Washington Weekly: State of the Union

The Senate passed a bill that would extend and expand compensation for Americans exposed to radiation, a bill to extend funding for Federal Aviation Administration programs set to expire today to May 10 and will pass a six-bill government funding package later today (see below). The House passed the government funding package, a bill that would require the detention of undocumented migrants charged with theft or burglary and a bill to improve access to capital for certain types of businesses.

The Senate will continue to approve various Biden administration nominees. The House plans to vote on a bill that would require TikTok’s parent company to sell the app within six months or face a US ban (see below), a bill to consolidate underused federal office space and a resolution denouncing the Biden administration’s immigration policies.

Government Shutdown Threat Subsiding.

In necessary acts of bipartisanship to stave off a partial government shutdown, the House has passed and the Senate will pass this afternoon legislation providing $459 billion in full-year funding for many government agencies and functions. The legislation combined six individual bills of the 12 needed to fully fund the government. The other six are subject to a March 22 deadline (see below), and Congress will consider those bills over the next two weeks. In the agreement that passed this week, Republican lawmakers were able to cap and lower many areas of federal spending, while Democratic lawmakers were able to preserve funding for some of their priority areas and stave off many of the policy conditions that Republicans wanted to apply to spending. In this sense, both sides “won.” While Congress arguably should have come to this agreement without a five-month delay, it took time for lawmakers to work through the arduous process of building majority support while giving all 535 lawmakers the opportunity to be heard.

Practical Impact.

The bill’s funding parameters largely mirror last year’s debt ceiling agreement negotiated by President Biden and then-Speaker Kevin McCarthy (R-CA). It either slightly reduces or flattens federal spending for relevant agencies, while providing a small increase for veterans programs. The passage of this bill ensures there will be no shutdown of the agencies and related functions it funds, including those at the agriculture, energy, transportation, housing, commerce, justice and interior departments, among other agencies. Even if the remaining six funding bills are not enacted by their deadline, only those agencies and functions would shut down. Those included in the bill passed this week are free and clear of a continued funding threat until at least October 1. A part of the federal workforce is relieved today, while the other half awaits its fate as we approach March 22. 

March 22 Deadline.

Six bills covering spending for most of defense, health care, labor and homeland security, among others, still need to be passed by March 22 to avert a shutdown in those functions. These bills will be more difficult to resolve since they involve more contentious policy areas, including southwest border funding and many social issues. Still, lawmakers saw the blueprint for success in the bill passed this week – lower or flat spending for all except a small increase for defense. Though there will be some heated debates ahead about social policy aspects of these bills to be voted on, we believe they will be passed by March 22. 

State of the Union.

The annual State of the Union address hit on many of the familiar political and policy themes that we expected and are a part of our national dialogue. President Biden was feisty in his presentation of his long-time policy and political priorities. He attacked his predecessor’s record in various ways and reiterated his accomplishments and future tax and spending goals. His speech didn’t break any new ground or point the way forward on a policy agenda for this year. It was largely a speech designed to connect with his political base (which has shown signs of concerns and a lack of enthusiasm in recent polls), contrast him with former President Trump in key areas and generally make a case for his re-election. In these ways, it was likely a successful speech. However, the speech did little to connect with swing voters or disgruntled Republicans, especially on the key issue of immigration. The President’s political comeback has to begin with a rebuilding of trust and confidence with his base voters, and this was his focus last night. 

TikTok Ban?

After the Biden re-election campaign recently opened a TikTok account, a House committee passed a bill yesterday that would force the Chinese parent company of TikTok to divest from the popular application or face a ban of the platform in the US. The bill is aimed at banning TikTok in the US but could apply to other applications owned or controlled by a designed foreign “adversary.” There was strong bipartisan support for the bill in yesterday’s vote (it passed in a 50-0 vote). The Biden administration also has expressed its support for the measure. The full House will vote on it next week. A similar bipartisan bill also has been crafted in the Senate. Despite strong support, the bill still faces questions over whether it violates the company’s First Amendment rights. Almost 200 million Americans and several million businesses utilize the platform, and the company has already begun television advertisements against the bill (as seen during last night’s State of the Union address). We believe this legislation will be considered in the Senate after the election and its progress will depend on the tone of US-China relations at that time.

