This week: The House voted on a number of modest energy and veterans bills. The Senate approved various nominations. Most of the significant action took place at the committee levels in both chambers (see below).
Next Week: The House plans to vote on the tax reform bill either Thursday or Friday. The Senate may consider a fiscal year 2018 defense authorization bill and various nominations.
Financial Services Issues
Flood Zone. The National Flood Insurance Program (NFIP) is set to expire on December 8 after Congress passed a short-term extension in September as part of a broader agreement on government funding. The NFIP program has been beset by challenges and a growing debt burden after a series of disastrous hurricanes, of which Harvey and Irma are the latest. To provide the NFIP with funding to cover the costs of claims associated with the impact of these recent hurricanes, Congress last month passed legislation that eliminated $16 billion of NFIP’s debt. There is broad support within Congress for NFIP reform, but there is disagreement on how that should be done. Two senior House Republicans, Financial Services Committee Chairman Jeb Hensarling (R-TX) and Majority Whip Steve Scalise (R-LA) recently brokered a compromise. That proposal was supposed to pass on a party-line basis this week, but it came under fire from Republicans from flood-prone areas. Congress will likely need to pass at least one more extension of the NFIP to give itself time to work out the thorny issues that would be part of a longer-term reform agreement.
Reform Efforts Continue. The House this summer passed its broad Dodd-Frank Act overhaul (called the Financial CHOICE Act) on a party-line vote, but this bill has no chance of becoming law. With House Financial Services Committee Chairman Jeb Hensarling (R-TX) announcing his retirement last week, the committee has been looking to identify and pass smaller reform bills, particularly those that have some degree of bipartisan support. Next week, the committee will mark up more than 20 bills, many of which are derived from provisions in the CHOICE Act. The proposals cover reforms in a range of areas, including capital formation, bank regulation, consumer finance and the Federal Reserve. It is unclear whether even bills that have strong bipartisan support will be able to advance in the Senate where talks on a reform package broke down last week between Banking Committee Chairman Mike Crapo (R-OH) and Ranking Member Sherrod Brown (D-OH). While Crapo still is working on reaching an agreement with a group of moderate Democrats, such a compromise may prove elusive and likely would be narrowly focused even if it is reached.
Other Issues in Play
Tax Bill. Congressional Republicans took initial steps to advance a tax reform bill through the legislative process. These efforts will continue to dominate events on Capitol Hill over the next few weeks.
- House Bill. The House bill was approved by the Ways and Means Committee yesterday. This was probably the easiest part of the process in the House. While some changes to the original bill were made by the committee, more changes will likely be made by the House Rules Committee before the bill comes to the House floor next week. These changes will be designed to accommodate wavering members whose votes are needed to pass the bill. If all goes according to plan for the House Republican leadership, this bill will pass the House next Thursday (November 16). As of today, the chances for passage are good.
- Senate Bill. Senate Finance Committee Republicans released their tax reform bill draft yesterday, and it will be marked up in the committee next week. We expect the bill to pass the committee next week and to pass in the full Senate as early as the week of November 27. Senate passage of the bill by early December is vital to getting a bill signed into law in 2017. While we are still optimistic that a bill will pass and be signed into law, hang-ups are more likely to occur in the Senate where Republicans can only lose the support of two members (of 52) to win the vote.
- House-Senate Bill Differences. There are many differences between the two bills. In the Senate bill, there are more tax brackets for individuals and the estate tax is not eliminated. Both bills eliminate the state and local tax deduction, but the House bill also provides for a $10,000 property tax deduction. Both bills reduce the corporate tax rate to 20%, but the implementation timetables in the two measures differ. There are very complex and technical issues about treatment of corporate income from profits overseas that also are different in the bills. All of that being said, differences were always expected and will have to be reconciled by the two bodies. In crafting a final bill, there will be significant give-and-take between the two chambers, but as we said last week, we expect the final product to resemble the Senate bill. The political reality is that it is much more difficult for Republicans to pass legislation in the Senate than the House due to their very narrow majority and the complications caused by Senate rules, so deference will be given to what can pass in that body.
- Obamacare Individual Mandate on Casualty List? There is interest among some members and President Trump to add a provision to the tax bill to repeal Obamacare's mandate on individuals to purchase health insurance or pay a fine. The appeal is two-fold for Republicans: it would continue the process of unraveling Obamacare and it would provide $338 billion in revenue over ten years that could be used to help pay for rate reductions. The mandate repeal was not included in the House bill or in the Senate draft bill, but we believe it will make a comeback. The downside to including it is that it dilutes the bill's tax reform appeal (which seems to have broad public support) and gives Democrats ammunition to label the bill as a backdoor effort to repeal Obamacare (which does not have broad public support) and deny insurance coverage to 17 million people who would choose not to buy insurance over the next decade. Whether this provision will be included in a final bill is still an open question, but we believe it probably will be added.
Gun Control Comeback? In the wake of the Texas tragedy, many lawmakers and opinion-makers have again renewed their calls for increased gun control measures. Familiar measures, such as a requirement that private gun sellers screen potential buyers through an FBI database (presently only licensed gun dealers must use this background check) and a ban on high-capacity magazines, have been re-proposed this week. These measures will not advance, however. Most Republicans and many rural Democrats will not support these bills, and they have a clear majority in the House and Senate. After the Las Vegas shootings just a month ago, there was growing momentum to restrict the sale of “bump stocks,” devices that enhance a semiautomatic rifle’s firing capacity, but even this very modest measure has been slow to gain traction. As we have stated before following other tragedies, there is (on average) almost one firearm registered per citizen in the U.S. and more than two guns per voter who voted in the 2016 presidential election. That translates into a lot of voters who don’t want to see substantive changes to the constitutional right to “keep and bear Arms.” Until that dynamic changes, Congress will not impose any impactful gun control measures.
Blue Virginia. The results from Tuesday in the two gubernatorial elections (Virginia and New Jersey) were not surprising, but two takeaways from Virginia stand out to us. First, Virginia now seems be a reliable blue state. It was the only southern state that Trump lost in 2016. While Clinton beat Trump in the Old Dominion State by five points, the Democratic candidate for governor won the race by nine points this week. Second, voting turnout in the commonwealth was exactly what Democrats need in other swing states and nationally in 2020 to win. Specifically, voting turnout was heavy in the larger cities and their suburbs, particularly the northern Virginia suburbs surrounding Washington, D.C. Democrats and Independents voted in large numbers in support of the Democratic candidate but also in opposition to President Trump. Democrats are poised for strong showings in 2018 and 2020 if there is a similar voting turnout profile and if Trump continues to have a low approval rating with voters (approval rating now averages 38.2% among national polls).