This Week:

The Senate confirmed various Biden administration nominees, including Steven Dettelbach to serve as the director of the Bureau of Alcohol, Tobacco, Firearms and Explosives and Michael Barr to serve as the Federal Reserve vice chair for supervision. The House passed the fiscal year 2023 defense authorization bill (see below) and a bill to create an active shooter alert system. It also passed two bills that would codify Roe v. Wade and preserve interstate access to abortion.

Next Week:

The Senate will continue to confirm Biden administration nominees. The House will consider a “minibus” package consisting of six of the twelve fiscal year 2023 appropriations bills to fund government operations.

The Lead

Three-Week Push to the Summer Break.

Both the House and Senate typically return home for a summer recess in August, and this year will be no different. The House is scheduled to be in session for another two weeks while the Senate will have an additional week in early August. The session could be extended if lawmakers need additional time to pass high priority legislation. September is likely to be a lighter month legislatively, while members will be home campaigning in October in advance of the mid-term elections. This means the next few weeks will provide House and Senate Democrats with one of their last windows of opportunity to enact legislation with their current slim majorities in Congress. Democrats passed a large Covid relief spending bill in early 2021 on a party-line basis and have had several bipartisan accomplishments (an infrastructure bill, gun safety legislation and aid to Ukraine) over the last 18 months. The next few weeks are crunch time for Democrats eager to add to the party’s resume before the election.

Build Back Better Revival.

Over the last few months, we have been bearish on Senate Democrats’ ability to pass even a slimmed-down version of Build Back Better (BBB) under budget reconciliation rules that allow them to do so on the basis of a simple majority in an evenly divided Senate (if all 50 Democrats support it, Vice President Kamala Harris could cast a tie-breaking vote to pass it). A few Senate Democrats, particularly Senator Joe Manchin (D-WV), have complained about the size of the bill and its potential impact on inflation and questioned the need for it. Yet, the bill (and its potential mix of spending and tax provisions) has remained a top priority for the party. There are ongoing efforts to find a low common denominator acceptable to Senator Manchin and the other 49 Democrats, though there are doubts today whether these efforts will bear fruit. Senator Manchin recently indicated he only could support a limited set of provisions focused on prescription drug pricing reforms and an extension of subsidies under the Affordable Care Act (Obamacare). Such a slimmed down version would be a disappointment to most Democrats who hoped to enact a more comprehensive BBB measure, but Senator Manchin has significant leverage to craft any deal to his liking and he has not been shy about using that leverage.

Net Investment Income Tax.

If a version of BBB moves forward, it might not include any tax increases given Senator Manchin’s concerns. Nevertheless, one tax item that has been under active discussion is an expansion of the existing 3.8% Net Investment Income Tax (NIIT). The NIIT is a tax on passive income that applies to individuals with income over $200,000 ($250,000 for joint filers). The House-passed BBB legislation included a provision to expand the NIIT to tax active income (wages, salaries and commissions) to income above $400,000 ($500,000 for joint filers). The House provisions also expanded the scope of the tax to cover income from trusts and estates. Senate Democrats have been considering including the House provision (including the expansion to trust and estate income) in their own bill. The House proposal was estimated to raise over $250 billion, a very sizable sum of revenue that can be applied to new spending or deficit reduction in BBB. This tax would be noteworthy to small business owners in particular.

US Technology and Semiconductor Push.

Besides BBB, Congress this month will determine whether there is bipartisan appetite to pass legislation to enhance US investments in scientific and technological research, including over $50 billion to build semiconductor plants in the US. The need for the legislation has been triggered by fears that China has overtaken the US in many key areas of technology. While there is bipartisan support for the general goal of improving US competitiveness, the House and Senate have very different versions of the legislation. Lawmakers have spent weeks negotiating a final bill, but these efforts on a compromise have taken a back seat due to the political standoff on BBB. If Democrats successfully advance BBB on a partisan basis, House and Senate Republicans will balk at working out a bipartisan compromise on the technology bill. The Senate may vote on a version of the technology bill next week, but we do not expect it to pass. Rather, the bill needs further negotiation and a final version may not emerge until after the elections when a greater spirit of bipartisanship may allow lawmakers to bridge their differences and pass a bill.

