Washington Weekly: Debt Ceiling Extension

The Senate passed a resolution to designate January as National Stalking Awareness Month to raise awareness to the dangers of stalking. The House passed a bill that would create a task force to recommend improvements to the Federal Aviation Administration’s pilot alert system and will vote today on a bill that would make Strategic Petroleum Reserve releases contingent on an increase in domestic gas and oil production on federal lands.

The Senate may consider Biden administration nominees. The House plans to vote on a group of pandemic-related bills to eliminate the Covid vaccine mandate for health care workers, terminate the Covid public health emergency, require federal agencies to reinstate pre-pandemic telework policies and on a resolution to end the Covid national emergency declaration.

Debt Ceiling Extension.

Not surprisingly, the debt ceiling (and the anticipated difficulties in raising it) was a primary topic of discussion among lawmakers in Washington this week. While there will be a lot of strategizing and posturing over the next several months, no substantive policy to address the debt ceiling will advance until the summer. Different ideas will be floated as a way to encourage negotiations. For example, Senator Joe Manchin (D-WV) and Senator Mitt Romney (R-UT) suggested the creation of a commission to make recommendations on ways to reduce spending, while Senator Manchin also suggested potential reforms to Social Security. However, Congress, particularly the House, isn’t going to seriously decide on the form of a debt ceiling raise it can support until there is the urgency of a crisis. Ideas will come and go over the next few months, and public opinion, politics and economic developments will all play a big role in determining the most viable solution as we get closer to the summer.

Cuts to Social Security and Medicare?

Very unlikely. Any serious discussion of balancing the federal budget over the long term has to include changes to the so-called “entitlement” programs of Social Security and Medicare. However, while House Republicans are eager for a fight over federal spending levels, they are less eager to have the fight over these two programs, at least this year. Most House Republicans will publicly say they are not focusing on these two programs but rather on “discretionary” government spending that is subject to annual spending bills. On the other hand, Democrats will argue that discretionary spending is only a small part of the government spending pie and that the entitlement programs are at risk. Efforts to reform both Social Security and Medicare will need to happen on a bipartisan basis. This is more likely to happen later this decade when the programs face even more dire financial challenges. The conditions in Washington today are not ripe for these reforms.

Classified Document Security Woes.

Until recently, lawmakers didn’t expect to have to deal with a series of classified information security breaches from former presidents and vice presidents. The problem is bipartisan, although circumstances differ among the four offenders so far (Trump, Biden, Pence and Carter). We would not be surprised to see further revelations, perhaps even from past Presidents Bush and Obama. While certain executive branch officials are able to review classified information at their desks, lawmakers generally need to view such information in secure locations called sensitive compartmented information facilities, commonly referred to as “SCIFs.” The security breaches will certainly be investigated by both the House and Senate, and Congress could advance legislation to make reforms to federal record-keeping and to lower the thresholds for classifying intelligence as classified. Much will depend on whether there are more revelations to come and the sensitivity of information that has been put at risk.

“Fair Tax” Uncertainty.

It has been reported that House Speaker Kevin McCarthy (R-CA) committed – as one of the concessions he made to secure his speakership – to a House vote on the Fair Tax Act. The Fair Tax Act is premised on a decades-old proposal to replace the existing income tax and payroll tax with a national sales tax of 23% that some are calling a 30% tax when the total cost is calculated (the proposal also would eliminate the IRS). Democrats have already seized on this issue by calling the tax an assault on middle class Americans. Many Republicans are distancing themselves from the proposal, including the Speaker himself and the Chairman of the House tax-writing committee. Since support among House Republicans seems tepid, it is possible a vote on the bill will be deferred indefinitely. Even if it somehow were to pass the House, it would not move forward in the Democratic-controlled Senate. While you may hear plenty of noise about a national sales tax this year, it won’t advance very far, and probably not at all.

PayPal, Venmo and Taxes.

The American Rescue Plan that Democrats passed in 2021 required transactions in excess of $600 per year on services like PayPal and Venmo to be reported to the IRS. The threshold was a major drop from the current reporting threshold of $20,000. It was scheduled to start at the beginning of this year, but the IRS announced that 2023 will be a transition year and that the new threshold won’t go into effect until next year. The delay in implementation potentially gives Congress an opportunity to reverse itself on this requirement. Republicans have already picked up this mantle. As lawmakers hear more concerns from their constituents about the change, there even could be enough Democratic support for a reversal. The situation is fluid, but our early projection is that this new law likely will be rolled back (possibly back to the previous $20,000 level) before the end of the year.

Ongoing Antitrust Activity.

There will continue to be a lot of activity in Washington this year on antitrust and competition policy. A Senate committee this week held a hearing to address concerns with the level of competition in online markets for concert and sporting events. Meanwhile, the Justice Department brought a suit against Google for alleged anti-competitive practices on digital advertising. In the last Congress, House and Senate committees passed legislation with some bipartisan support that would give regulators greater authority to go after big tech companies on anti-trust grounds. These efforts were strongly opposed by the tech industry, which argued that they would harm the global competitiveness of the US and be disruptive to consumers. The bills did not have enough support to become law last year, and they will be non-starters with the new Republican leadership in the House. Instead, House Republicans will focus their fire on what they see as unfair censoring of conservative content on social media platforms. Even without new authorities forthcoming from Congress, Biden administration anti-trust enforcers at the FTC and Justice Department will continue to be aggressive in challenging mergers and in targeting what they see as anti-competitive practices at the big tech companies. However, the regulators have had limited success to date and some of these cases could take years to play out.

Farm Bill Reauthorization.

A primary focus in both the Senate and House this year will be the reauthorization of the farm bill. This bill is a multiyear package that will set future funding levels for US agricultural and food programs that are set to expire at the end of this fiscal year (September 30). The farm bill generally needs to be renewed and updated every five years. It covers a wide variety of programs, including crop insurance, price supports for various commodities, agriculture exports, food assistance programs, conservation efforts and farm income support. This effort won’t command the national media attention that other issues do, but it is significant in the farm belt. The most recent farm bill passed in 2018 and cost $428 billion. The Senate Agriculture Committee will kick off this effort with a hearing on February 1. Like other bills, there will be conflicts with this one as well, including disputes over the level of spending for agricultural programs (especially the food stamp program) and over climate change issues. The disagreements could be significant and result in a challenge for Congress to meet the September 30 deadline. It wouldn’t be the first time they have missed the deadline on this bill.

Senate Retirements.

Senator Debbie Stabenow (D-MI) surprised the political world at the start of the year when she announced that she would not seek re-election next year. The retirement of Republican Senator Pat Toomey (PA) last year played a big role in the flip of that seat to a Democrat. Many are looking at Senator Stabenow’s retirement as an opportunity for Republicans to flip the Michigan seat. Democrats already have a difficult path to defend their majority in 2024. Democrats (including three Independents aligned with Democrats) are defending 23 of the 36 seats up for re-election. Three senators up for re-election – Senator Manchin, Senator Sherrod Brown (D-OH), and Senator Jon Tester (D-MT) – are from red states. Only Senator Brown has so far committed to running again. Democrats also have five other incumbents who are older than 75 years of age and may contemplate retirement. In addition to providing an early barometer for how Democrats view their odds of maintaining control of the Senate, the amount of retirements will have a compounding effect that will make it harder for them to keep their majority.