The Crowded Hour (or, How Congress May Miss Christmas)….
December is upon us, the Christmas trees are going up, festive lights are hung, everyone is getting into the holiday cheer, and Congress is risking missing it all. In all my years in Washington, I cannot remember so many critical pieces of legislation Congress is trying to pass in less than 20 legislative days. The impact is truly global, and the markets need to beware.
Here is the quick rundown:
> Funding of the Federal Government: On Friday, December 5th, the Federal government funding dries up and, unless Congress can pass another short-term continuing resolution, we will see the government shut down. The markets have experienced shutdowns before and realize at this point that aside from the embarrassment of a non-functioning US a huge portion of the US government is considered “essential” and therefore is not impacted much (For a good explanation of what and who gets hit by the shutdown, this is a great primer.). Nevertheless, battling over how to deal with the threat of shutdown takes up a lot of political oxygen in Washington – and time, which is the most precious commodity in the nation’s Capitol.
> Raising the Debt Ceiling: Recall Congress grappled with this issue in October (in case you feel like you are having a bad case of déjà vu). They only raised the debt until December 3rd, and Treasury Secretary Janet Yellen has recently sent a letter to Congress stating the limit will be hit again by December 15th. The reality is the ceiling probably will not be hit by the 15th and, via “extraordinary means” – e.g., taking funds from various other funding sources in the US Government – will not be hit until sometime in late January or even February. But like the government funding issue, it takes up a lot of political oxygen and energy.
> The Defense Spending Bill: Formally known as the National Defense Authorization Act (NDAA), it is the funding vehicle for the US Defense Department. It is the one piece of legislation Congress has passed on a timely basis for more than 60 years – until this year. It was supposed to be passed last fiscal year (before October 1st), but it did not happen for various political and policy issues. The pressure to get it done immediately is intense as other NATO countries are complaining about the failure to pass the bill (as they get funding from it), that this is the worst time to be behind schedule as Russia has amassed more than 100,000 troops on Ukraine’s border, as China-Taiwan tensions approach a boiling point, etc., etc. In short: Getting the NDAA REALLY matters and REALLY needs to get done now.
> Confirmation Hearings and vote on Federal Reserve Board Chair Powell and Vice Chair-nominee Brainard: We fully expect both to be confirmed by the Senate. But it will not be fast and clean as we expect Progressive Democrats to put up a fight against Jay Powell’s re-confirmation (led by Senator Elizabeth Warren (D-MA). This will take up precious time on the Senate floor and, like the debt ceiling and federal government funding issues, suck up precious political energy.
> The “Build Back Better” (BBB) Budget Reconciliation: The biggest challenge of all. As we saw over the last three months in the House of Representatives, this is a complicated and politically explosive bill – just among Democrats. Senate Majority Leader Chuck Schumer (D-NY) tells members he hopes to get the estimated $1.8 trillion package wrapped by Christmas or in the week between Christmas and New Year – but that is a hope, not a plan. Already, there is tremendous wrangling over the state and local tax (SALT) provisions in the House version of the bill, which allow $80,000 of deductions. Senate Progressive Democrats – led by Senate Budget Committee Chair Bernie Sanders (I-VT) are adamantly opposed to this provision. They do not want to see any change to the cap on SALT deductions, arguing it only benefits the wealthy.
No matter what happens here, it is highly likely – almost inevitable – the House version of the bill will be altered, thus forcing it to be sent back to the House for consideration and possible further alterations.
This is what we call “legislative ping-pong,” and it takes time and is likely to raise political tensions further – again, just among congressional Democrats as Republicans in the House and Senate are committed to voting against the BBB Budget Reconciliation.
One last critical point: Senator Joe Manchin (D-WV) has long been the critical swing vote here to get BBB done. If he votes no, then it dies. This week, Manchin told reporters he remains unconvinced that the bill is good for the economy with rising inflation. It is necessary to get to a final deal by the end of December – something he has said several times before. Our view: If Congress does not get the BBB done by the end of the month, it is in real trouble. Considering the significant individual and corporate tax increases in the package, no one likes to be on record voting for tax increases in an election year. Moreover, there are no deadlines – artificial or real – next year to get this package done.
Finally, the longer this bill takes to get done, the less impact it will have on voters (such as the child tax credit) by the November 2022 mid-term elections.
