The Senate approved various Biden administration nominations. The House approved a bill to extend current levels of government funding from October 1 (the start of the new fiscal year) through December 3 and to suspend the debt ceiling through December 2022 (see below). It also approved the National Defense Authorization Act and a bill on abortion rights (see below).
The Senate will vote on the House-passed bill to extend government funding and suspend the debt ceiling. The House plans to vote on the Senate-passed bipartisan infrastructure bill (see below).
Budget Reconciliation Bill Slows Down.
The House Budget Committee this week worked on consolidating various spending and tax bills passed last week by other House committees into a single legislative package. Moderate Democrats in the House have no interest in voting on a bill with controversial tax and spending provisions that have no chance of passing in the Senate. They want Democratic leaders to pause the process to better gauge what will pass in the Senate. While House Democratic leaders are unlikely to wait the weeks if not months needed to see what bill the Senate can craft and pass, this process will take time regardless given the complexities of the budget reconciliation process and the challenging political dynamics of trying to pass a large tax and spending bill with such a slight majority. Ultimately, House and Senate Democratic leaders will need more time to develop a final bill that can accommodate all of its members, which could push a final resolution into November or December.
Government Funding and Debt Ceiling Extension.
While the budget reconciliation bill is the top priority for congressional Democrats, they also have some routine housecleaning issues to resolve. The House this week passed a bill to extend current levels of government funding beyond October 1 with additional aid for natural disaster relief and Afghan refugees. The extension of government funding is not very controversial and will eventually be supported by both parties. However, Republicans opposed the addition of a suspension of the debt ceiling to the bill. While the House was able to pass this bill with only Democratic votes, it needs Republican support to pass in the Senate. The Senate will vote on the House bill on Monday, and it will fall short of a 60-vote procedural hurdle. That will force Senate Democrats to have to strip the bill of the debt ceiling extension in order to pass the government funding on a standalone basis. While this action will avert a government shutdown on October 1, it will leave the debt ceiling extension unresolved. We elaborate below on the options Congress has to pass a debt ceiling increase, which will be the center of attention in Washington over the next few weeks as financial markets fret over a potential threat of default of US debt obligations. As unlikely as we think a default is, the path to extending the debt ceiling is hard to predict at this time other than knowing it will be ugly, partisan and frustrating to investors and voters.
Bipartisan Infrastructure Bill.
Making good on House Speaker Nancy Pelosi’s (D-CA) promise to hold a vote on a bipartisan infrastructure bill in the House no later than September 27, the House will vote on the bill early next week, most likely the following day (September 28). House Democrats have wrangled over the timing of this vote and the vote on the larger budget reconciliation bill, with a more moderate faction wanting a vote on infrastructure first and a larger progressive segment of members wanting the budget reconciliation measure voted on first. It’s clear now that the latter bill isn’t close to being ready for a vote. A group of progressive members this week threatened to oppose the infrastructure bill, which could result in its defeat. This bill will have to attract a sufficiently bipartisan group of lawmakers to pass, and it isn’t clear now whether a majority coalition exists. The effort to build this coalition will be complicated by calls from the Democrats’ left wing and from former President Trump (and some House Republican leaders) to oppose the bill. The passage of this bipartisan bill would be a layup under more normal circumstances, but the bill could fall in the hyper-partisan atmosphere that exists in Washington today.
Debt Ceiling Extension Options.
There are likely three ways that the debt ceiling may be raised over the next few weeks to avoid a default. The first is for legislation to be passed on a bipartisan basis. That effort would likely require conditions for future budgets to contain some form of spending controls to help address the budget deficit. It would require 60 votes in the Senate, which would be difficult. The second option is for congressional Democrats to add an extension to their pending budget reconciliation bill. To do this, they would need to amend the previously passed budget resolution to allow for the inclusion of a debt ceiling increase in the big budget reconciliation package that Democrats are trying to pass. Finally, the Biden administration could act to increase the debt ceiling and continue to honor the government’s debt obligations by citing a possible Constitutional authority to do so (via terms of the 14th Amendment). Most legal scholars don’t believe the Constitution offers such authority, however. Indeed, former Democratic Presidents Clinton and Obama didn’t exercise this option when they faced debt ceiling crises. Nevertheless, we can expect to hear plenty of noise about this option in the coming weeks as the first two options cited above have trouble gaining traction. Option number two seems most plausible to us at this time, but this plan would take time and it currently faces resistance from Democratic leaders. While any resolution will be very fluid and dramatic over the next few weeks, we feel strongly that the debt ceiling will be raised.
