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This is the Beginning

Updated: Jan 22

By - Tim Rosado

After an initial few weeks of organizing, the new Congress begins its work next week in earnest against a backdrop of an increased oversight focus on the House side, a looming debt and budget fight with the Administration, and near-term economic uncertainty on the direction of the US economy.


What will actually get done legislatively before the next Presidential election and Congress?


For better or worse, probably not a whole lot will be accomplished legislatively beyond a few issues that must be addressed. Significant regulatory and monetary policy matters, as well as federal program execution on infrastructure and semiconductors, could garner relatively greater policymaking focus than those tied to legislation. In addition, the Supreme Court will weigh in on several, potentially transformational, issues by the summer (e.g., immigration, affirmative action, student loan forgiveness, etc.).

That all being the case, here is my summary outline of potential legislative areas:

  • of likely action;

  • with a possible chance of action;

  • having a remote chance of action; and,

  • where there is seemingly now way forward for action.

LIKELY


National Debt Limit US Treasury Secretary Janet Yellen informed Congress (January 13) the US national debt limit under current law–$31.4 trillion–will be reached this week. The Treasury Department will begin to take "extraordinary measures" going forward to enable needed liquidity to ensure US financial solvency. Extraordinary measures are temporary, however, and are only expected to enable the Federal Government to remain solvent until the late spring/early summer (~June). The US will default on its debt if the Treasury is not given increased authority by Congress to issue additional debt above the current debt limit. Borrowing currently finances about 22% of all Federal spending, and a disruption of the credit line from lenders and/or a default on existing US debt could lead to massive spending cuts on national defense, Social Security and Medicare, and other critical programs. It could also lead to a major contraction in the US economy putting millions of Americans out of work. 


Outlook. There is no bigger issue this year than this issue, with House Republicans threatening not to approve an increase without substantial cuts in Federal spending and Democrats promising no compromise that uses the debt limit as leverage for cuts. What happens is anyone's guess. My best guess: a relatively small debt limit increase is approved that takes us through 2024, but with a commitment on a hard freeze of annual spending for next year (FY 2024), along with a rescission of some previous spending (e.g., billions of dollars in unused pandemic-era funding).


Annual Funding Legislation

Annual appropriations funding bills must be enacted each year to support Federal government operations–about $1.6 trillion in funding (FY 2023)–though the funding approval process often drags into at least the beginning of each new fiscal year (this year was late December). With each new Congress, leaders vow to return the process to "regular order," where each one of the twelve funding bills is approved by the House and Senate, then reconciled with compromise proposals and individually enacted, with everything done by the end of the fiscal year. Alternatively, and which has been the case for many years now, one or more groupings of the funding bills (i.e., funding "Omnibus" bills) are enacted because Congress did not/could not complete the regular order process. Another possible outcome looking forward is a freeze on funding potentially through a full-year "continuing resolution" (or CR) that, for this year, would have the effect of freezing funding for FY 2024 at FY 2023 enacted levels.


Outlook. There will be no government shutdown, at least not one for any significant period, merely because of a stalemate on annual funding. What seems most likely as the outcome on annual funding is a freeze on next year's funding as part of a broader agreement on a small debt national limit increase, potentially implemented via a full-year CR. A spending freeze at FY 2023 levels is probably the only scenario where all sides will have the ability to claim victory on the budget in advance of the 2024 elections without compromising significantly with the opposing side.


2024 National Defense Authorization Act

The annual National Defense Authorization Act (NDAA) bill covers a broad swath of both funding and policy matters every year, and is considered hugely important to any Member of Congress directly connected to national defense operations or the expansive industries supporting such operations. The FY 2023 NDAA included $858 billion in federal spending authority; Defense Department funding alone totaled about $798 billion or almost half of total annual funding of the entire Federal Government.


Outlook. No matter the makeup of Congress, an NDAA is always enacted. There is no reason to believe there will be any change this year with the Republican-led House. But what makes this more complicated this year is that some Republican members of the House, in calling for spending cuts and controls, want to include defense spending in the mix. That means an NDAA could get caught up in the larger showdown on Federal spending and the nation's debt. Defense supporters are likely to win out in the end, which in turn could mean that the position of deficit hawks will be weakened somewhat on the impending larger fiscal fight.


Aviation Reauthorization Current aviation reauthorization (a.k.a., Federal Aviation Administration, or FAA, reauthorization) will expire at end of FY 2023. This legislation traditionally covers the basic funding/financing mechanisms of the FAA, such as for airport capital infrastructure and air traffic control (ATC) technologies. This year's bill could be relatively plain vanilla, or instead it could dive into any number of recent prickly issues such as those connected to airline labor strife, aircraft safety certification, ATC safety, radiofrequency spectrum interference (e.g., via 5G, Starlink), aviation carbon emissions, commercial space junk, unresolved international aviation disputes, and airline consumer protection matters.

Outlook. While aviation authorization legislation could get bogged down on several difficult issues, this topic might still end up being one of the few legislative areas where bipartisan agreement can eventually be forged. The success of aviation has never been a partisan issue and almost universally benefits every single congressional district in some way.


