Washington Weekly: Expanding Sanctions

The Senate couldn’t muster enough votes to proceed with consideration of a bill that would codify the landmark 1973 Roe v. Wade decision. The House passed a symbolic resolution in support of Ukraine (see below) and a bill to address health care benefits for veterans exposed to toxic substances (see below).

The Senate will vote on a House-passed bill to reform the US Postal Service. The House will vote on the fiscal year 2022 government funding bill (see below).  

Russia and Ukraine.  While most of the US response to the Russia-Ukraine conflict is being determined by the executive branch, Congress still has a few opportunities to be helpful.  The House this week passed a resolution condemning the Russian invasion of Ukraine and supporting the Ukraine government and people.  The Senate likely will follow suit soon with its own symbolic resolution to demonstrate bipartisan unity on Ukraine.  Though the process is moving more slowly than most would prefer, Congress also is close to providing $10 billion to Ukraine for further military and humanitarian assistance.  Finally, there are efforts in Congress to pass another symbolic resolution recommending that the International Criminal Court (ICC) launch an investigation into Russian war crimes, something the ICC already is pursuing.  The congressional action is being led by freshman Congresswoman Victoria Spartz (R-IN), who is the first member of Congress born in Ukraine (she immigrated to the US in 2000).  Particularly given the hard facts on the ground in Ukraine, everyone in Congress wants to get on the anti-Russia bandwagon.   

Expanding Sanctions

The Senate also continues to negotiate a broad sanctions bill to strengthen President Biden’s hand with regard to further sanctions, though this effort is unlikely to pass anytime soon.  While the Biden administration (in concert with allies) has taken unprecedented sanctions against Russia, many Republicans would like to go further.  With plenty of countries (notably China) eschewing the imposition of sanctions, one important question for policymakers going forward will be whether to impose any sanctions on countries that provide economic support to Russia.  Some lawmakers also have expressed concern about Russia’s potential use of cryptocurrencies to evade sanctions.  The biggest issue may be how much effect the sanctions will have on President Putin (despite their serious impact on Russia’s economy) given his apparent focus on military and security objectives above all else.  Additional sanctions will be debated by Congress over the next few weeks, although the administration will certainly not act on all of them.  Sanctions will be a lively debate in Congress as Republicans assess the President’s ongoing response to Russia, especially with Russian military operations expected to intensify in the weeks ahead. 

State of the Union Takeaways Three Days Later

Two things stand out after digesting the speech and the public reaction to it.  The first was the President’s reminder of how brave the people of Ukraine have been in the face of an ongoing attack on their country.  It’s difficult to know whether their bravery will lead to a more peaceful resolution and/or if they will eventually be overwhelmed by a massive Russian military advance, but their bravery has been inspirational at a time when the world needs inspiration and heroes.  The second was how the President addressed Covid.  It seems to us that he and the nation are now ready to move on from the pandemic and resume a greater sense of normalcy.  This is a clear pivot for the President, who has been very focused on mask-wearing and vaccines over the last year.  Of course, a new variant could evolve and put us back on the defensive, but the takeaway from the speech to the public was that the President flashed a big green light to move on.          

Government Funding

March 11 is the deadline for action on a bill to fund government agencies over the rest of the fiscal year (through September 30).  This bill, which will require bipartisan support, is a perennial challenge since lawmakers from both parties always have different funding priorities to argue about.  The current disagreement is largely over two spending items: more aid for Covid and disaster funds to help victims from recent hurricanes in the south.  Democrats want $22.5 billion to expand Covid testing and vaccines for domestic and international use (which most Republicans oppose), while Republicans want $2 billion to help victims of Hurricane Ida (Louisiana) and tornadoes in western Kentucky last year (which was not included in the administration’s request for additional spending).  Passage of this bill also is important with respect to US support for Ukraine, since the bill will include the aforementioned military and humanitarian aid to Ukraine.  There will have to be major progress in negotiations this weekend for lawmakers to meet the March 11 deadline.  Otherwise, they’ll give themselves another extension into later March to finish the job.  This will be priority number one in Congress over the next week.

