Washington Weekly: US Technology and Semiconductor Push

TheSenate confirmed various Biden administration nominees. The House passed a “minibus” package consisting of six of the twelve fiscal year 2023 appropriations bills to fund government operations (see below) and bills to protect same-sex marriage and access to contraception.

The Senate will vote on a bill to boost semiconductor manufacturing and expand science and technology research (see below). The House will vote on a package addressing wildfires, droughts and forest management, and it may consider a bill that would ban assault weapons. It also may consider the semiconductor bill if the Senate approves it.

US Technology and Semiconductor Push.

The Senate plans to vote next week on a bill to provide $200 billion to expand science and technology research at various federal agencies and $52 billion to bolster the production of semiconductors in the US. The bill is more streamlined than previous competition bills passed this session by the House and Senate. Notably, the bill does not include some controversial provisions relating to trade and immigration policies that were contained in earlier versions. While the efforts to strengthen semiconductor production and science research have bipartisan support, Republican lawmakers could try to reduce some of the science spending in the bill due to concerns over deficit spending (the spending in the bill is not offset and would be added to the deficit/debt). Some Senators also have more fundamental objections to government subsidization of private businesses or an entire industry. Nonetheless, the premise of the bill – to make the US more competitive in science and technology (particularly with regard to China, where the government generously funds its primary industries) – has strong bipartisan support, and we believe this sentiment will prevail in passing a version of this bill at some point, whether it’s next week or late this year.

Climate Crisis?

With Democrats unable to pass major legislation to promote green energy and combat climate changes, the Biden administration this week highlighted climate challenges amidst escalating temperatures around the world. President Biden reiterated his plans to try to address these challenges instead through executive action, which he promised would be unveiled in the upcoming weeks. Particularly without the strength of law through enacted legislation, these executive actions are likely to be limited and temporary and they will be subject to legal challenges. President Biden could pursue more aggressive policies by making an “emergency declaration” on climate, but that would face similar obstacles. The President will continue to prioritize these issues, but it’s not clear that any of his actions will meaningfully advance his climate goals.

Build Back Better Revival.

Senate Democrats behind the scenes continue to work on navigating their slimmed-down Build Back Better (BBB) legislation through the complicated rules of budget reconciliation, which will allow them to pass the bill with just 50 votes (instead of the de facto 60 vote threshold that applies to most legislation in the Senate). We expect the final BBB bill to be considered by the Senate beginning the week of August 1. It will take that entire week (and possibly the next) to reach a conclusion.The smaller BBB most notably would include prescription drug pricing reforms that will allow Medicare to achieve cost savings for the government.Those savings will be applied to an extension of federal subsidies under Obamacare.There may be a few other provisions that are not controversial, but importantly, we do not expect any tax increases on wealthier individuals or businesses to be included in this bill (unlike earlier versions). While the smaller bill is no doubt a disappointment to many Democrats who still favor the $1.75 trillion bill passed by the House last fall, it still will be a major accomplishment for Democrats to tout to voters this year if it can pass in the Senate, which we believe is likely.

Required Minimum Distributions, Part One.

Last month, we highlighted legislation called the SECURE 2.0 Act. This bill includes a proposed increase in the required minimum distribution (RMD) age to 75. We have since received a few questions about how quickly that increase could be implemented. As currently written, the Senate bill would increase the age to 75 starting in 2032, while a bill that passed the House last year would phase in the increases (to age 73 in 2022, 74 in 2029 and 75 in 2032). Generally speaking, we expect any final package to be closer to the language of the Senate bill, though the Senate bill may opt for a more phased in approach if there is flexibility with regards to the cost of the total package. We remain optimistic that this legislation, which could be impactful for individuals about to begin taking RMDs, will become law near the end of the year.

Required Minimum Distributions, Part Two.

On an entirely separate track, a few Democratic lawmakers are considering the introduction of legislation to suspend RMDs for this year to provide relief for retirees being forced to take RMDs under the current adverse market conditions. No specific bill has been introduced yet, but such a measure likely would be modeled after the suspension of RMDs in 2020 by Congress when there was great economic uncertainty in the early days of Covid. While the 2020 suspension was utilized by some retirees, it wasn’t used on a scale that lawmakers thought would occur. Many lawmakers have taken that as a sign that any additional temporary RMD suspension would not be broadly helpful to retirees in the current down market. Consequently, we don’t think the ongoing chatter about a suspension of RMDs due to current market conditions will get significant traction at this time.

2023 Government Funding Bills.

Congress typically spends much of the summer passing government funding bills for the upcoming new fiscal year that begins on October 1 (fiscal year 2023). The House approved six separate funding bills covering various federal agencies this week. While the House activity is timely, these bills won’t be resolved in final form until late this year. Amidst the thousands of funding provisions for the new fiscal year in these bills, the rate of increase in spending stood out to us. The House bills would provide double-digit funding increases for nearly all of the agencies they cover. For example, programs at the Interior Department would see a funding increase of 18% (from the current fiscal year), while transportation programs would increase by 12%. Many of these funding numbers will be reduced by the Senate in the weeks ahead, but practically all will see healthy increases that will not be offset and therefore added to the budget deficit.

Stablecoin Regulation.

Last November, a group of regulators led by the Treasury issued a report on stablecoins, which are digital assets issued by private entities backed by other assets, including fiat currencies like the dollar. Reflecting concerns that stablecoins fall between regulatory gaps and could be subject to runs, the report recommended that Congress develop legislation that requires issuers of these coins be regulated as banks. Lawmakers have issued a variety of different legislative measures dealing with the regulation of digital assets (including stablecoins) and there’s been growing interest in acting following breakdowns in certain stablecoins and broader market volatility in digital assets. In recent weeks, House Financial Services Committee Chairwoman Maxine Waters (D-CA) has been collaborating with Ranking Member Patrick McHenry (R-NC) on legislation to regulate stablecoins. The bill wouldn’t go as far as the regulators’ recommendation, but it would require stablecoins to be fully backed by high-quality liquid assets and would establish federal oversight of stablecoin issuers. The bill is still subject to ongoing negotiation on potential changes, and it still is not yet clear whether it will be ready for a committee mark-up scheduled next week. While this issue may not be ripe for decisive action this year, a regulatory framework for stablecoins could be a bipartisan legislative achievement in the next Congress.

Electoral Count Act Updates.

As the House committee focused on January 6, 2021 continues its public hearings, a bipartisan group in the Senate has been quietly working on updating the 1887 Electoral Count Act (ECA). The ECA sought to clarify the process outlined in the Constitution for the states to count electoral votes following a presidential election, but many lawmakers view aspects of it as too vague. The law clarified that states should resolve electoral vote disputes and send to Congress a final (and single) slate of electors (several states in the 1876 presidential election sent different slates to Congress for approval). A key issue in the current reform effort relates to the role of the Vice President (as the president of the Senate) in accepting the states’ electoral results, which was a controversial point in the aftermath of the 2020 presidential election. The new bill is expected to clarify that the Vice President does not have the authority to overturn the states’ certification of election results. It also would raise the threshold in Congress to challenge election results to 20% in each chamber (instead of the current requirement for a single member in each chamber). Finally, it would include broader election reforms including additional protection from harassment for poll workers. A Senate committee is expected to hold a hearing on this bill in early August. Getting a final bill across the finish line will require 60 votes in the Senate for passage, and it appears to be in a good position to pass late this year if other more controversial voting reforms are not added to it.