the end of next week. However, we have very little confidence that goal will be met given the lack of progress thus far and the politically-charged nature of the negotiations. We still are confident that a bill broadly similar to what we outlined last week will be approved but likely not until mid-August at the earliest.
The goal of Senate leaders and the White House to craft a compromise agreement by the end of next week isn't realistic given the vast distance between the current positions of Democrats and Republicans. In the Senate, Republicans are largely divided over the need for another bill, while Democrats are completely unified behind a bill in the $3 trillion range. The financial markets, President Trump and most voters all seem to support another bill as well. This combined sentiment (and pressure) has given Senate Democrats significant leverage in the current negotiations. We think protracted negotiations will help Democrats get more of their priorities in a final bill, which also will push up its price tag. This is why we are projecting a later agreement in mid-August or possibly September.
Senate Republicans' draft bill contains a measure to establish a bipartisan panel to recommend ways to reduce the budget deficit going forward with a focus on the nation's entitlement programs, specifically Social Security and Medicare. This is a bipartisan provision authored by Senator Mitt Romney (R-UT). There has been no comparable deficit reduction provision in any of the previous stimulus bills. The provision may prove to be a symbolic gesture since Democratic leaders will oppose it vigorously. The panel's recommendations likely would be out of sync with the priorities of a potential Biden administration given his campaign has already indicated its support for an expansion of both programs.
Stimulus Money Already Spent
Despite the various bodies in Congress and the executive branch tasked with overseeing the deployment of the approximately $3.6 trillion provided in the various rounds of stimulus to date, there does not seem to be an official view on exactly how much of the support has actually been spent. To be sure, most of the money associated with such high-profile initiatives as direct tax rebate checks, enhanced insurance unemployment benefits, and aid to hospitals has been spent (roughly $550 billion in total). There remains over $100 billion of unused capacity in the $650 billion Paycheck Protection Program and significant unused capacity in another small business lending program. Congress provided $454 billion to the Treasury to backstop potentially $4.5 trillion of emergency lending programs; $195 billion of that amount has been committed, although there has been limited take-up in these Fed programs. Congress also provided hundreds of billions of dollars in business tax relief, much of which still will take months to be fully realized. There are a variety of multi-billion dollar initiatives (particularly those like student loan forbearance or emergency retirement account withdrawals that don’t involve direct federal spending) where the costs incurred are unknown. So, as Congress and the administration try to reach agreement on another stimulus package with a likely more than $1 trillion price tag, it is worth noting that there are still hundreds of billions of dollars left from the previous rounds that are still yet to be deployed.
Big Tech Spotlight
Chief executives at major technology firms had braced for a tough year of intense Congressional hearings focused on business practices, privacy protections, political advertising, anti-trust issues and other investigations by Congress and the Trump administration. Of course, the pandemic has diverted attention from these issues and has slowed the pace of investigations and other work in Washington. Nevertheless, the heads of four of the biggest tech platforms had a bit of a deferred reckoning this week as they appeared (virtually) before a House Judiciary subcommittee. Democrats grilled the tech companies for what they viewed as anti-competitive actions, while many Republicans argued that there were anti-conservative biases on social media platforms. The partisan division underscored the very low likelihood of any legislative action this year, despite both parties being unhappy with "big tech." Investigations on anti-trust and competition issues by the Department of Justice and the Federal Trade Commission are ongoing and still present risks for the companies, though it seems unlikely that a big shoe would drop before the November elections. The biggest tech platforms would face even more heightened risks in a potential Democratic administration that might be more inclined to take aggressive action on anti-trust issues.
After a federal court in 2018 invalidated the Department of Labor’s (DOL) 2016 fiduciary rule, the SEC moved ahead with a best interest standard for brokers (called Regulation Best Interest or Reg BI) that was finalized in June 2019. Reg BI raised standards for brokers while also preserving investors’ access and choice regarding investment advice and products, a major problem with the DOL rule. Reg BI went into effect on June 30. Just the day before, the DOL issued a new proposal that sets forth best interest and disclosure standards that are intended to be aligned with SEC’s rule. The proposal is subject to a 30 day comment period that ends next week, and the DOL will hear concerns from industry on ways in which the proposal is not fully aligned with Reg BI. The proposal will be finalized later this year. While the new DOL proposal is intended to be harmonized with Reg BI, various states have fiduciary initiatives that deviate from the federal standards, which raise ongoing concerns that brokers will be subject to a patchwork of conflicting state requirements.
Government Funding for Next Year
The House has begun its process of advancing the 12 separate government funding bills that in some form will make up the government's discretionary spending for fiscal year 2021, which begins on October 1. Four funding bills passed last week, and another six were approved this week. For House Democrats, this exercise is about pride in passing these bills on a reasonable schedule (unlike the Senate) and an opportunity to pass bills that reflect their spending priorities. These bills will generally be ignored by the Senate and reconciled later this year after the election. To avoid a government shutdown on October 1, the House and Senate will pass a continuing resolution to resume current funding into the new fiscal year until the new funding plans are approved by both the House and Senate. There could be political drama if some members want to hold up that temporary funding and threaten a government shutdown, but we don't expect that to happen this year right before the election.
The Final Word
95 Days Out
Election day is now 95 days away. We have previously mentioned that voting will begin significantly before November 3rd this year. It will also take significantly longer for all of the votes to be tallied this year due to the heavy use of voting by mail. While most of the states that will be instrumental in determining the presidential election require mail-in ballots to be received by election day, several states that will be important in determining control of the Senate (Iowa, Kansas and North Carolina) only require that ballots be postmarked by election day and received within a few days of the election (the specific amount of days depends on the state). We already have had plenty of examples of primary elections this year that have taken days or even weeks to be officially decided due to the high use of vote by mail, and primary elections only have a fraction of the votes cast compared to the number in general elections. If the presidential and key Senate election outcomes appear to be close, don't expect to know their results on election night.