Washington Weekly: Tax Deal Progress

The Senate approved Biden administration judicial nominees. The House passed a bipartisan tax bill (see below).

The Senate will continue to vote on various Biden administration judicial nominees and plans to vote on a comprehensive immigration and foreign aid package (see below). The House may vote on a bill to address state and local tax deductions (see below) and on a resolution to impeach Homeland Security Secretary Alejandro Mayorkas (see below).

Tax Deal Progress.

At a time of great partisan division in Congress, the House passed a bipartisan tax bill by a 357 to 70 vote. The package combines an expansion of the child tax credit with various corporate tax incentives for research and development, interest deductibility and full expensing (a summary can be found here). The child tax credit expansion would benefit millions of American families, while the business incentives have been promoted aggressively by the defense, telecommunications and pharmaceuticals sectors. Despite the lopsided vote tally, House passage was not assured and was the product not only of tough negotiations between the two parties, but also plenty of cajoling within the parties to get buy-in from different factions. The strong House vote gives the bill momentum, but some Senators have concerns that could slow the bill down and possibly force revisions to it. It’s too early to pop the champagne bottle on this bill yet.

Getting SALTy.

Republican lawmakers from New York created drama right before the House vote by insisting on the inclusion of state and local tax (SALT) deduction relief in the bill. House Speaker Mike Johnson (R-LA) didn’t accept that demand but offered the lawmakers a separate vote on SALT relief. These lawmakers, led by Congressman Mike Lawler (R-NY), advanced a bill in the House Rules Committee yesterday to increase the $10,000 cap to $20,000 for married couples earning under $500,000. Given that the $10,000 cap on SALT deductions was a key way in which Republicans paid for tax cuts in the 2017 tax law, most are resistant to providing relief. While we expect a House vote on SALT relief soon (and as early as next week), we do not believe it will pass into law this year.

US Military Aid Bill + Southwest Border.

A comprehensive bill combining aid to Ukraine, Israel and Taiwan with southwest border/immigration reforms faces serious challenges. Border and immigration reforms have been prioritized as a top issue by lawmakers because voters rate them highly on their list of major concerns. At the same time, the issue is extremely contentious and policy disagreements about how to fix the problems at the southwest border continue to cast a wide and disruptive shadow over this bill. Border reforms are even starting to creep into the debate over the government funding bills. A bipartisan group in the Senate is close to finalizing a border plan that could receive a vote in the Senate as soon as next week. However, even if it passes the Senate, it will be a non-starter with House Republicans who are insisting upon a more stringent border and immigration bill akin to one they passed on a party-line basis eight months ago. The primary loser in this delay is Ukraine, which needs US aid to remain competitive in its war with Russia. Given the impending roadblock in the House, the Senate likely will need to decouple aid to Ukraine, Israel and Taiwan from border reforms and possibly pass that aid separately. While border reforms may be doomed, the potency of the border as a campaign issue will only increase.

US Gas Exports Paused.

The Biden administration has paused further approvals of US liquified natural gas (LNG) exports pending the completion of federal studies that will assess the impact of the exports on climate change. The studies will be followed by a public comment period. This action suggests to us that the administration intends to maintain the pause through the election. The climate lobby, an important ally in President Biden's re-election campaign, requested a complete halt in further US LNG exports. Not surprisingly, natural gas producers oppose this action and have cited continuing demand for LNG from US allies in Europe given their reduced reliance on Russian gas over the past two years. Demand for US LNG also is strong from Japan, another major ally. We wouldn't be surprised if the administration ultimately resumes LNG exports in a more limited way, but we don't believe this action will occur before the election. In the meantime, the House likely will pass legislation overturning the export pause in the next few weeks, but the measure will be blocked in the Senate. We will be watching to see what demands Europe and Japan make to resume the LNG exports.

Tech CEOs and Kids.

A Senate Judiciary Committee hearing this week featured testimony from the CEOs of the major social media companies, including Meta, TikTok and Snap. While the hearing focused on how young people can face dangers (including harmful content and sexual exploitation) when accessing social media platforms, committee members also took the opportunity to comment on a wider range of controversial issues involving the tech industry. The hearing gives momentum to legislative responses to the problem involving young people. One bill would allow victims of child sexual abuse material to sue tech companies for content posted by third parties. Others would block children under 13 years old from using social media and require parental consent for children between 13 and 17 years old. The Senate has tried for years to pass these bills but has met with fierce resistance from the tech industry and privacy advocates. Once the chaos over government funding and southwest border reforms subsides in some way, these bills should receive a vote.

More CEOs on the Hotseat.

Lawmakers love getting CEOs to appear at public hearings so they can ask the tough questions, as we saw this week with the tech CEOs. A Senate committee will hold a hearing next Thursday featuring the CEOs of the major pharmaceutical companies, including Merck, Johnson & Johnson and Bristol Myers Squibb. They will be grilled about high drug prices and company profits by Health Committee Chairman Bernie Sanders (I-VT) and others. CEO hearings like this typically feature a mix of both substance and theatrics, and this one will follow that same script.

Immigration Impeachment.

The House Homeland Security Committee this week passed a resolution to impeach Department of Homeland Security Secretary Alejandro Mayorkas. After a contentious 15-hour markup late Tuesday evening, the House committee voted 18-15 along party lines. The full House is expected to vote on the resolution next week. However, given how narrow the Republican majority is in the House, there is little to no room for defections or absences by Republicans if the impeachment is to advance. The House resolution alleges that Secretary Mayorkas has failed to properly enforce immigration laws and therefore is responsible for an increase in illegal migration at the southwest border. Secretary of War Willaim Belknap from President Rutherford B. Hayes’ administration in 1876 was the last cabinet secretary to be impeached by the House. It’s questionable the impeachment measure will get enough votes in the House to pass, and even if it does, the Senate will not convict Secretary Mayorkas.

Progress on Fentanyl?

A bipartisan group of lawmakers is working to advance legislation to combat the trafficking of synthetic opioids, including fentanyl. Specifically, the bill would provide law enforcement with new tools to go after the money laundering activities that often serve as a basis for the international trafficking of opioids. This legislation is a priority for many lawmakers, but it has consistently been sidetracked by what are considered higher priority and pressing deadlines on other issues that always seem to emerge. No lawmakers oppose the opioids bill, as far as we know, given that virtually all lawmakers are familiar with their ubiquity in society, particularly fentanyl. We believe this bill has a good chance of passing late this year. Separately, US-China negotiators met in Beijing this week to discuss how China, the primary source of fentanyl and fentanyl-related substances into Mexico and the US (according to the US Drug Enforcement Agency), can play a role in curbing their production of such products. It's too early to know if these efforts will bear fruit, but the renewed emphasis this issue gives us some confidence that progress will be made.

What Happens in Vegas.

While much has been made of the upcoming GOP primary election in South Carolina, the next state up is actually Nevada, which is hosting both a primary and a caucus next week. The oddity of holding both a primary and a caucus resulted from a bipartisan law passed in 2021 by the state legislature that changed the nomination process for both parties from a party caucus to a state-run primary. The Nevada Republican party brought a lawsuit last May that alleged that outside groups were trying to interfere. Since then, the GOP has returned to awarding delegates via a caucus, but the state still will hold a primary as well. Ambassador Nikki Haley is the only participant in the primary. While the primary will not award any delegates, it likely will give Haley some free media attention (if she wins) before the caucus, which is two days later. Former President Trump has already begun touting his win by default in Nevada since he will be the only active candidate in the caucus. While next week is unlikely to be an important milestone in the GOP nomination process, a state’s holding of both a primary and a caucus the same week for one party will be historic.