The 115th Congress is off to a rousing start with President-elect Donald Trump taking to twitter to call out Congressional Republicans who wanted to gut the Office of Congressional Ethics - and his fellow Republicans quickly fell into line. Day one of the 115th proved to be more than just swearing-ins and photo-ops with a budget resolution proposed (more on that below) and effort to repeal and replace Obamacare underway. Needless to say, 2017 is already meeting expectations in what is likely to be an intriguing and action-packed year with Republicans in control of both the legislative and executive branches – and with at least one vacancy to fill on the Supreme Court.
A Look Ahead: The First 100-200 Days
Both chambers convened on January 3, 2017, and the legislative landscape presents opportunities for significant action early in the 115th Congress. While the list set forth below is certainly not exhaustive, Congress and the Administration will likely take action on the following agenda items in the first 100 days. It’s important to note, however, that House Majority Leader Kevin McCarthy (R-CA) has stated this horizon should extend to the first 200 days, which would take Congress roughly to the August recess:
Nominations
Though a 2012 law reduces the number of executive nominations subject to Senate confirmation, more than 1,200 high-level positions in the Cabinet departments and independent agencies will be submitted to the Senate for approval. The president-elect will also nominate two Federal Reserve Governors to replace Sarah Bloom Raskin and Jeremy C. Stein. Traditionally, confirmation hearings for the president’s top Cabinet picks occur prior to swearing in, with a vote on confirmation occurring very shortly after the new president is sworn in. We expect confirmation hearings to begin the week of January 9.
Already, the Senate has scheduled confirmation hearings for a number of the president-elect’s Cabinet nominations, including:
Week of January 9 – The Senate Foreign Relations Committee holds a confirmation hearing on Rex Tillerson, nominee for Secretary of State, the Senate Judiciary Committee will hold hearings on Jeff Sessions, nominee for Attorney General, and the Senate Intelligence Committee holds a confirmation hearing on Mike Pompeo, nominee for CIA Director. Also Mike Crapo, the Chairman of the Senate Banking Committee is planning to hold hearings for Ben Carson, nominee for Secretary of Housing and Urban Development.
Week of January 16 – The Senate Foreign Relations Committee holds a confirmation hearing on Nikki Haley, nominee for Ambassador to the United Nations
De-Regulation
President-elect Donald Trump has pledged to cut regulations, likely beginning on “Day One” of his Administration. The president-elect may choose to instruct agencies to revisit or not enforce regulations, and could opt to issue executive orders effectively overturning any executive order issued by President Barack Obama. With Republican majorities in the House and Senate, the congressional landscape is ripe for de-regulation, and a number of “midnight regulations” (any rule sent to Congress within 60 legislative days prior to adjournment sine die) are expected to be rolled back through joint resolutions of disapproval under the Congressional Review Act (CRA). House Republican leadership has named the BLM Methane and Waste Prevention Rule as a primary target for repeal through the CRA process, though Congress and/or the Administration may also take action on: the Deferred Action for Childhood Arrivals (DACA, the Obama Executive Order on immigration), the Environmental Protection Agency (EPA) Clean Power Plan, Dodd-Frank regulations (namely the Volcker Rule), the Department of Labor Overtime and Fiduciary Rules, and the EPA/Army Corps of Engineers Clean Water Rule (Waters of the United States), among others.
The House is also expected to take action on regulatory reform by “restoring congressional oversight authority under Article I.” We anticipate such an approach will build off Speaker Ryan’s “Better Way” framework and incorporate legislation passed in the 114th Congress - namely the Regulations from the Executive in Need of Scrutiny (REINS) Act, introduced by then-Congressman (and Senator-elect) Todd Young (R-IN). The measure would subject regulations with an annual economic impact of $100 million or more (i.e. “major rules”), as determined by the Office of Management and Budget, to congressional approval prior to enactment. Regulatory reform efforts are also likely to include a renewed focus on the Chevron Doctrine, which requires courts to defer to agency interpretations of statute unless they are found to be “unreasonable.”
Budget Reconciliation
Congressional Republicans likely will utilize budget reconciliation to make significant changes in policy, namely a repeal of the Affordable Care Act (ACA) and key elements of tax reform. Reconciliation was established in the 1974 Budget Act to bring revenue and direct spending (entitlement) legislation into conformity – or “reconciliation” – with the fiscal targets established in the concurrent budget resolution. Reconciliation effectively allows Congress to make changes in federal policy that result in budgetary savings with a simple majority vote in the Senate, and can be used to advance key agenda items.
Reconciliation is a two-step process:
First, Congress adopts a budget resolution containing a provision that instructs certain House and Senate committees to report legislation that changes existing law. The instructions name the committees required to report legislation and give each committee a dollar figure for mandated savings but do not specify the policies to achieve those goals. They also establish a deadline for reporting legislation to achieve the savings.