Green Energy Tax Credits.

With former President Trump moving ever closer to officially securing the Republican nomination, we have received a number of questions about the future of green energy tax credits that were part of President Biden’s and Democrats’ Inflation Reduction Act. Regardless of who wins the general election, a major tax bill will be considered in Congress in 2025. This is where the fate of green energy tax provisions will be determined. If Democrats control the White House, House or Senate, most or all of the tax breaks will likely survive. If Republicans sweep all three, most of these provisions will be at risk. Republicans would like to use the revenue from the repeal of these tax credits to pay for other tax cuts, mostly for the retention of lower tax brackets for all taxpayers. While some Republican lawmakers support green energy projects in their districts and states, most Republicans will be comfortable repealing most of the tax breaks. A Trump administration likely would try to repudiate the Biden climate agenda, tax breaks and all. 

SEC Reg Flurry.

Since Chair Gensler took the reins of the SEC in April 2021, the agency has finalized 30 rules. It also has another 22 proposed rules that await finalization (as well as an agenda of 12 that could be proposed). This week, the SEC issued a final rule to require public companies to disclose detailed information on climate change. While some requirements were relaxed in the final rule, it still likely will be subject to legal challenge. Also, this week, the SEC finalized a rule to update disclosures on order executions of publicly traded stocks. This rule is the least controversial part of a broader proposed overhaul of US equity market structure. Members of Congress and the industry have raised concerns about how the remaining set of complex proposals could disrupt market functioning and raise costs for investors. Other significant and contentious proposals that remain outstanding include liquidity requirements for mutual funds and proposals to address potential conflicts of interest associated with use of predictive data analytics by brokers. Particularly with a looming presidential election, the unprecedented flurry of regulatory activity at the SEC will continue and even may proceed at a brisker pace.

Biden Budget Release.

President Biden is expected to send his fiscal year 2025 budget request to Congress on Monday (March 11). The President by law was supposed to send the budget request to Congress by February 5, so he is over a month late. Though delays have not been uncommon with the last few presidents, it is another sign of the sloppiness in the process that the White House and Congress use to address budget and government funding issues each year (something we outlined last week). The budget request will kick off Congress’ consideration of a budget and government funding for next year. The Biden budget will not be fully enacted in Congress. It instead is an aspirational document that reflects the President’s priorities on tax and spending policies. The budget will include many proposed tax increases on wealthier individuals and businesses. None of the tax increases will be enacted this year, but some of his funding priorities will be included in the government spending bills later this year.

Haley’s Voters.

With Nikki Haley officially throwing in the towel on her presidential run, all eyes have turned to November and a rematch between President Biden and former President Trump. While it’s too soon to make many accurate predictions about the election result, a key question will be where swing-voters fall in 2024. They are a narrow but highly important part of the electorate. In 2016, many of them voted for Trump or ended up voting third-party, while in 2020 they overwhelming broke for Biden. In recent polling, that same subset of voters are showing signs of trending toward 2016 rather than 2020, although exit polls from Haley voters this week have provided some more information. The majority of those who cast a ballot for Haley said in exit interviews that they wouldn’t back Trump in November, but they also weren’t clamoring to line up behind Biden. In theory, Republican voters sitting out would still be a net benefit for Biden, but it’s far from good news for him since over half of those surveyed said they had backed him in 2020. While the election is a long way off, as things stand they seem open to the idea of supporting a third-party candidate, interest that might only grow if No Labels is able to put together a credible ticket and campaign. This demographic will have outsized influence come November, and currently they are trending closer to 2016 than 2020.