This Week:

The Senate passed a bill that would codify federal recognition of same-sex marriage. The House passed bills to address the health needs of pregnant women in custody and to authorize federal grants to establish community resource centers for formerly incarcerated individuals. Both the Senate and House passed legislation to prevent a national railway strike (see below).

Next Week:

The Senate will vote on various Biden administration judicial nominees. The House plans to vote on the Senate-passed same-sex marriage bill. Both the Senate and House will continue debate on the annual defense authorization bill and legislation to extend government funding for fiscal year 2023 beyond December 16 (see below).

The Lead

Rail Strike.

Congress doesn’t often involve itself in private sector labor strikes, but it did this week. The House passed legislation to prevent a national railway strike and implement a deal mediated by the Labor Department in July (eight of the 12 unions supported that agreement, while the other four opposed it). The House passed an additional bill that would provide rail workers with an extra seven days of paid sick leave. The broad settlement bill passed the Senate yesterday, but the measure containing extra paid sick leave was rejected. President Biden, who was involved in crafting the July agreement, called on Congress to take action and is expected to sign the bill into law today. Without this legislation, a rail strike would have begun on December 9 or earlier. The prevailing (and bipartisan) view in Congress was that a bill needed to be passed to avert a disastrous strike and economic harm (potentially a crippling national supply chain shutdown during the busy holiday season), but there wasn’t great joy in passing the bill. Many Democrats felt uncomfortable endorsing an agreement that didn’t have full labor support, while many Republicans had apprehensions in setting a precedent to intervene in future labor strikes.

Government Funding Bill.

Lawmakers must pass a bill to fund government agencies beyond December 16 or risk a government shutdown. Little progress was made this week to advance the bill, and it is likely that Congress will soon have to pass a measure to extend the deadline beyond December 16, even if it is just an extension for a week. The end-of-the-year holidays often provide a good incentive for lawmakers to compromise and wrap up their business so they can go home, but that dynamic may be less of a factor this year. Many House Republicans would rather push the government funding debate into next year when they will have a majority in the House and more of a say into what will be included in the bill. All of the uncertainty about when government will be funded is tiring to those involved in the process and problematic for some business sectors (particularly defense) that need certainty and reliability in government funding. Developments next week should help determine whether Congress will pass a comprehensive spending bill before the end of the year or punt it into next year.

Other Issues

FTX Fallout.

Congress this week held the first of what will be many hearings on the collapse of major crypto exchange FTX. This hearing, which featured the CFTC Chairman Rostin Behnam, was held in the Senate Agriculture Committee. That committee has been working on bipartisan legislation that would give the CFTC authority to regulate digital commodities like Bitcoin (other digital assets that are securities would continue to be subject to SEC jurisdiction). The leadership of that committee and CFTC Chairman Behnam argued that the FTX collapse and its impact on investors only underscore the need for this bill (and its granting of greater CFTC authority), although its prospects are complicated by FTX’s prior support for it. The House Financial Services Committee, which will hold its first hearing on the issue next week, has been working on a bill to establish federal regulation over stablecoins. Regulators see stablecoins as a growing source of risk in the digital asset marketplace, and this bill will continue to be a top priority even as control of the House changes hands next year. Meanwhile, Senate Banking Committee Chairman Sherrod Brown (D-OH) called on the Treasury to help Congress develop a comprehensive bill covering digital asset regulation, but this will be a challenging undertaking, complicated by potential turf battles between different congressional committees and between regulators.

January 6th Select Committee.

The House Select Committee to Investigate January 6th is working on closing out its investigation. The committee, which began its work in the summer of 2021, held its ninth (and final) hearing in October. It is preparing a public report to be released before the end of the year. The final report will include testimony from over 1,000 witnesses as well as conclusions and legislative recommendations to enact new election protections and other reforms. The committee is under a deadline to release its final report before the year end given that House Republicans are expected to revoke the committee when they are in the majority in January. As with the public committee hearings held this fall, the final report will focus on former President Trump’s role – either directly, indirectly or merely alleged – on January 6th. The committee’s work will be evaluated by some as controversial and partisan, but there is no doubt that it had a political impact on the recent mid-term elections. We believe a big part of the reason why more independent voters sided with Democratic candidates in some states was due to their unfavorable views of former President Trump and in part what they perceived to be his role in the January 6th fiasco.