POSSIBLE CHANCE


Continuing Ukraine Support

A December supplemental for Ukraine-related purposes was enacted totaling nearly $47 billion, the most recent of several supplemental funding packages approved by the Congress after Russia's invasion of Ukraine last February. Among other things, the funding included $9 billion for the Ukraine Security Assistance Initiative; nearly $12 billion to replenish U.S. military stocks distributed for Ukraine-related purposes; and more than $13 billion for Ukraine economic and budgetary support. It is not currently known how long this funding will last if the conflict continues. It seems likely that another supplemental may be needed by the late spring with any continuation of the conflict at its current pace.


Outlook. While some House Republicans have expressed concern with continuing Ukrainian support, many others have strongly supported US efforts. Ultimately, what seems likely is a continuing support posture for Ukraine via another funding supplemental, when needed and perhaps at reduced levels, but with stepped-up Hill oversight and additional required accountability measures.


Online Privacy and/or Online Competition Legislation

Last year, significant bipartisan support coalesced around proposals covering both online privacy and online competition matters of great concern to big technology companies (i.e., Amazon, Facebook, Apple, Google, etc.). After months of negotiations on online privacy legislation, key members of the House produced a bipartisan proposal released in June that was approved by the House Energy and Commerce Committee by a vote of 55-3. On the competition side, the most significant proposal was a bipartisan, bicameral measure to prevent online companies from prioritizing their products over the products of competitor companies. Such measures are likely to be reintroduced in the current Congress.


Outlook. This is another area of potential bipartisan action assuming the influence reach of Big Tech can be overcome. There is so much going on in this area, that it is almost hard to imagine nothing getting done. The European Union has already moved full steam ahead to enact measures on both privacy and competition, as well as in other areas such as artificial intelligence (AI) and technology equipment standards. The US Supreme Court is considering key cases that could affect the future of section 230 liability protection. Backlash against Chinese influence in technology is growing, with calls for new legislative measures such as a TikTok ban. Technology companies are facing increasing Hill oversight at the same time of a sectoral economic downturn. All of these matters could collectively drive the industry to longer-term certainty via compromise on privacy and competition issues.


Wildlife Legislation

Last year, the House passed the “Recovering America’s Wildlife Act,” bipartisan legislation that has its genesis in the recommendations of a 2016 Blue Ribbon Panel report to establish a significant and permanent source of funding for the U.S. Fish and Wildlife Service (FWS) Wildlife Restoration Program. The legislation would secure annual funding of about $1 billion, growing to $1.4 billion by FY 2026. Disagreements over the financing mechanism, and the inability to overcome differences during the lame duck session in December, prevented a final version from moving forward in the 2023 appropriations omnibus. The omnibus included an array of other bipartisan measures.

Outlook. Given bipartisan support of the concept of the proposal, this one has hope. That being the case, given the larger fiscal debate on the budget deficit and the national debt that will happen this year, revenue measures of any nature and for any purpose may be on hold for the next two years until after the next election. Allowing a proposal to move forward may open a can-of-worms that neither party wants to deal with given the potential for other revenue actions that could be attached.


REMOTE CHANCE


Immigration Reforms

Efforts to gain agreement on comprehensive immigration reform have failed time and again, but there was hope that there could be agreement on a legislative approach given a growing crisis at the US southern border in December with the impending end of Title 42-based immigration restrictions and a massive number of immigrants lining up for entry, as well as seeming growing bipartisan support for limited legal immigration reforms under the EAGLE Act and for farm workers. But adequate support for action never materialized enough to overcome inherent challenges, and the Supreme Court intervened to keep Title 42-based restrictions temporarily in place which relieved some pressure for action.


Outlook. There is always a remote chance for action on immigration reform because there is always significant bipartisan support for action, even though it has never been enough to get it done. This year is no different, but the same hurdles for political compromise stand. Maybe something this year might spur a different result. I don't know. Ultimately, if anything is to happen, it has to be this year. It will not happen during an election year, next year. And if nothing happens this year, immigration will be an issue for the next Congress two years from now.

Social Security Reforms

House Republicans are calling for reforms of Social Security in the context of larger plans to bringing the Federal budget, the deficit, and the national debt under greater control. Key proposals include, among other things, raising the minimum retirement age for future retirees and raising payroll tax thresholds, taxes used to finance the program, for higher-income Americans. Both Social Security and Medicare constitute about 45% of all Federal spending each year.


Outlook. Action this year seems unlikely, if for nothing else because House Republicans are threatening to hold any debt limit increase hostage until budget cuts are enacted. That has caused Democrats to dig in against budget-driven measures on Social Security no matter how much these may be needed. If cooler and reasonable heads prevail, then measured action to shore up the system as part of a broader budget plan is possible. It has happened before.

Cannabis Reforms

In October, the Biden Administration announced a couple of key actions on marijuana policy including a general pardon of all prior Federal offenses of simple possession, and initiating an administrative review for how marijuana is treated under federal law. Key Senators, including Majority Leader Chuck Schumer, potentially wanted to expand on these actions during the lame duck session, including related cannabis banking reforms (e.g. the Safe Banking Act) and/or more comprehensive reforms (e.g., the Cannabis Administration and Opportunity Act), some of which have bipartisan support. Ultimately, however, Senate Minority Leader Mitch McConnell thwarted any lame duck action, calling such measures "unrelated liberal nonsense."


