Special Washington Update: What to Expect From Washington in 2022

The biggest dynamic in the transition from 2021 to 2022 in Washington is that we are now in an election year.  Members of Congress will spend more time in their districts and states campaigning for re-election, particularly during and after the summer.  Given that, the window for legislating will be small and there will be a rush to tackle priority issues early in the year (particularly in the first quarter).

It’s hard for Congress to pass significant legislation in an election year, but many important issues remain unresolved as lawmakers return to Washington.  President Biden and Senate Democrats this month will focus on passing a voting rights bill (possibly aided by changes to the Senate filibuster rules) and a slimmed-down version of the President’s Build Back Better initiative.  In February, Congress will need to pass a new government funding bill on a bipartisan basis.  The agenda is less clear beyond these major issues, though we highlight below other likely areas of focus.

As always, there is the potential for new developments to emerge and have a big impact.  Notably, in a 50-50 Senate, a resignation, death or party switch could tip the balance for Republicans.  A vacancy on the Supreme Court would refocus the Senate’s priorities overnight.  And a change to the filibuster rules that would allow Democrats to pass bills with a majority vote would result in a slew of bill passages.

Passing a scaled-back Build Back Better (BBB) bill will continue to be a top priority for Senate Democrats and President Biden.  Senator Joe Manchin (D-WV) in December threw cold water on a previous version of BBB, so Senate Democratic leaders will need to develop a new version of BBB that addresses Senator Manchin’s concerns.  Specifically, the bill will have to be scaled back in both size and scope and be fully paid for.  Rather than a comprehensive social spending bill (like the House passed in November), the new bill likely will focus on a handful of programs and target a smaller universe of beneficiaries.  Since most other congressional Democrats prefer a bigger bill, there is no guarantee that a new, scaled-back version of BBB would command all of the Democratic votes needed for passage.  Nonetheless, Democrats want to pass a bill and likely would coalesce around a scaled-back bill given the choice is that or nothing.  A scaled-back bill therefore has a pretty good chance of passing in the first quarter of 2022.

Voting Reforms.

While BBB legislation is negotiated behind the scenes, Senate Democrats will try very soon to pass a comprehensive voting rights bill.  The voting rights bill, which the House passed in August, creates federal standards for elections and reverses new voting reforms in various states that Democrats believe are restricting the right to vote.  Republicans, on the other hand, believe the states should continue to set their own election laws.  The bill will need 60 votes to overcome a Senate filibuster, which it currently lacks.  If, as expected, the bill falls short of 60 votes, Senate Majority Leader Chuck Schumer (D-NY) has vowed to then vote (on or before January 17) to waive the filibuster’s application to this bill, which would allow it to pass with a majority vote (51) instead of the existing 60-vote requirement.  All 50 Democratic Senators plus a tie-breaking vote from Vice President Kamala Harris would be needed to approve any changes to the filibuster.  This is unlikely to work given that at least two Democratic Senators have expressed opposition to this one-time change in the filibuster rules.  However, anything could happen over the next few days and the two Democratic Senators could be convinced to change their positions.  The Senate is well known for its elaborate deal-making, and we are not ruling out anything over the next few weeks on these issues.

FY-22 Government Funding Bill.

Congress will have to pass another funding bill by February 18 to avert a government shutdown.  Since this will require bipartisan support, it will be a challenge.  Congress could pass another short-term spending bill or approve a broader plan that will fund the government through the remainder of the fiscal year (September 30).  Democrats and President Biden want significant increases in domestic spending this year, while Republicans want more money targeted to defense.  Finding a way to accommodate both of those positions probably can be done if both buckets of spending are increased more modestly.  This now regular delay of passing the government’s annual spending is frustrating for most lawmakers and bewildering to a public that can’t understand why Congress can’t approve a budget and spending plan on time each year.  Nonetheless, we expect a final spending plan will be enacted in the first quarter of this year after much wrangling by lawmakers. 

January 6 Committee Activities.

