Washington Weekly: State of the Union Roadmap

The Senate approved the nomination of a board member to the Institute of Peace. The House passed 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 a resolution to end the Covid national emergency declaration.

The Senate may consider Biden administration nominees. The House plans to vote on a bill to end the Covid vaccination requirement for foreign travelers into the US.

Debt Ceiling Extension.

House Speaker Kevin McCarthy (R-CA) and President Biden met this week to discuss the need to extend the debt ceiling. Though the meeting was cordial, it did not move the issue toward a particular solution. It was more of a check-the-box exercise that allows them to say they are willing to work with each other and committed to solving the problem. As we said last week, there will be little in the way of actual progress on extending the debt ceiling until this summer, though there will be plenty of noise on Capitol Hill about possible solutions between now and then. In particular, House Republicans will try to build a public case for reduced federal spending – an effort that began this week with federal spending on Covid.

Cutting Spending, Phase 1.

The House passed a number of bills this week to end immediately the federal government’s declaration of Covid as a national emergency. Removing the designation would end the continued availability of certain federal funds for public health measures (such as free Covid testing and vaccinations) and expanded social safety net programs (including expanded food stamp benefits and access to Medicaid). Ending the emergency designations of these programs will restore them back to pre-2020 eligibility rules and levels of assistance. Expanding government services to individuals during the height of the Covid crisis made sense to lawmakers from both parties at that time (the designations began during President Trump’s term). However, with Covid turning the corner from pandemic to endemic, many lawmakers believe it is time to curtail the extra funding in view of the $31 trillion national debt. These measures passed by the House this week would end the assistance right away, but the Democratic-controlled Senate will not act on the measures. President Biden announced this week that he would end the designations on May 11, so they are going away soon regardless.

Covid Spending.

It’s unclear to us exactly how much savings would be accomplished by the House Republican legislation mentioned above. We have seen reports suggesting that the amount is approximately $250 billion. Congress has passed legislation committing a total of $4.6 trillion to combat Covid since 2020. To date, the government has spent $4.1 trillion of those funds, leaving $500 billion unspent. The money that has been spent was not offset and therefore has added to the federal debt. House Republicans will argue that a claw back of the $500 billion plus the $250 billion mentioned above is a good start to begin spending reductions, but these cuts are non-starters for now in the Senate and with President Biden. Expect to hear about them again when debt ceiling negotiations begin and budget reduction options are discussed.

US-China Oversight.

There were public revelations this week that a top military official believes war with China could occur as early as 2025 and that Chinese manufacturers were still installing US-made semiconductors in Chinese technology products despite bans on the US exports of semiconductors to China. They gave lawmakers fresh fodder as they kicked off a round of oversight hearings on the tense US-China relationship. These hearings focused on Covid’s origins and the economic competitiveness between the two countries. They will be the first of many oversight hearings on China by the new Republican majority in the House. The hearings will no doubt irritate China, while also maddening US voters already suspicious of the country. The tension in this bilateral relationship needs to subside, but this week’s hearing plus the news of a Chinese spy balloon over the US remind us how fragile these relations are.

TikTok Ban.

A House committee soon will tee up yet another issue that is an irritant in US-China relations: a ban on the operations of Chinese social media company TikTok in the US for national security reasons. TikTok’s operations in the US already are subject to restrictions following the passage of legislation last year and subsequent executive action (one provision removes any TikTok technology from US government technology/telephone devices). However, passage of this bill would remove them from the US market entirely. That would be a huge blow to the company’s bottom line and to the US-China trade relationship. China could retaliate by removing a major US company from the Chinese market. The bill to push TikTok out of the US market will likely be approved by the House Foreign Relations Committee later this month and by the full House soon thereafter. The measure also has bipartisan support in the Senate, where a group of Republicans have teamed up with Senate Intelligence Committee Chairman Mark Warner (D-VA) to support the bill. Whether the bill is enacted into law likely depends on the Biden administration’s position.

State and Local Tax Deduction.

We continue to receive many calls and notes from individuals in high tax states with concerns over the $10,000 limit for the state and local tax (SALT) deduction that was included in the 2017 tax bill. The bad news for these individuals is that the limit likely will remain in place until the end of 2025 when it is scheduled to expire along with many other parts of the 2017 tax bill. Some potential good news came this week when two Republican members from New York and another from California were added to the House’s tax writing panel, the Ways and Means Committee. This may give the effort to repeal the cap before 2025 a boost. It will fracture House Republican unity to defend the cap and result in spirited debate about the cap’s future. We are not predicting the cap will be phased out before 2025, but the issue will be given a fresh look by the committee, especially if Republicans can find other acceptable revenue sources to replace it.

Privacy Legislation.

Data privacy will be an early legislative priority in the House this year. Given that the banking industry already has been subject to federal privacy standards for over two decades, House Financial Services Committee Chairman Patrick McHenry (R-NC) is interested in approving his own legislative marker as the House Energy and Commerce Committee continues its work on developing privacy standards that apply more broadly to all companies. That committee hit the ground running this week with a hearing on US competition with China that honed in on data privacy. It is building upon progress made last year when it approved a bill that would require companies to limit the amount of data that they collect and prohibit the collection of sensitive information (with limited exceptions). The bill was a bipartisan compromise that made trade-offs on key issues like preemption (it would preempt state laws) and enforcement (it had a private right of action that begins four years after the passage of the bill). Differences on these contentious issues have sidetracked efforts to advance a federal privacy standard into law for years and likely will continue to do so. Even if the House is able to pass a privacy bill, it will face resistance from key lawmakers in a Democratic-controlled Senate.

Police Reform Legislation Back in Play?

The death of Tyre Nichols at the hands of Memphis police officers has resurrected calls for the passage of reforms to policing, an effort that fell short last year. Though many members from both parties have agreed on some reforms, negotiators on a bill last year couldn’t resolve differences over the extent to which police officials should be legally liable for their actions while on the job (qualified immunity). Under Democratic control, the House passed a bill last year with comprehensive reforms, but that bill was held up in the Senate pending efforts to forge a bipartisan compromise. Senate negotiators will meet soon to determine whether there is any appetite to revive those talks, but qualified immunity still looms as a major area of disagreement. We do not believe such a bill will move forward in Congress this year, though there could be reforms enacted at the state and local levels.

State of the Union Roadmap.

With President Biden scheduled to give his annual State of the Union Address next Tuesday (February 7), viewers can expect to receive a preview of what President Biden will campaign on if he decides to seek a second term as president, as is expected. The State of the Union Address is one of an incumbent president’s best promotional tools since it provides him with the rare opportunity to speak directly to voters with no interruptions and no challenges to his statements. For his first two State of the Union addresses, President Biden had both a Democratic Senate and House, and his major focus point was urging them to act on his policy agenda. This year’s content will be different. With Republicans controlling the House, the opportunities to pass non-essential legislation will be very limited. Instead, President Biden will have to think of this address as his opening salvo to the public about why his first two years in office have been good for the country, and why voters should re-elect him in 2024. Top of mind will be issues such as the economy, the nation’s recovery from Covid, the war in Ukraine and how he plans to navigate a split Congress. We expect President Biden to tout his achievements from the past two years, speak to bipartisanship, and reiterate parts of his 2020 playbook when he argued that he was the only unifying candidate.