Washington Weekly: Eying March 14

The Senate approved the nominations of three cabinet-level officials, including Tom Vilsack to serve as Secretary of Agriculture, Linda Thomas-Greenfield to serve as United Nations Ambassador and Jennifer Granholm to serve as Secretary of Energy. The House passed the Equality Act and is expected to approve President Biden’s $1.9 trillion COVID stimulus-relief package later today (see below).

The Senate will try to approve more Biden cabinet nominations, including Attorney General-designee Merrick Garland. The House is expected to pass a bill on campaign finance and voting rights reforms and another on policing reforms.

The Next COVID Stimulus Bill.

The House is on the verge of passing President Biden’s $1.9 trillion COVID relief bill. While the passage of the President’s plan in the House will not be a surprise, the bill will face procedural challenges in the Senate that will change some of its content. The Senate has rules that place strict limits on the type of provisions that can be included in a budget reconciliation bill, which could exclude such provisions as a minimum wage increase and increased federal health subsidies under Obamacare. Changes in the Senate bill would necessitate another House vote to approve the new bill. The Senate worked in committee this week to finalize its bill and is expected to vote on it during the week of March 8. The two parties still have very different views about what type of COVID relief bill is needed at this time, and the Senate vote (like the House vote) will likely advance along party lines. Despite the slimmest of a majority for Democrats in the Senate (50-50), we believe that all 50 will rally behind the bill to give President Biden a major legislative victory.

Eying March 14.

It always helps Congress to have a deadline to act by. The effective deadline for this stimulus bill is March 14, the date on which existing supplemental federal unemployment assistance expires. In addition to extending this federal assistance to the end of August, the pending COVID bill also increases the amount of extra federal aid from the current level of $300 per week to $400 per week. In all, about 11.5 million Americans would be affected by the expiration of the extra assistance. While the March 14 deadline should be met by the Senate, the extra payments will still be provided if the bill is signed into law later in the month.

Budget Reconciliation Primer.

For a refresher on the budget reconciliation process that is being used to pass the COVID bill, we sent this piece out two weeks ago. We sent this piece out two weeks ago. While it doesn’t reflect the expected House action on the COVID bill later today, it does provide a broad overview of the reconciliation process, which will guide the bill’s upcoming consideration in the Senate. 

Retirement Policy Issues. 

We have received several questions on retirement policy issues over the past few weeks. One relates to President Biden’s plan to change the current tax deduction for retirement savings into a tax credit. The administration believes that a deduction favors higher-income earners and that a tax credit would provide a more equal and consistent benefit across incomes. We remain skeptical that this plan, which is a dramatic shift in retirement policy, will gain enough traction to move forward. Another is on whether Required Minimum Distributions (RMDs) will be suspended for this year as they were last year. We do not expect RMDs to be suspended for 2021 since both the stock market and individual account balances have stabilized since the last change was made. The suspension was passed last year at a time of market turmoil, and there was concern that individuals would have to take RMDs when their retirement savings had been hit by market losses. Finally, the COVID stimulus bill moving through Congress now has a retirement provision that suspends cost of living increases for retirement contributions starting in 2030. This suspension is in the bill as a way to pay for other components of the bill to make it compliant with the budget rules. It is more of a budget numbers gimmick, and we believe that this policy will be reversed well before 2030. We don’t expect monumental changes to retirement policy this year, one of the few areas in Congress where there is genuine bipartisan agreement.

State and Local Tax Deduction Setback (for now). 

Several Democrats representing high tax states that are impacted by the $10,000 cap on the state and local tax deduction (SALT) tried to get relief from the SALT cap included in the current COVID stimulus bill. It didn’t work. The House-passed stimulus bill does not currently include any such relief, and we are skeptical that it will be added to the Senate bill either. Lawmakers were trying to put down a marker on the issue in preparation of an effort to get it included in the comprehensive tax bill that Democrats will soon write. We see a window for some relief in that bill, but we do not expect the cap to be completely lifted. Repealing the cap at this time is expensive, and the benefits would skew toward higher-income earners, a constituency that won’t be prioritized in the bill. One possible compromise is to allow for the $10,000 cap to be doubled for married couples, thereby ending the “marriage penalty.” The impending tax bill will require the support of virtually every Democrat in the House and Senate, including those from higher-taxed states, which is why we are optimistic for some SALT relief this year.

Student Loans. 

The Biden administration acted quickly to extend the forbearance period on federal student loans until the end of September. During this period, payments are suspended as well as the accrual of interest. We have received numerous questions about student loan debt and what relief, if any, may be provided by Washington in addition to this forbearance. President Biden has consistently said he would sign a bill that forgives $10,000 of loans for individuals with debt. However, he is under significant pressure from many Democratic lawmakers to act unilaterally and forgive $50,000 of debt. The President has thus far resisted these pleas. We do not see a path forward for more ambitious action at this time, but this situation will remain fluid. We do think the forbearance period will be extended if economic circumstances in the late summer warrant it.

Climate Risk. 

A House Financial Services subcommittee yesterday held a hearing on climate risk, with a particular focus on legislative proposals on corporate disclosure of environmental, social and governance (ESG) matters. In advance of that hearing, the SEC indicated that it is reviewing corporate disclosures on climate risk with an eye toward updating existing guidelines. Gary Gensler, President Biden’s pick to head the SEC, is also likely to be asked about these issues at his nomination hearing next week. We expect that increasing corporate ESG disclosures will be a priority for him when he eventually takes the helm of the agency. Meanwhile, Federal Reserve officials, including Chairman Jerome Powell, have talked recently about how they are at an early stage in assessing and integrating climate risk into their regulatory and supervisory processes and have noted the distinction between climate risk analysis and the capital stress testing process. While climate and ESG will be a major focus for both the Biden administration and Democrats on the Hill, the de facto 60 vote threshold for most legislative proposals in the Senate will be a challenging hurdle, which will place greater significance on regulatory actions.

Return to Earmarks? 

Ever since earmarks (dedicated federal spending for specific projects in congressional districts/states) were banned by House Republicans in 2011, there have been discussions among some lawmakers about whether to bring them back. With Democrats now holding majorities in both chambers, it is almost certain that they will be brought back in the government funding process later this year. Earmark supporters believe such measures protect the prerogatives of Congress, instead of ceding greater discretion to the executive branch. Opponents argue that they too often lead to wasteful and politically-motivated spending (like the infamous Alaskan “Bridge to Nowhere”). More broadly, the fight over earmarks could encourage some in Congress to more aggressively take up the cause of deficit reduction, which at some point should be a ripe concern as the budget deficit for the current fiscal year is now projected to be $2.3 trillion.

The Final 2020 Race.  

Earlier this month, Congresswoman Claudia Tenney (R-NY) was finally certified the winner of New York’s 22nd Congressional district race. She won the race by 109 votes, one of the most competitive House races in the last century. After various court challenges, the race was finally called on February 5 – 94 days after the November 3 election. Over the 100 days between the election and Congresswoman Tenney’s swearing-in on February 11, three vacancies have opened up in the House due to a Biden administration appointment and the deaths of two members (there likely will be two additional vacancies in the coming weeks if two other Biden appointees are confirmed). Special elections for these five vacancies will begin on March 20, just 37 days after the last race of the 2020 cycle was resolved. Vacant House seats are not unique to the 117th Congress. While there are 435 voting Members of the House of Representatives, there is at least one vacancy more often than not at any one time. What will set the 117th Congress apart is that there will be no period in time when the originally elected class will all serve at the same time.