The nine-member House Select Committee to Investigate the January 6^th attack on the US Capitol will be busy all year interviewing witnesses (it already has interviewed more than 300 individuals) and holding public hearings.  Its work will culminate in a final report in the fall before the mid-term elections.  The committee’s work will be controversial and receive significant attention.  Much of the focus will be on whether President Trump and/or his senior staff had any direct involvement with the violence and lawlessness that day.  The committee will make policy recommendations on how to better prevent such an attack again.  It also has not ruled out recommending the Justice Department to pursue criminal charges against members of the Trump administration, President Trump himself or certain Republican lawmakers.  The investigation will continue throughout the year and be on many voters’ minds as the mid-term elections approach.

Fed Nominations. 

An early priority for the Senate will be approval of Fed Chairman Jay Powell to serve another term and Fed Governor Lael Brainard to serve as Vice Chair. This process will kick off with nomination hearings for both this week.  While Chairman Powell is expected to be approved quickly on a broad bipartisan basis, he will face tough questions on how the Fed will navigate monetary policy at a time of higher inflation and economic headwinds from the Omicron variant of Covid.  He will also face ongoing criticism from some on the left for not being tough enough on bank regulation and not being more proactive on climate change.  In addition, the Biden administration has three openings to fill on the Federal Reserve Board (including an influential Vice Chair position that leads Fed efforts on bank regulation) and is expected to announce a slate of nominations soon.  The news here will be the Senate’s approval of Powell’s renomination on a bipartisan basis.

New Government Spending Issues. 

The spring and early summer will be a busy time for Congress to address government spending issues for the next fiscal year (fiscal year 2023).  This exercise likely will be a tiresome repeat of what just happened last year, with missed deadlines, partisan disagreements over funding priorities and ultimately a series of short-term funding extensions into December to avert potential government shutdowns.  Expect Congress to settle these disagreements in December after the mid-term elections.  With the elections behind them, lawmakers from both parties will be eager to compromise, clear the bill and get ready for new challenges in 2023.

Another Pandemic Relief Bill? 

Over the last two years, Congress has passed six separate bills providing $6 trillion to fight Covid and bring relief to impacted individuals, businesses, states and local communities.  A seventh bill is not planned at this time, but there will be interest if Covid worsens.  A new bill would be more difficult to enact given the differences of opinions that have emerged among lawmakers about how to respond to the pandemic over the last year.  Still, if Covid worsens significantly and results in another rash of business shutdowns, loss of employment, and/or prolonged supply chain delays, a bipartisan relief bill could emerge.  Nothing short of those unwanted developments, however, would lead to the passage of a new relief bill.

Vaccine Mandates. 

Particularly with the recent surge in Covid cases, calls will continue for vaccine mandates from many policymakers and the federal government.  The Biden administration has already imposed vaccination requirements on federal workers (including the military) and federal contractors, health care facilities involved in the federal Medicare and Medicaid systems and international travelers entering the US.  Another vaccine mandate on private businesses with 100 or more employees remains tied up in court.  Will there be more mandates at the federal level?  It clearly depends on how Covid further evolves, but a proposed mandate on individuals flying commercially is under consideration.  This is a space to watch closely, and it will play out after the nation deals with Omicron.  Much of the focus will be on activities in the states and how they may complement or differ from the federal mandates.  Just as current mandates have been subject to legal challenges, any new mandate would be challenged as well.  Calls for new mandates – as well as counter calls to resist those mandates – are inevitable if Covid worsens.

Student Loans. 

The Biden administration acted late last year to extend the current pandemic-era moratorium on federal student loan payments.  It was set to expire in February and has now been extended to May.  While Democrats cheered this move, many will continue to push President Biden to do more, namely by taking executive action to cancel up to $50,000 of federal student debt per borrower.  President Biden supported $10,000 of student loan relief on the campaign trail but has expressed reluctance to take such a step through executive action (instead of legislation, which is a non-starter at this point in the Senate).  While President Biden asked borrowers to prepare for repayment, the administration (particularly in an election year) may be reluctant to let the relief lapse in May as students graduate from school.

SCOTUS.

The Supreme Court will issue rulings on a number of transformative cases in June that could change the legal and political landscapes for years to come.  These rulings include a major abortion case, Dobbs v. Jackson Women’s Health Organization, which will determine whether a Mississippi abortion law conflicts with the landmark 1973 Roe v. Wade decision.  The Supreme Court will also render decisions on cases concerning First and Second Amendment rights, disability discrimination, immigration and climate change policies, among others.  These decisions, particularly on the abortion case, could have a major impact on the mid-term elections since many voters could consider them as important (or more) as the other economic and political issues that are already in play.

