Washington Weekly: The Next COVID-19 Stimulus Bill

The Senate approved the nomination of Pete Buttigieg to serve as Secretary of Transportation and passed a fiscal year 2021 budget resolution. The House passed a fiscal year 2021 budget resolution.

The Senate will hold a second impeachment trial of former President Donald Trump (see below). The House will begin its work in several committees to craft a COVID-19 stimulus bill via budget reconciliation.

The Next COVID-19 Stimulus Bill. 

President Joe Biden met on Tuesday with ten Senate Republicans to discuss COVID-19 stimulus after the Senators proposed a $618 billion plan that is more targeted and much smaller than the President’s $1.9 trillion proposal. With the economy showing signs of recovery and the vaccine distribution process underway, there are clear differences of opinion between the two sides on the size and scope of additional economic assistance. The House and Senate currently are working toward passing a stimulus bill that would largely track with the Biden plan by mid-March. Democrats plan on using a budget reconciliation process that requires only a majority vote (instead of the 60 vote threshold that is operative for most legislation) in the Senate. The House likely will pass its reconciliation bill during the week of February 22, while the Senate will try to pass an identical bill the first week of March. The goal is to have a final bill signed into law before March 14, which is when extended unemployment assistance will expire. This will be a tough lift (particularly in the Senate), and it is hardly certain that this strategy and timetable will go exactly as planned.

Budget Resolution Activity. 

The House and Senate each took the important step of approving a budget resolution this week. These actions were necessary steps to allowing the two chambers to begin crafting a COVID-19 stimulus bill under the budget reconciliation process. The budget proposal contains broad revenue and spending plans that will be detailed later in a budget reconciliation bill. The budget resolution instructs 25 congressional committees to pass legislation implementing the terms of the budget. For example, the Senate Finance Committee will follow the instructions laid out in the budget resolution in determining the income thresholds at which individuals and families will receive stimulus checks. Each committee’s work product then will be folded into a larger reconciliation product that will be considered on the floor of each chamber. The budget reconciliation process has complex rules and requirements such as these, which is one reason it isn’t used all that often.

Impeachment, Act 2. 

The Senate will begin its second impeachment trial of former President Trump on Tuesday (February 9). House impeachment managers will argue that the former President’s words and behavior led to the violent protests in the US Capitol building on January 6, while President Trump’s defense team will counter that the House impeachment and Senate trial, as outlined in the Constitution, does not apply to former presidents and that President Trump has a right to free speech. The outcome (no conviction) is as predictable as a Tom Brady touchdown pass on Sunday. The practical impact from the Senate’s trial is that it will crowd out other legislative activity in that chamber. At a time when the Biden administration is looking for the Senate to approve its cabinet nominations and advance a COVID-19 stimulus bill, the impeachment trial will consume virtually all of the Senate’s time and attention next week.

Biden’s Executive Orders. 

New presidents often issue executive orders on a wide range of policy issues because they are easy to do and don’t require approval by Congress. Executive orders are important and most carry the weight of law, but they can also be limited and temporary, often lasting only as long as a president’s term in office. Many of the executive orders signed by President Biden over the past two weeks are reversals of executive orders issued by President Trump, while many of President Trump’s executive orders were reversals of those initiated by President Obama. So, we have come full circle on many executive orders, in particular some on immigration and environmental policy. Executive orders have expanded over the past 20 years as presidents have had a more difficult time passing their legislative agendas through Congress. President Biden has signed more executive orders in his first month than did any of his recent predecessors. He has signed 28, while Obama, Trump and Bush signed 16, 12 and seven, respectively. On the other hand, FDR, faced with the Great Depression, signed 30 in his first month in office. In addition to the 28 orders, President Biden has also signed five executive proclamations, ten presidential memorandums and two commitment letters to leaders, bringing the total number of executive actions to 45.

Market Volatility Questions. 

Regulators and lawmakers this week scrambled to get a better understanding of the recent market volatility that stemmed from investors pouring into stocks promoted on social media. Treasury Secretary Janet Yellen organized a meeting of regulators on the subject in one of her first official actions. In the coming weeks, the House Financial Services Committee and the Senate Banking Committee will hold hearings, and the issue will be front and center in the eventual nomination hearing of Gary Gensler, President Biden’s choice for SEC Chairman. A big focus in Congress will be investor protection, which will lead the SEC to examine its rules on margins, options trading and short selling. There also will be broader inquiry into more structural issues in equity markets, including clearing and settlement processes and payment for order flow arrangements. Progressives will argue that a financial transactions tax would reduce speculation, though this tax on savers remains deeply controversial in Congress. Finally, the role of social media in fueling the trading frenzy will increase Congressional scrutiny of the longstanding liability protections these companies have regarding third party content posted on their sites. At this point, the recent events still raise more questions than answers and the urgency of policy makers to take major action will depend in part on whether these events are isolated incidents or the beginning of a bigger trend in markets.

Taxation of Capital Gains. 

We’ve received many questions on how capital gains rates could change later this year and when any changes would be applied. An initial consideration is the scope of application. President Biden has called for any increase to apply to those with annual income over $1 million. However, Congress could easily lower this significantly (e.g. many Democrats support an income threshold of $400,000 for individuals). A second consideration is the level of rate increase. President Biden has called for ordinary income tax rates to be applied to these gains, but we have heard some grumbling from moderate Democrats who prefer a simpler 28% top rate on gains. A final consideration is timing. Congress has the authority to make tax changes retroactive and could do it with capital gains. Much will depend on when the bill passes. The earlier it passes, the more likely it will be made retroactive to January 1, while a later enactment may bode well for an effective date of January 1, 2022. Tax reform is not the top priority within the Biden administration and Congress at this time, but its turn will come – probably in the summer – and more exact details will emerge as this process nears.

Immigration Opening. 

President Biden has surprised many by making immigration an early policy priority. Over the past two weeks, he has issued various executive orders on immigration (mostly to reverse President Trump’s executive orders in this area) and hinted at proposing broader legislation to enact more immigration reforms. Bipartisan immigration reforms have eluded Congress for decades, mostly because of strong disagreements over how to address illegal immigration. Policy differences over legal immigration have been tamer, but their fate has always been tied to the difficultly in breaking the stalemate over illegal immigration reforms. While we do not believe that a broad immigration bill will pass anytime soon, there is significant bipartisan agreement on the status of “dreamers,” individuals who were brought to the US when they were kids by their undocumented parents. Granting legal status, but not full citizenship, to dreamers (most of whom are now adults) has more bipartisan support than it has had previously and could be untangled from the more contention immigration issues. This has been the hope of dreamer advocates for years, but this year presents the best opportunity for it to happen in over a decade.

Presidential Approval Ratings. 

This week featured a release of the first public approval rating polls for President Biden. The average from the different polls is that Biden has 54% approval and 35% disapproval, leaving only 11% undecided. Biden’s average approval rating is higher at the start of his presidency than both former Presidents Trump (44%) and Bush (51%) but lower than Obama’s (61%.) However, while Biden’s approval rating at the beginning of his presidency is on the higher side of historical norms, his disapproval rating is also much higher than all but Trump’s (47%.) A president’s approval rating is often high at the start of a presidency. Once he is beyond the initial “honeymoon” period following the election and his inauguration, a high approval rating may wear off and bounce around a bit as he performs the job. Trump again is the notable exception as his approval rating rarely moved by more than a few points throughout his entire time in office. President Biden’s job approval rating will likely fluctuate over time, but he is off to a respectable start.