Washington Weekly: Competition Policy Questions

U.S. Office of Public Policy, 30 July 2021

This Week:

The Senate confirmed various Biden administration nominees and voted to proceed with debate on a bipartisan infrastructure package (see below). The House most notably passed a seven-bill fiscal 2022 appropriations package that includes funding for a number of federal departments and agencies. Both the Senate and House passed a spending package that would increase spending on security for the US Capitol and grant immigrant visas to Afghans who assisted the U.S. during the war in Afghanistan (see below).

Next Week:

The Senate will vote on various Biden administration nominees and is expected to vote on a bipartisan infrastructure package and possibly the budget resolution (see below). The House is tentatively scheduled to be in recess till September 20, but it could be called back for votes in the meantime.

The Leads

Finally, an Infrastructure Bill.

After weeks of negotiating, 21 senators announced agreement on a “final” bipartisan infrastructure package on Wednesday. The bill cleared a procedural vote later that day and likely will be passed by the full Senate next week. The bill, which still exists in outline form only, provides $550 billion of new funding for a variety of infrastructure. Highway, road and bridge projects get the biggest slice of the pie ($110 billion). The agreement reallocates unspent funds from previous COVID relief bills to help pay for about a quarter of the new spending. Given the uncertainty regarding the viability of some of the other offsets, most of this bill will involve unfunded deficit spending. As with most bipartisan bills, both sides can find plenty of aspects of the bill about which to gripe. Nevertheless, we expect it to pass the Senate on a bipartisan basis next week. The House may be the bigger challenge given that many progressive members are unhappy with the deal. President Biden will have to use his clout to sell the bill to Democrats who don’t think it does enough on infrastructure and green energy.

After the Infrastructure Bill, the Budget Resolution.

As we have noted before, many Democrats on Capitol Hill are more interested in a second package focused on climate change and social spending. The Senate will turn to a $3.5 trillion budget resolution once it passes the bipartisan infrastructure bill. Approving the budget resolution is a necessary first step in passing that large package of domestic spending and tax increases in the fall through the budget reconciliation process, which only requires a majority vote in the Senate (the process sidesteps the usual 60 vote procedural threshold for most legislation). Senate Democrats should be able to get all 50 of their members to support the resolution, though it is clear that some moderate Democrats like Senator Kyrsten Sinema (D-AZ) are unlikely to support the full $3.5 trillion of spending. Consequently, Democrats likely will need to lower the amount of spending in the bill. Even a smaller-scale bill will include a massive amount of spending that would be funded by significant increases in taxes on businesses and wealthier individuals. Votes in the Senate and House on this spending package (as on the bipartisan infrastructure package) will be close, and the possibility of a failed vote cannot be dismissed.

Unhappy Progressives.

One dynamic that could tank these two bills is the increasing unhappiness of more progressive members of the Democratic caucus in both the House and Senate. They think the bipartisan infrastructure bill doesn’t do enough to support spending on green energy, and mass transit or to promote union work requirements. They also are unhappy with Senator Sinema’s opposition to a $3.5 trillion spending bill since many progressives saw that as a low water mark for spending. Even after the passage of a $1.9 trillion COVID relief bill earlier this year, progressives want to “go big” on domestic spending and thought that their new majorities in the House and Senate would pave the path forward to do so. It will be up to President Biden to calm this intra-party frustration and get the party behind these measures.

Other Issues

Estate Taxes.

Potential changes to stepped-up basis and estate taxes continue to be flying under the radar as part of the big spending and tax bill expected in the fall. The Biden administration remains interested in eliminating stepped-up basis in the tax part of that bill, on which Democrats in Congress are working behind the scenes. While we can’t rule out changes to stepped-up basis, we believe Democrats will eventually pivot and pursue other changes to estate taxes. Most Democrats support lowering the estate tax exemption back to $3.5 million ($7 million for married couples) from today’s level of $11.7 million ($23 million for married couples). Democrats also are interested in raising the estate tax rate even though a few Democrats, including Senator Joe Manchin (D-WV) and Senator Sinema, have actually voted to eliminate the tax. Finally, even if Congress does not act this year, the estate tax exemption is scheduled to reset back to lower levels at the end of 2025. This summer is a good time to think about estate planning.

Retirement Update.