Second, the House and Senate Budget Committees compile into an omnibus reconciliation bill the legislative changes in revenue or direct (entitlement) spending programs recommended by the named committees. If the instructions involve only one committee in each chamber, those panels would bypass the Budget Committee and report their recommendations to the full House or Senate. On several occasions, reconciliation directives have provided for a maximum of three reconciliation bills during each fiscal year: one involving taxes, another on spending and a third on raising the statutory debt limit.
Importantly, a reconciliation bill would eliminate the potential for a filibuster in the Senate, as the procedure only requires a simple majority for passage (51 votes). Unsurprisingly, members typically attempt to add controversial measures to filibuster-proof reconciliation bills, though the rules governing the reconciliation process are very strict and it is difficult to amend reconciliation legislation.
Because the 114th Congress did not pass a FY2017 budget resolution, when Congress convenes in January it will have the opportunity to pass two budget reconciliation bills in the same year (FY2017 and FY2018 later in the year). Such an approach will provide Republican lawmakers with the opportunity to advance an ACA repeal quickly through the first reconciliation bill, while waiting until later in the year for a second reconciliation bill focused on tax reform and/or further ACA changes:
- Affordable Care Act (ACA) Repeal
It didn’t take long for the Republicans to get started on ACA repeal. Senate Budget Committee Chairman Mike Enzi introduced the continuing resolution on day one of the 115th Congress. The bill contains instructions for the Senate and House Committees of jurisdiction to propose changes in law that reduce the budget deficit by not less than $1 billion. The committees will have until January 27th to submit their recommendations on the repeal law.
The resolution includes a provision to hold the savings from repeal for use at another time. This will allow them to use savings as part of a future repeal bill. LA Senator Bill Cassidy has already indicated an immediate replacement provision which would turn over management of the significant operational activities of the ACA over to the states. The final repeal bill is expected to hit the desk of the president on February 20th. Our colleague Emily Evans continues to do great work here. Please do not hesitate to let us know if you want additional insight from her.
- Tax Reform
The incoming Administration and Republican leadership in both chambers have called for comprehensive tax reform, and efforts are expected to build off the House Republicans’ “Better Way” framework which was largely incorporated into President-elect Trump’s tax plan and would likely serve as the jumping-off point for any legislation. The blueprint includes lowering the corporate tax rate from 35 percent to 20 percent and switching corporate taxation from a worldwide system to a territorial system, including a transition tax on foreign earnings of 8.75 percent for liquid assets and 3.5 percent for illiquid assets. The framework additionally includes establishing three individual income tax brackets: 12 percent, 25 percent, and 33 percent.
Ways and Means Chairman Kevin Brady (R-TX) has stated the Committee is in the process of preparing a standalone tax rewrite pursuant to the blueprint. Republicans are likely to pursue elements of tax reform through a second reconciliation bill in late 2017 (the second budget is expected in May), though it remains to be seen which provisions would be incorporated.
In recent days, incoming White House Chief of Staff Reince Priebus suggested an early, more surgical tax package would score an early victory for Republicans and the new president. Such a package, which we view as unlikely for both process and policy purposes, could reportedly include limited repatriation to put a down payment on infrastructure investment and provide some rate relief. We will be hosting a number of conference calls in Q1 on this topic.
Budget and Appropriations
Among Congress’ key priorities will be reaching an agreement on Fiscal Year (FY) 2017 appropriations. Prior to adjourning, Congress passed a Continuing Resolution (CR) through April 28, 2017. While the April expiration date provides a favorable landscape for Republicans to negotiate a spending deal with the incoming Administration, some members have expressed concern regarding a time-consuming spending fight in the context of a robust legislative agenda.
Moreover, the discretionary funding caps, as modified (for 2013 – 2017) through the Budget Act of 2015, will sunset in FY2017 and the statutory caps will return to sequestration levels – reduced by $90 billion annually per the Budget Control Act of 2011. While the FY2018 cap is just $4 billion lower than the FY2017 cap ($1.066 trillion relative to $1.070 trillion in FY2017), defense hawks will push for higher defense caps and Democrats are likely to push for higher domestic discretionary caps. We expect Republicans will challenge Democrats up for reelection in 2018 to oppose increased defense spending, though the most likely outcome is an increase in defense spending through supplemental appropriations legislation that does not count against the budget caps. Our colleague Emo Gardner hosted an in-depth conference call on the first Trump defense budget on December 20 - please let us know if you’d like access to the playback.