Supreme Court Nomination

The Senate Judiciary Committee (SJC) is expected to begin its confirmation hearings for President Biden’s nominee to serve on the Supreme Court, Judge Ketanji Brown Jackson, on March 21.  Judge Jackson began her confirmation quest this week with various one-on-one visits with senators from both parties.  Judge Jackson has the benefit of having been vetted recently by both the White House and the Senate as a part of the confirmation process for her current job as a circuit judge.  This should result in a relatively quick process of approval of her nomination.  While it is still early, the confirmation process has gone smoothly thus far and we know of no reasons why she will not be confirmed sometime in early April.  Of course, additional vetting, the interview process and the Judge’s appearance in hearings before the SJC may benefit or hinder her cause depending on how they go over the next two weeks.             

Taxes

President Biden mentioned a few tax items Tuesday night in his address to the nation.  He did not get into specifics, but he again proposed higher taxes on the wealthy and on businesses.  These tax increases were included in the House-passed Build Back Better bill (BBB), which has floundered in the Senate.  Those proposals will not pass in isolation and would need to be tied to a larger bill in order to be enacted.  While the BBB is currently on the sidelines, Democratic lawmakers will still try to pass a big spending bill (>$1 trillion) this year, whatever they call it.  Such a bill would need tax increases to help pay for the new spending.  We doubt Congress will be able to enact this bill this year, but passage of such a bill, which would impact wealthier individuals and businesses, remains a possibility.

Help for Vets

The House this week passed legislation to provide support to veterans who were exposed to toxic substances during deployments to Iraq and Afghanistan.  The military routinely used open-air pits to burn items such as jet fuel, paint, plastic, garbage and medical waste.  Many veterans were exposed to the airborne hazards from these “burn pits” and later were diagnosed with cancer, lung disease and other respiratory problems likely caused by the toxic exposure.  The House-passed bill would expand eligibility for health-care benefits and disability compensation for these veterans (around 3.5 million veterans have had some exposure to burn pits).  The bill passed with only 34 Republicans voting in favor due to Republicans’ concern over the price and scope of the bill.  House Republicans instead favor a narrower bill passed in the Senate last month.  The House and Senate bills will now have to be reconciled.  We believe that a compromise could be developed in the months ahead given the strong bipartisan support for helping these affected veterans. 

LIBOR Transition

A major change in the financial industry has been the transition away from a ubiquitous benchmark interest rate called the London Interbank Offer Rate (LIBOR) that has been used to price trillions of dollars of financial contracts ranging from swaps to consumer loans.  Regulators directed banks to stop using LIBOR on new contracts by the end of last year and cease using it for existing contracts in mid-2023.  The reason for this massive shift is that regulators want loans and swaps to be priced using new benchmark rates based upon actual transactions rather than bank submissions on how they would price loans over different time periods to other banks on an unsecured basis.  This will be a challenging transition for a large number of legacy contracts, which will impact businesses and consumers alike.  Congress has been working on legislation that would provide greater legal certainty on this transition for these legacy contracts, which include many consumer and business loans.  In the Senate, key lawmakers came out with a bipartisan compromise that they hope they can pass on the Senate floor in the very near future.  The House already overwhelmingly passed a version of the bill last year.  After a long journey, Congress seems poised to get this esoteric but important bill over the finish line in the coming weeks.  

Politics is Perception

Leading up to the State of the Union, a USA Today and Suffolk University poll of registered voters likely increased concerns among Democrats.  In addition to showing President Biden’s approval rating continuing to hover in the low 40s, the poll indicated that many Americans have an unfavorable view of the economy.  When asked what state the economy was in, only 19% said they believed the US was in an economic recovery, while 24% chose stagnation.  A plurality of 29.5% described the economy as being in a recession, while 20.9% called it an (economic) depression.  Given that President Biden has staked his presidency on a return to normalcy and an emergence from the pandemic with a vibrant economy, the extremely negative perception of the economy could be a major blow to his presidency.  This week’s State of the Union was likely Biden’s best opportunity to try and change this perception before the mid-term elections.  The tone of the speech and the themes he covered reflected his best efforts to portray a more optimistic future amidst the concern many Americans have.  Whether the president’s efforts worked remains to be seen, but an American electorate that doesn’t have faith in the economy almost always blames the party in charge.