Congress took a step forward this week in ongoing efforts to develop bipartisan consensus on legislation to enhance retirement savings incentives. The Senate Finance Committee held a hearing on various retirement proposals that also are being considered in the House. These bills include a raise to 75 for the age of the Required Minimum Distribution, higher catch-up contributions and tax credits for small businesses offering retirement plans. We continue to believe there is a good chance that Congress will pass a bipartisan retirement package into law at the end of the year.

Defense Spending Bill.

The House and Senate have been working on separate bills to authorize defense spending for next year. There is bipartisan recognition of the importance of defense programs, as reflected by Congress’ streak of 60 consecutive years of passing this bill into law. No other bill has received this level of priority on an annual basis for that time period. The annual bill triggers a wide range of interesting and impactful debates and votes on defense issues. Lawmakers also will try to use the defense package as a vehicle for passing various non-defense bills. This year’s bill may include a requirement to vaccinate all Defense Department employees (including soldiers in the field), a possible adjustment to President Biden’s strategy on a withdrawal from Afghanistan and funding to build new semiconductor plants in the US to spur greater production. It may also include a measure to require US companies to alert the government when they have cyber breaches. The annual defense legislation will move forward in earnest this fall, and the various debates it stirs up will generate significant media coverage.

Competition Policy Questions.

We continue to get questions from colleagues and clients on the direction of anti-trust policy. The Biden administration last month installed Lina Khan, a leading tech critic, to chair the Federal Trade Commission (FTC) and more recently nominated Jonathan Kanter, another anti-trust hawk, to head the relevant division at the Department of Justice (DOJ). Earlier this month, the administration issued an executive order to direct government agencies to take actions to promote competition across a wide range of industries. The current environment is a chilly one for big mergers, as reflected by the recent rejection of the merger application of two major insurance brokers. In that context, the FTC and the DOJ also will continue to target large technology platforms. The regulators, however, do have some headwinds. Mr. Kanter still faces a lengthy confirmation process, the FTC likely will lose a Democratic commissioner in the coming months (that commissioner, Rohit Chopra, was nominated to lead a consumer financial regulator), and both FTC Chair Khan and Mr. Kanter may need to recuse themselves from certain cases given their prior work. The regulators’ actions inevitably will be subject to legal challenges and it seems unlikely that Congress will grant them new authorities to pursue more aggressive actions. Although there is genuine bipartisan interest in Congress in legislation in this area, it will remain challenging for lawmakers to reach agreement on a comprehensive proposal that can become law.

Supplemental for Capitol Security.

Both the House and the Senate voted this week on $2.1 billion in supplemental funding to upgrade security on Capitol Hill, reimburse various National Guard units for helping to provide security following the January 6 attack, and to fund the relocation of many of the Afghan individuals who aided US security efforts in Afghanistan. The costs will not be offset and will be added to the budget deficit. The funding for enhanced Capitol security seems sensible given that the January 6 attack was an embarrassing exposure of the physical vulnerabilities of the building. This has been overshadowed by the lunacy of the entire incident but will be an ongoing focus for lawmakers.

A Final Word

Populists Tested in House Races.

Texas State Representative Jake Ellzey this week won the special election for an open seat in the 6th Congressional District, which was previously held by Congressman Ron Wright (R-TX), who died earlier this year. Ellzey defeated the former Congressman’s wife, Susan, who was endorsed by President Trump. The big news from the race was that Trump’s preferred candidate lost, but there were other factors in the race (like very low turnout) that may have had a bigger impact on the outcome. Attention now turns to the upcoming primary election to replace former Congresswoman Marsha Fudge (D-OH), who was selected by President Biden to serve as HUD secretary. As in the Texas race, it pits a more populist candidate against a more mainstream one (this time on the Democratic side). The populist candidate (former State Senator Nina Turner) has been endorsed by Senator Bernie Sanders (I-VT) and Congresswoman Alexandria Ocasio-Cortez (D-NY), while the more mainstream candidate (Cuyahoga Councilwoman Shontel Brown) has been endorsed by House Majority Whip Jim Clyburn (D-SC) and Hillary Clinton, among others. Brown has made some headway in the last few weeks, which suggests that this race will be very close. Will the progressive candidate whiff next week in Ohio as the more populist and conservative candidate did this week in Texas?