Washington Weekly: State of the Union Takeaways

The Senate confirmed its first Biden administration judicial nominee of the year. The House passed a bill that would eliminate the Covid vaccine mandate for international travelers, a resolution condemning China’s use of a balloon to spy on the US and violate its sovereignty and a joint resolution to overturn a Washington, DC law that allows noncitizen residents to vote in local elections.

The Senate may continue to vote on Biden administration judicial nominees. The House will be out of session until February 27.

Familiar Biden.

President Biden has worked in Washington for nearly 50 years and knows how to give a speech. This week’s speech was a fairly predictable one of his “greatest hits” of past policy positions and more recent policy accomplishments. In it, the President emphasized familiar themes (like promoting the middle class and using the power of the federal government to improve lives) and identified familiar villains (like billionaires, oil companies and companies that he believes don’t pay enough in taxes). Predictably, the speech received rave reviews from most Democrats and frustrated reactions from most Republicans. What is less clear is what the reaction was of more independent-minded voters who are not strongly affiliated with either party. The success of the speech will hinge to a large extent on the reaction of those voters, who are likely to determine the elections outcome in 2024.

2023 Priorities.

Legislative accomplishments over the next two years will be hard to come by in a divided Congress, so the President and his team will focus on the implementation of several big pieces of legislation passed over the past two years. These include a bipartisan infrastructure bill, a measure to enhance the production of semiconductors in the US and the Democratic-passed Inflation Reduction Act. Combined, the bills provide over $2 trillion in new federal spending. In an effort to emphasize their tangible impact in local communities, President Biden and his cabinet fanned across the US (in 20 states) this week to announce new projects launched by these bills. This activity will intensify over the next two years, and you should expect at some point a Biden administration official to come to your area to announce a local project.

Social Security/Medicare Protections.

Whether or not President Biden intended it, his remarks over the need to preserve Social Security and Medicare -- as well as the reaction from Republican lawmakers in the audience -- seemingly solidified a bipartisan commitment to save the programs from any reductions for the foreseeable future. While this development no doubt pleases individuals who are reliant on these programs, it makes the goal of deficit reduction significantly harder. If both programs are off the table for negotiations, what federal funding can be reduced to meaningfully lower the deficit? “Mandatory” federal spending (comprised mostly of these two programs) and interest on the debt account for about 70% of all federal spending, while defense consumes close to half of the remaining roughly 30% of “discretionary” spending (many Republicans will resist reductions in defense). If all of these areas of spending are off the table, any discussion on deficit reduction will focus on just 16% of federal spending, which makes the exercise much more difficult.

Teeing up 2024 Re-election.

The speech was in many ways a preview of the 2024 presidential race. While new issues will come and go between now and November 2024, many of the policy issues addressed Tuesday night will be featured prominently on the campaign trail and revisited in future speeches. The Biden team will closely watch public reaction to the speech to determine if adjustments need to be made to the President’s case for re-election, including the possible slogan of “Let’s Finish the Job” that the President often referred to in the speech.

Debt Ceiling Extension.

Reflecting the official Democratic position not to negotiate on a debt ceiling increase, President Biden called on Congress to act quickly and without brinksmanship to extend the debt ceiling. Nevertheless, lawmakers from both parties are increasingly recognizing that a negotiation of some kind will need to occur to pass an extension. While the recent focus has been on the dynamics between President Biden and House Speaker Kevin McCarthy (R-CA), they won’t be able to reach any agreement on their own. The Senate, though currently in the background, remains critical. There currently does not appear to be the 60 votes needed to advance a clean debt ceiling in the Senate. Negotiations on the debt ceiling may not begin in earnest until after a clean debt ceiling vote fails in the Senate, and that is probably months away.

Junk Fees.

One notable target in the speech was so-called “junk fees,” which the administration has characterized as hidden fees charged for goods or services with little or no value. Given the vagueness of this term, which could cover a wide array of fees (including credit card late fees, overdraft charges, hotel resort fees, certain flight fees, cable/internet termination fees, and service charges for sports and concert tickets), business groups have argued that the administration is painting with too broad a brush and is lumping in many legitimate fees that are disclosed. President Biden this week touted a legislative proposal to prohibit junk fees. While this bill won’t go anywhere in a Republican-controlled House, the administration can in part pursue this issue through regulatory channels. The Consumer Financial Protection Bureau recently issued a proposal that effectively would limit credit card late fees to $8 and could issue additional proposals on overdraft fees and fees on other credit products. Meanwhile, the Federal Trade Commission is considering a regulatory proposal targeting a broader array of junk fees. Though these regulatory actions will be subject to significant pushback and inevitable litigation, the White House clearly believes the issue will resonate with voters.

Taxes.

The tax policies the President advocated for in the speech are retreads or spinoffs of previous proposals that will not advance this or next year in Congress. In a nod to the economic populism you will hear from many Democrats over the next two years, President Biden proposed a “Billionaire’s Tax” and a fourfold increase to the existing 1% stock buyback tax. The current tax on stock buybacks was put into law last year. It was designed to be low enough that companies would still engage in buybacks and therefore pay the tax. Increasing it fourfold would be a shift in the underlying purpose since it could lose revenue for the federal government if companies are incentivized to stop buybacks and therefore no longer pay the tax. Regardless, we do not expect these tax changes to be passed into law before the 2024 election.

Fossil Fuels.

The President acknowledged that fossil fuels would still be a significant source of energy in the US for the next decade. That statement raised some eyebrows among many lawmakers, industry groups and energy analysts who believe fossil fuels will still play a major role in US energy use for many decades, not just one. This was a small and unscripted part of the speech that was noticeable to us and many policymakers, and this comment will be a big part of the energy debate the two parties will have as the 2024 presidential elections nears.

Selling the Product.

Like most big political speeches, this year’s address was heavy on touting the President’s achievements and their impact. A Washington Post/ABC poll at the start of the week indicated that 62% thought that President Biden had accomplished “not very much” or “little or nothing” during his presidency. It’s hardly debatable that President Biden was involved in passing substantial legislation (some partisan and some bipartisan) over the past two years with Congress. The more important question, however, is whether the legislation is considered helpful, impactful and relevant to most voters. This is why the President and his cabinet engaged in over 20 public events this week touting these accomplishments locally to voters.

Who Watched?

While State of the Union addresses don’t approach the more than 100 million viewers expected for a typical Super Bowl, it is still one of the top ten most viewed television events each year. During this week’s address, President Biden had by far the biggest audience he will have all year. In their third addresses to Congress, Presidents Clinton, George W. Bush, Obama and Trump drew television audiences of 42 million, 62 million, 43 million and 37 million, respectively. President Biden’s drew an estimated 27 million viewers on Tuesday, according to data from Nielsen Media Research.