US-China Technology/Semiconductors.

In a strong bipartisan vote, the Senate passed a bill last summer authorizing greater investments in the US semiconductor industry and other technology, primarily to address competitive threats in technology from China.  A bipartisan group from both chambers will soon discuss the bill to determine a possible path forward.  Since passage of this bill would better position the US in its competition with China (a helpful talking point for any member of Congress), it has a good chance of passing before the year’s end. 

Various Financial Policies. 

In Congress, there will continue to be a push to pass legislation to allow financial companies to serve covered cannabis businesses.  While the bill has bipartisan support, some Democrats have tied it with broader criminal justice reforms, which has slowed its progress in the Senate.  An easier lift will be the passage of a bipartisan bill to provide a legal safe harbor for the transition oftrillions of dollars of financial contracts from a LIBOR benchmark that is being discontinued.  Another major focus will be regulation of digital assets like cryptocurrencies, butCongress faces a steep learning curve and emerging partisan divisions on these issues, meaning that regulators will need to take the lead with new digital asset products using their existing regulatory authorities.  On the regulatory front, the SEC will continue with a very active and crowded regulatory agenda covering climate risk disclosure, equity and fixed income market structure, and money market funds, among other issues.  As Biden appointees continue to take the reins at financial agencies, expect a greater focus on climate issues and a more hawkish posture on regulatory and supervisory matters.

Big Tech/Anti-Trust.

Big technology platforms will remain targets for lawmakers from both parties, with hearings continuing to put the spotlight on industry practices and build the case for policy changes.  In the last year, Congress also has put forward a variety of legislative proposals in these areas.  The proposals range from bolstering regulators’ anti-trust powers and curbing anti-competitive practices to limiting or removing liability protections for tech companies with respect to third-party content posted on their platforms to establishing federal privacy standards.  While plenty of these bills have bipartisan support, it is not clear any of these legislative efforts will be ripe enough to generate critical mass to pass both houses of Congress.  With the Biden administration’s issuance last year of an executive order on competition policy and its successful installation of activist anti-trust regulators at the Federal Trade Commission and Justice Department, the more meaningful and serious action is likely to come on the regulatory front.   

Mid-Term Elections.

While the 2022 mid-term elections may still be ten months away, they will be a constant factor in any decisions made this year in Washington.  With primary elections beginning as early as March, campaigning is already well under way in many states.  The primary elections will not receive the same amount of media attention as the general elections, but they should.  Candidates who are able to win primary elections but who are not viable in a general election have become more commonplace in this fractured political environment.  Meanwhile, states continue to complete their redistricting plans, which will likely lead to more “safe” districts and therefore fewer competitive general elections for the 435 seats in the House.  In addition to the House, 34 of the 100 Senate seats and 36 governorships will be up for grabs this November.  Historically, the party that controls the White House suffers losses in the mid-term elections, and the evidence generally points to that outcome this year.  With narrow Democratic control of the House and Senate, it won’t take much for Republicans to regain control of Congress.  Voting is months away, and much will happen between now and then, but elections have already begun in reality and will continue to be shaped by what happens in Washington and nationally over the upcoming months. 

Honorable Mention.

2022 could be a significant year for foreign policy, especially if US relations with Russia and China further deteriorate.  Congress will express opinions and hold hearings on topics in this area, but decisions (including new sanctions) will largely be made and implemented by the Biden administration.  Congress will wrestle with next year’s defense authorization bill in the second half of the year.  The Senate could vote to end the 2002 congressional authorization for the US to engage in war with Iraq.  The Biden administration will be busy enacting regulatory policy, especially relating to climate change.  The executive branch will be busy implementing the bipartisan infrastructure bill, which Congress passed last year.  This process will be punctuated by ribbon-cutting events around the country before the mid-term elections.  Finally, the Senate will continue to confirm Biden administration nominations after the approval of 40 federal judges last year (the most for a new president since President Ronald Reagan).