Tax Increase Debate.
Although public activity slowed on this front a bit this week, a small group of Democrats in Congress continue to draft tax provisions to add to the pending budget reconciliation bill. The Senate does not plan to roll out a comprehensive tax plan (as the House did last week). It has instead released some specific tax proposals (most focusing on corporate and financial tax issues) in drips and drabs over the last few weeks. Senate Finance Committee Chairman Ron Wyden (D-OR) most recently proposed a change in the tax treatment for Exchange Traded Funds (ETFs). His proposal would alter the tax treatment on in-kind transactions, which enable ETF managers to sell out of positions without triggering capital gains taxes for the end investors. While this proposal was not included in the House bill, we believe Senator Wyden’s proposal will be an ongoing topic of discussion and has a chance at being included in a final bill. However, the proposal would no doubt affect investors making less than $400,000 annually. For that reason, we would give this proposal a less than 50% chance of being included in a final bill. President Biden has repeatedly established a red line of not raising taxes on individuals making less than $400,000 annually, and it is hard to envision Democratic lawmakers intentionally violating that line, as this proposal does.
We continue to receive questions about whether Congress will be able to pass any cannabis legislation into law. The House on multiple occasions has passed a bipartisan bill called the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”), which would allow financial institutions to serve covered cannabis businesses. This week, supporters of that bill were able to attach it as an amendment to the National Defense Authorization Act (NDAA). This step has significance because the NDAA is must-pass legislation that Congress passes every year to authorize defense spending. However, the SAFE Banking Act still faces obstacles in the Senate where some Democrats have voiced opposition to advancing this narrow cannabis banking bill without broader reforms like criminal sentencing. After the Senate passes its version of NDAA, House and Senate negotiators will form a conference committee to reconcile the differences between the two bills. Given current dynamics, the SAFE Banking Act will likely fall to the cutting room floor of the conference committee.
Likely End of Police Reform Legislation.
A bipartisan group of House and Senate negotiators who for months have been trying to find a compromise on legislation to make reforms to policing practices acknowledged this week that their efforts have unsuccessfully ended. Though both sides agreed on some reforms, negotiators had remaining differences on the extent to which police officials should be legally liable for their actions while on the job (qualified immunity). The House passed a bill last year with comprehensive reforms, but that bill was held up in the Senate pending efforts to forge a bipartisan compromise. Now that those efforts have failed, the Senate could schedule a vote on the House measure, but it would be a symbolic gesture. The bill will fall short of the 60 votes needed for passage. It’s possible a compromise could be resurrected at some point, but, at this time, that looks doubtful. The bill is yet another victim of the partisan wars in Washington.
The Last Word
The Last Word
The House passed a bill this week to reaffirm a woman’s right to an abortion and prohibit various restrictions that some states have enacted recently. The bill will soon be considered in the Senate, but it will not get the 60 votes needed for passage. Also, the Supreme Court announced this week that it will hear arguments on a major abortion case (Dobbs v. Jackson Women’s Health Organization) in December, with a decision expected in June. The Dobbs case challenges whether Mississippi abortion laws are in conflict with the landmark 1973 Roe v. Wade decision. While we don’t know how this case will be decided, it is clear that all of the activity surrounding abortion laws will have an impact on next year’s mid-term elections. Strong pro-life and pro-choice voters will likely be energized to organize and vote next year more than in previous years when the public debate over abortion has been more subdued. It is unclear which candidates will benefit from this dynamic as much will depend on how the aforementioned issues are dealt with and how the public perceives those developments.