Washington Weekly: Russia, Ukraine and Washington

The Senate passed a bill that would make daylight savings time permanent (see below) and a measure to overturn the transit mask mandate. The House passed legislation to suspend Russia’s favored trade status with the US (see below). It also passed bills to nullify all pre-dispute arbitration agreements and to legally ban hair discrimination in the workplace.

The Senate is expected to take up the House-passed bill to revoke Russia’s trade status and will continue to vote on Biden administration nominees. The House will be out of session.

Russia, Ukraine and Washington.

President Biden this week announced more US military and humanitarian aid to Ukraine. Meanwhile, Congress passed legislation that would suspend the favorable trade terms (“permanent normal trade relations”) Russia currently has with the US. As a condition of membership in the World Trade Organization (WTO), the US and other 163 countries in the WTO grant each other these more favorable trade relations (with some exceptions). The revocation of this trade status will have the practical effect of increasing tariffs on Russian exports, thus making them less attractive in the US market. The US recently banned Russian energy exports, which traditionally has comprised the majority of Russia’s exports to the US. Precious metals, iron and steel, fertilizers and chemicals are among the Russian exports that likely will now be subject to higher tariffs. Russia was the 18th largest supplier of imported goods into the US in 2021. The significance of this action reflects less the short-term economic impact on Russia and more its role as a potential catalyst in disentangling trade ties between the US and Russia over the longer term.

Next Steps from the US?

The US already has imposed its most impactful sanctions. The US could sanction a broader set of Russian energy exports around the world, but the US will only proceed with action here if its allies go along (this doesn’t appear imminent). Congress has put forward other ideas, but those have less bite than the ones already implemented. That leaves additional military options. With public pressure building for the US to do more, there will be much debate in Washington over the coming weeks about additional military aid and even military activity. The military options are harder to assess and more delicate to implement. President Biden, his team and lawmakers will have the tough task of delicately balancing the interests of helping Ukraine defend itself with those of avoiding a broader and direct global conflict. Unlike many issues dealt with in Washington, the decisions made over the next few weeks on Ukraine will have long-lasting geopolitical impacts that we likely will remember for a long time.

Supreme Court Nomination Hearings.

Hearings in the Senate Judiciary Committee will begin on Monday (March 21) to evaluate President Biden’s nomination of Judge Ketanji Brown Jackson to serve on the Supreme Court. The hearings will last four days, with Judge Jackson appearing before the committee to answer questions on Tuesday and Wednesday. Since her nomination late last month, Judge Jackson has paid visits to many Senators (particularly those on the Judiciary Committee) as the committee and individual Senators perform their own due diligence. Fifty votes will be needed to pass her nomination. At this time, we believe all of the 50 Democratic Senators intend to support her. She could also attract a handful of votes from Republicans as well, though the extent of that support will be determined in part by the committee hearings. Some Senate Republicans expressed concerns this week about Judge Jackson’s representation of detainees at Guantanamo Bay while she was in private practice. Others plan to question her over a possible conflict of interest with a case before the court this fall regarding the role of race in Harvard University’s admission policies (Judge Jackson is a graduate of Harvard’s law school and has served on the university’s governing board). Nonetheless, she appears to be on a path to being approved by the Senate in April absent a bad showing at her hearing next week.

Fed Nominations.

Last month, Republicans on the Senate Banking Committee boycotted votes on five Federal Reserve nominees (including Fed Chairman Jay Powell), which deprived Democrats of the quorum needed to move these nominees to the Senate floor. Republicans had concerns about one of the nominees (former Fed Governor and Treasury Deputy Secretary Sarah Bloom Raskin) given questions about her role in helping a financial technology company get approval for a master account with the Fed and her support for a more active role for the Fed in addressing climate change. This week, the stalemate broke when Senator Joe Manchin (D-WV) indicated that he could not support Raskin. This prompted Raskin to withdraw her nomination, which paved the way for the committee to clear the other four Fed nominees later in the week. Democrats are interested in quickly confirming these nominees in the coming weeks. That being said, one of them (Lisa Cook) had a tie vote (no Republican support) in committee and likely will face a similarly tight vote on the Senate floor. With the potential for the November elections to usher in a changeover in control of the Senate, Democrats will have some urgency in naming and approving a replacement for Raskin (she was put forward for a key post to lead bank supervision at the Fed) and in advancing nominees for other key regulatory positions.

New COVID Relief Bill.

The House is close to passing a new Covid relief bill that would provide $15.6 billion for new vaccine testing, production and international distribution. These funds were originally included in the government funding bill that passed last week. However, they were removed when some House Democrats voiced objections that the money was being made available by taking pandemic aid funds previously approved but currently unspent. This re-programming of funds was key in gaining the support of Republican lawmakers who don’t support new funding at this time. The passage of this standalone bill in the House likely will be the measure’s high point. The Senate currently doesn’t have the 60 votes needed to pass the bill, and this is unlikely to change for the foreseeable future (barring a spike in new Covid cases). The current price tag of all emergency Covid spending approved by the Congress and signed into law by Presidents Trump and Biden stands at over $5 trillion, and that amount is unlikely to increase this year if Covid remains in check.

Trusts.

Democrats targeted grantor trusts last year as a source of funding for spending in their Build Back Better (BBB) initiative. The original House proposal made numerous changes that would have had a significant impact on trusts, including one proposal that would subject new grantor trusts to gift and estate taxes. This provision and others concerning grantor trusts ultimately were removed from the BBB bill that passed the House. While they are unlikely to be included in a new BBB bill (if one actually materializes), some Democrat lawmakers have been searching for other avenues to advance grantor trust reforms. Representative Bill Pascrell (D-NJ) recently sent a letter to the Treasury Department asserting that assets held in a grantor trust at death aren’t eligible for stepped-up basis. He asks the Treasury to pursue regulations to reflect this position, though it is unclear whether the Treasury will act on this request. We will be keeping an eye on this issue, particularly given that Democrats could ramp up their efforts at the end of the year if they lose control of Congress in the November elections.

Daylight Savings Time.

A few lawmakers in the Senate must have been cranky after losing an hour of sleep last weekend due to the daylight savings time switch. The Senate put aside its deliberations on a wider range of issues to unanimously pass legislation making daylight savings time permanent and ending the biannual changing of the clocks that we have all observed for over 50 years. The bill would take effect next year (November 2023) in order to allow airlines and other affected industries time to prepare for the change. The House has not passed this bill, but it has the support of House Speaker Nancy Pelosi (D-CA), which is a good first step. Other lawmakers have raised concerns over the safety of children waiting for the school bus while it is still dark. While the House is unlikely to act immediately, we think this bill ultimately will be approved.

A Union in the House.

There are active efforts behind the scenes in the House among Democratic lawmakers to allow the chamber’s employees to form a union. Advocates argue that union rules would afford workers better working conditions and higher pay. The issue is complicated by the irregular scheduling of House legislative activity, which often goes well into the night when the House is in session. Moreover, all 435 House members are responsible for their own budgets, employees, working rules and staff oversight. Applying uniform rules to all of those offices would be difficult. Establishing a union for House employees would require a favorable House vote, and it’s not clear whether it could muster a majority at this time. The issue generally breaks down along party lines – most Democrats are for it and most Republicans are against it – but there are several members that are undecided. If Democrats can rally all of their members behind the effort, a bill to support an employee union could be passed at the end of this year but probably no sooner.