Other Issues

Big Tech Legislation.

Early this year, a Senate committee approved legislation aimed at curbing anti-competitive practices by big tech companies on their platforms. While the bills passed with bipartisan support, there are lingering concerns from lawmakers on both sides of the aisle with their potential impact on global competitiveness, privacy/cybersecurity and consumer choice and their heavy reliance on regulators and courts. Big tech companies oppose these efforts and argue that Congress instead should focus on privacy legislation (see below). Supporters have continued to push for a floor vote in the Senate on these bills and have hoped to have a vote this month. However, with the press of other priorities such as BBB, it will be hard to find the time to take up this bill. Even if there was a vote, given all of the concerns with the bills, it’s not at all clear there would be enough votes for the legislation to hurdle the Senate’s 60-vote procedural threshold.

Privacy Standards.

The House Energy and Commerce Committee next week is expected to pass legislation to establish national standards for data privacy. The bill would require companies to limit the amount of data that they collect and prohibit the collection of sensitive information (with limited exceptions). It reflects a compromise that was worked out through negotiations between the top Democrat and top Republican on the committee and their Republican counterpart in the Senate. As a compromise, the bill makes trade-offs on contentious issues like preemption (it would preempt state laws) and enforcement (it has a private right of action that begins four years after the passage of the bill) that have sidetracked previous efforts on privacy. The authors of the bill hope to pass it on the House floor before August, but it likely will need further fine-tuning before that can happen. Even if the bill passes the House, it is a non-starter in the Senate where it is opposed by the Chair of the Senate Commerce Committee. Despite the progress that has been made, it looks like privacy legislation will stumble again.

Defense Authorization Bill.

The House this week passed the fiscal year 2023 defense authorization bill, which authorizes $839 billion in national defense spending ($37 billion more than President Biden requested and $71 billion higher than fiscal year 2022). Congress has passed an annual defense bill with bipartisan support for the last 61 years, which is quite remarkable given the degree of partisan gridlock in recent years. No member of the House or Senate wants to be accused of not paying our troops or not updating national defense needs, so the will to compromise on this bill seems to always be easier. As in past years, hundreds of amendments were offered to the bill (the House voted on 650 this week) and some are contentious. Rejected were amendments to lower defense spending, rescind the Covid vaccine mandate for Pentagon employees and require access to abortions at military medical facilities. The Senate is working on its version of the bill and, once passed, House and Senate negotiators will work to hammer out a final version, which should make it the 62nd consecutive year the bill has passed.

The Final Word

Democratic Alternatives.

The unfavorable polling news for President Biden hit an unusually low mark this week with a New York Times poll showing that his job approval rating is now at 33% among US voters. It is somewhat surprising that the President’s low poll numbers haven’t led to more speculation about whether he should seek re-election in 2024, though a poor showing by Democratic candidates this November in the mid-terms could stoke it. If the President did not seek re-election, there would be no obvious front-runner among Democrats to take his place. Vice President Kamala Harris, as the sitting vice president, ordinarily would be considered the leading candidate, but her approval rating is not much better than the President’s and she was unable to make much of an impact in the 2020 Democratic primary. Transportation Secretary Pete Buttigieg will be seen by many as a top contender following his quick ascension in 2020, but any number of senators, governors and high-profile Democrats would likely toss their hat in the ring should an open primary emerge. These include California Governor Gavin Newsom, North Carolina Governor Roy Cooper, and Senators Cory Booker (NJ) and Amy Klobuchar (MN). Even Senators Bernie Sanders (I-VT) and Elizabeth Warren (MA) haven’t ruled out another run if Biden opts out. While we are not even halfway through President Biden’s first term, the 2024 presidential election will begin days after the mid-term elections in November.