Outlook. Some measures on cannabis probably have a better chance than others of getting enacted; notably, the Safe Banking Act. Legal reforms likely have less of a chance. Banking reforms for cannabis businesses may be something that gets done at some point quietly as part of some other much bigger bill encompassing other matters.


Domestic Energy Production

Oil and gas permitting reform took center stage last summer when Senator Joe Manchin (D-WV) demanded, as the price for his support of the Inflation Reduction Act, that the Congress consider a package of reforms to collectively speed up approvals for drilling and also transportation oil and gas pipelines. The proposals were ultimately not approved, but House Republicans are now interested in pursuing their own take on such reforms.


Outlook. Nothing seems likely to get done on this given liberal opposition in the Senate to change, but that could change if another grand-bargain is on the table concerning the way-forward on the budget and the national debt limit. My cynical view of the reality of the situation is that while liberals would view any action as caving on the environment and climate change, most big oil and gas projects may never get done regardless of the approvals because of evolving market conditions and changes. The industry has literally thousands of approved permits for drilling right now that they are choosing not to use.


SEEMINGLY NO WAY FORWARD


Anti-Abortion Measures

The new Republican-led House, in one of its initial actions, passed two abortion-related measures supported by abortion opponents. While neither has much implication for abortion policy, pro-life supporters appear interested in implementing national abortion restrictions despite last summer's Supreme Court landmark decision moving abortion policy to states. One emerging area of interest concerns finding ways to counter the Biden Administration's efforts to ensure the legality of the prescription, transportation, and dispensing of abortion medication. Ultimately, the current Senate will never permit any new abortion-restricting measure to move forward as part of any legislation, especially given the Supreme Court's decision to overturn Roe v. Wade. I am not overstating the reality that no abortion-related measure, for or against abortion rights, will ever be enacted going forward without a House, Senate, and President unified under one party.


Expanded Medication Cost Control

Last summer's Inflation Reduction Act included several provisions intended to help control the cost of medications, including insulin; most notably, a $35 per month out-of-pocket cost limit on insulin, and a measure that will enable the Federal Government to begin the process of negotiating the prices of the costliest prescription drugs. But the provisions apply only to the Medicare program and its beneficiaries. The Biden Administration pushed for, but was unsuccessful, in getting Congress to apply the provisions broadly to all Americans. The stark difference in treatment between those in Medicare, and those who are not, will be seen clearly starting this year for insulin only. Will there be any outrage, starting with insulin, that spurs new action to expand controls? Probably not.


Assault Weapons Ban With recent mass shootings there was hope, however faint, that there could be renewed interest in enacting a national assault weapons ban law. In July, the Democrat-led House passed legislation by a vote of 217-213. Just 2 Republicans joined 215 Democrats to approve a ban. But the chances of a Republican-led House voting on a national ban during the 118th Congress are zero. Most Republicans in Congress have shown great resolve at never being prompted into action as a result of crazy assault weapons shooting events.


Members of Congress & Stock Trading

There was a major, somewhat bipartisan, push last year by supporters of legislation that would have reformed or completely banned stock trading by Members of Congress. Supporters hoped that enough support would materialize during the December lame duck session to get a proposal across the finish line. It did not happen. And, there seems to be no appetite to even consider a proposal in the Republican-led House. Any chance for a measure to be seriously considered by both Houses of Congress for the next two years are probably near zero.


Tax Changes

Most tax cuts for individuals and businesses enacted as part of Trump Administration tax reforms in 2018 do not expire until after 2025, which means there is no impetus to address the temporary nature of those reductions during the current Congress. House Republicans will certainly want to do that, along with cutting tax compliance funding for the IRS, even as they proclaim they want to prioritize getting the Federal fiscal house in order. The President has already secured one of his centerpiece tax proposals with the enactment of a new 15% corporate minimum tax, and several other tax priorities failed in the last Congress including the extension of child tax credits that helped bring down the US poverty level, and additional taxes on wealthier Americans. Unless there is some kind of grand bargain on the budget that includes budget reconciliation with tax reforms, which is highly unlikely, nothing will get done on taxes for at least the next two years.


Anti-ESG Legislation

Perhaps the most recent lighting-rod issue, considered almost anti-American by some conservatives, concerns the financial community's movement towards the use of environmental, social and governance (“ESG”) factors in financial decision-making on behalf of consumer investors. ESG is a means by which companies can be evaluated with respect to a broad range of socially desirable ends (e.g., carbon emissions). Some states/localities have banned or restricted investment decisions by fiduciaries that are based even partially on ESG. While Federal banning/restriction legislation has been proposed, it is not yet known if House Republican leaders will go as far as to try and significantly restrict ESG in law. The House will likely focus more on overseeing related regulatory actions by Federal agencies, such as a pending Securities and Exchange Commission (SEC) rule, instead of trying to pursue significant legislation that will not be supported by the Senate, anyway.



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