Electoral Count Act.

Among the many agenda items pending in the current lame duck session, there is still some momentum to pass a bipartisan measure that would raise the threshold to challenge presidential election results. The legislation would update the 1887 Electoral Count Act (ECA), which establishes how Congress and states certify presidential elections, to address aspects of the law that many lawmakers view as too vague. Both the House and Senate have their own versions of the bill, but only the House has passed its bill so far. The Senate’s bill is more measured and has garnered bipartisan support. The Senate bill would require one-fifth of each chamber’s members to raise an objection to a state’s electoral votes, instead of the current requirement for just a single member of each chamber to raise an objection. It would also clarify the role of the Vice President (as president of the Senate) as ceremonial in accepting the states’ electoral results, which was a controversial point in the aftermath of the 2020 election. Many lawmakers want to pass this bill before the end of the year given that its prospects would be bleak in a divided Congress next year. While we believe this bill has a shot at passage before year-end, it’s not a lock.

Global Minimum Tax.

Over multiple years, the Biden administration worked with others in the international community to develop a new global minimum tax whereby countries would establish a global minimum effective corporate tax rate of 15% for large multinational companies. Implementing this plan in the US would require an act of Congress. We do not expect Congress to act on this proposal in the waning days of this year despite some rumors that it will. And with Republicans gaining control of the House next year, there is no chance of action on this measure for the next two years. Many multinational companies are breathing a sigh of relief for the moment, but those with operations in low tax jurisdictions, such as Ireland, remain on edge regarding how other countries pursue such a global minimum tax in the coming years. The multinational business community still will face challenges if some countries start adopting a global minimum tax even as the US sits on the sidelines. We will be keeping an eye on this issue as one that could be impactful in the next few years.

Water Infrastructure.

Without any public headlines, both the House and Senate have been diligently working on the Water Resources Development Act (WRDA), which would authorize tens of billions of dollars for projects to improve ports, waterways and other water related projects, including flooding mitigation. For example, the bill authorizes modifications to navigation projects at the Savannah and Honolulu Harbors and expedites the completion of several flood mitigation projects in Arizona. The projects can be critical to commerce and supply chains around the country. These projects are scattered all over the country, which enhances bipartisan support for them. This bill has a good shot at passage this year, probably as part of a defense authorization bill that will pass in the coming weeks.

Cannabis Banking.

As negotiators finalize talks on the defense authorization legislation, there is serious discussion about also including the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”) in the final package. SAFE Banking would provide a legal safe harbor for banks and other financial institutions to serve covered cannabis businesses. This bill has passed the House on multiple occasions on a broad bipartisan basis. Democrats in the Senate have wanted to pair the bill with some criminal justice reforms and have been trying to secure sufficient Republican support for that. After years of trying, it looks like the SAFE Banking Act could be on a path to becoming law as part of the defense bill.

The Final Word

Georgia Runoff: Part II.

The runoff Senate election in Georgia may have been flying a bit below the radar for people who don’t live there, but it kicked off in earnest this week with the start of early voting. Over a million Georgians already having cast their ballots and it is expected that around two million ballots will be cast in the early voting period. Notably, 3.5% of the ballots cast so far have come from people who did not vote in the 2022 general election (just four weeks ago). While it is tempting to try and draw comparisons to the 2020 GA runoff elections, which decided which party controlled the Senate in 2021, they are not directly comparable for a number of reasons. This year’s run-off race has an accelerated turnaround (four weeks after the general election compared to nine weeks in 2020), and the fate of the Senate doesn’t hinge on who wins this race. Furthermore, there were two races in 2020, unlike this year. At this time, the early voting demographics do appear to be more favorable for incumbent Senator Raphael Warnock (D) when compared to the trends from the general election last month. Challenger Herschel Walker (R) will likely have to rely on a strong election day turnout in order to win. The results next Tuesday likely will be close, but Warnock enters the election as a slight favorite.