This Week:

The Senate confirmed various Biden administration nominees and approved House-passed legislation providing $40 billion in humanitarian and military assistance to Ukraine (see below). The House passed a bill to provide $28 million in emergency funds to the Food and Drug Administration (FDA) to address the baby formula shortage (see below). It also passed bills to prohibit gas price increases during national energy emergencies and to establish domestic terrorism units within the FBI, Justice Department and Homeland Security Department. Both the Senate and House passed legislation that would ease some non-safety-related regulations on the types of baby formula that can be purchased under the federal Women, Infants and Children program (see below).

Next Week:

The Senate will continue to vote on Biden administration nominees. The House will have committee activity but is not scheduled to have floor votes.

The Lead

Russia, Ukraine and the US.

The Senate yesterday approved a bipartisan bill (already passed by the House) to provide $40 billion in further military and humanitarian assistance to Ukraine. President Biden is expected to sign the bill immediately. This brings the total level of direct aid from the US to Ukraine to $53 billion. Since it is not offset, the new funding will add to the budget deficit, a concern raised by a few lawmakers. Congress isn’t expected to pass subsequent legislation relating to Ukraine in the immediate future, though the Biden administration will continue with efforts to increase pressure on Russia and assist Ukraine in other ways. In the coming days, the administration could precipitate a default in Russian debt by allowing a temporary waiver that has allowed Russia to continue making bond payments to US investors to lapse. There is action and attention on a broad range of US-Ukraine-Russia issues in Washington every day, and unlike practically all other issues, bipartisan support for helping Ukraine remains strong and shows no signs of cracking.

Baby Formula Demand.

The intense media coverage on shortages in baby formula throughout the US prompted Congress to take legislative action to address the problem. Both the House and Senate passed a bill that will relax some non-safety restrictions on the types of baby formula that can be purchased under the federal Women, Infants and Children program, which utilizes about half of the baby formula in the US. The House also passed another bill that would provide $28 million in “emergency” funding for the FDA to hire additional staff for baby formula inspections. The FDA has come under fire for not acting soon enough to address the shortage, and many lawmakers are dubious of providing FDA with additional funds. This bill has a more uncertain path in the Senate. Any relief from legislation will take some time and not show improvements in the baby formula market for at least a month.   

Other Issues

Immigration and May 23.

A federal judge is set to make a big decision in the next couple of days on the future of so-called Title 42, a plan originally put in place by President Trump in 2020 to deny many asylum seekers entry into the US due to public health and safety concerns (Covid was cited as the primary reason). The Biden administration has made the decision to repeal the Title 42 plan and allow more asylum seekers into the US beginning on May 23. A coalition of states contested the decision, arguing the decision would cause undue harm and burdens. A federal judge temporarily blocked the Biden administration’s plan and will issue a final opinion by Monday, May 23. If the court acts against those states and allows the asylum restrictions to be repealed, localities (and voters) concerned with rising levels of illegal immigration along the southwest border will howl in protest. If the states’ legal challenge is accepted and the restrictions remain, those who want the asylum process to function without roadblocks will loudly objectWhether it’s through the actions of the court or of the Biden administration (in a partial reversal), we believe the outcome will be a continuation of the Title 42 asylum restrictions until at least the end of this year (after the elections).

Restaurant Aid.

The Senate couldn’t muster the needed 60 votes to debate and vote on legislation that would provide additional support for restaurants and other small businesses that endured substantial revenue loss during the pandemic. The House already has passed a similar bill that provided a broader $55 billion in relief package to pandemic-affected businesses, including $42 billion to the Restaurant Relief Fund (RRF) for applicants who did not receive earlier pandemic funding from the federal government. Only a third of restaurant applicants that applied had received grants before funding ran out. The rejected Senate bill would have provided $40 billion to the RRF and $8 billion to various other small businesses, including fitness centers, live event venues, and minor league sports teams, among others. While the bill did not have enough bipartisan support to advance in the Senate this week, we expect supporters of the measure to try again later in the year or to incorporate elements of this bill into other funding legislation (also later in the year).

US-China Technology Competition Bill.

As we have reported before, both the House and Senate have passed separate versions of legislation to enhance US capabilities in science and technology, including greater domestic production of semiconductors, with an eye towards competing more effectively with China in these critical areas. Over 100 members of the House and Senate have the difficult task of reconciling the many differences between the two bills. While there is strong bipartisan support for the core efforts of increasing US semiconductor production and bolstering research, many contentious items still need to be resolved. These include labor and environmental provisions in the sprawling House bill and a Senate proposal that would roll back some of the Trump-era tariffs on China. A final compromise bill, if one can be crafted, is likely to be the last bipartisan bill that could be passed this year. Dozens of provisions are being negotiated at this time, but the following two impactful items have gotten our attention. 

  • Outbound Investment Review.
    One key issue under discussion is whether to establish a new government committee to review (and potentially disapprove) overseas investments in “countries of concern.” Given that the US already has a government body (the Committee on Foreign Investment in the United States (CFIUS)) that assesses the national security implications of foreign investment transactions in the US, this proposal, which was included in the House bill but not the Senate version, has been called “CFIUS in reverse.” Since it would mean a new layer of scrutiny on investment and supply chain decisions for companies in a wide range of “critical” sectors, it faces strong opposition from the business community. While the proposal could be watered down, there is a decent chance that some form of outbound investment review will make it into a final agreement if one is reached.
  • Research and Development Tax Credit.
    About two months ago, we wrote about efforts by a bipartisan group of lawmakers to allow research and development expenses by businesses to be deducted in the year incurred versus amortized over several years. This would be impactful to many companies in the defense, tech and pharmaceutical sectors. Even though a clear majority of lawmakers support this tax provision to encourage R&D, its Inclusion in the competition bill is not a slam dunk. Many progressive Democrats don’t want to give a tax break to businesses without other tax changes to increase taxes on corporations or make the child tax care credit fully refundable. Nonetheless, this effort is gaining steam and would be a boon to the aforementioned sectors if enacted.

Gas Mileage and Tax Deductions.

A group of 18 House Democrats recently sent a letter to the IRS Commissioner asking him to increase the rate used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The current rate of 58.5 cents per mile was already increased by 2.5 cents at the end of last year. Lawmakers argue that this increase should be further adjusted to reflect higher inflation. They also note that the IRS has previously exercised its authority for a mid-year increase to provide relief from high gas prices back in 2011. Such a change would not help every American who is struggling with high gas prices, but it would provide relief to many small businesses, self-employed and rideshare drivers.

The Final Word

The Next Georgia?

Lt. Governor John Fetterman on Tuesday was able to easily win the Democratic nomination for the Pennsylvania Senate race. However, the Republican primary has been much closer. Former TV personality and physician Dr. Mehmet Oz narrowly leads former hedge fund CEO and Bush-era official David McCormick. But, due to outstanding mail-in ballots, the race has not yet been determined, and both candidates believe they still will win. While there are not many outstanding ballots left in Pennsylvania, the election seems destined for a recount. Former President Trump has already weighed in on the matter stating that Oz should declare victory in an effort to “make it harder for them to cheat.” This line of attack is nothing new for the former president. Indeed, many political pundits attribute Republicans’ unexpected losses in two Georgia Senate races last year to messaging like this that may have kept many GOP base voters at home. If McCormick ends up winning the GOP nomination, Trump’s attacks on the integrity of the election could depress Republican turnout in November and give more of a path to victory for the Democrat, Lt. Gov. Fetterman. In a 50-50 Senate, every race counts and this could be the seat that determines the majority.