Debt Limit
The federal debt ceiling was suspended through March 15, 2017, as part of the Budget Act of 2015, which also increased the annual discretionary spending caps. The debt limit will be reinstated on March 16, 2017, and absent “extraordinary measures,” the government’s outstanding debt will bump up against the debt incurred while suspended – approximately $20.1 trillion. Conventional wisdom suggests the Treasury Department will use extraordinary measures to meet its financial obligations through late summer/early fall 2017, though such actions are contingent on cash flows and the underlying deficit picture. How lawmakers choose to address the debt ceiling remains to be seen, though some conservative members are reportedly preparing deficit reduction plans to be paired with any corresponding increase in the debt ceiling. Still, extraordinary measures and a sizable legislative agenda in both chambers make the prospects for action in the first 100 days increasingly unlikely.
Supreme Court
Senate Republicans have argued the next president should fill the Supreme Court vacancy to replace the late Justice Antonin Scalia, and president-elect Trump’s victory sets the stage for a conservative nominee. Trump has floated 21 possible names and the list was well-received by many Senate Republicans, though it remains to be seen how Senate Democrats will respond to such a nominee. One name to look out for is Judge Diane Sykes of the 7th Circuit. She has a solid pro-second amendment opinion and is also a former member of the Wisconsin Supreme Court, home to chief of staff Reince Priebus, Speaker Ryan and was a surprise red state pick up in the election. Some speculate Democrats could view a conservative nominee as simply a continuation of the “status quo” given Justice Scalia’s conservative tendencies, and allow for a smooth confirmation process. Alternatively (and perhaps more likely), Democrats could block the nominee given the Republicans’ opposition to President Obama’s nomination of U.S. Appeals Court Judge Merrick Garland, which would likely drive Leader McConnell to invoke the “nuclear option” eliminating the 60-vote requirement for confirmation of Supreme Court justices. Our colleague Paul Glenchur, a Supreme Court Bar member and former federal appellate court law clerk, will follow critical Supreme Court cases with potential investment impacts.
Immigration Reform
Immigration was the linchpin of the Trump campaign, and we expect the Trump Administration and Republican Congress will take swift action to bolster enforcement efforts, curtail the admittance of refugees, and reverse course on Obama Administration immigration policy. House Republican leadership has stated immigration efforts will not include comprehensive reform, instead focusing on developing a funding strategy to leverage the Department of Homeland Security’s “broad authority” with respect to border security and enforcement (including President- elect Trump’s plan to build a wall along the U.S.-Mexico border). Though such a proposal likely would have a difficult time advancing in the Senate, Leader McConnell has called for more robust border security “in whatever way is most effective.”
Of note, Senators Dick Durbin (D-IL), Dianne Feinstein (D-CA), Lindsey Graham (R-SC), and Lisa Murkowski (R-AK) recently introduced the Bar Removal of Individuals Who Dream and Grow Our Economy (BRIDGE) Act, a bill to codify the protections included in President Obama’s Deferred Action for Childhood Arrivals (DACA) program. DACA, which grants work permits and a two-year reprieve from deportation for certain undocumented immigrants who came to the U. S. as children, has been widely criticized by congressional Republicans is thought to be a primary target for dismantling under the incoming Administration. As such, it remains unlikely any such proposal will move in the context of the president-elect’s enforcement and border security efforts.
Infrastructure
President-elect Trump has expressed a commitment to invest $1 trillion in an “America’s Infrastructure First” plan to support investment in transportation, clean water, a modernized electric grid, telecommunications, and security infrastructure. A comprehensive infrastructure proposal presents the opportunity for collaboration, as incoming Senate Minority Leader Chuck Schumer (D-NY) has named infrastructure among his key priorities for the 115th Congress. Infrastructure spending could be tied to broader tax reform efforts, though it’s important to note that Senate Majority Leader Mitch McConnell (R-KY) opposes repatriation tied to infrastructure, instead favoring an approach that would use repatriated funds to lower tax rates. Such a proposal could also invite criticism from the so-called “Warren Wing” of the Democratic Party, which may denounce tax cuts benefitting multinational corporations. Moreover, Congress passed the FAST Act - a comprehensive, five-year highway bill in December 2015, which may drive little impetus for a large infrastructure package.
Trade
President-elect Trump staunchly opposed the Trans Pacific Partnership (TPP), called for the renegotiation of the North American Free Trade Agreement (NAFTA), and was generally in opposition to “bad trade deals” on the campaign trail, and the strong anti-trade rhetoric dominating the 2016 cycle suggests an impending sea change for the United States’ trade policy. The incoming Administration may seek to withdraw from TPP and negotiate a series of bilateral trade deals, renegotiate TPP, or engage with TPP countries to address congressional concerns and forge a path forward in 2017. President-elect Trump has also pledged to re-negotiate or withdraw from NAFTA, though the path and timing for doing so remains unclear at this time. Additionally, the president-elect has signaled a forthcoming paradigm shift in US-China relations, and it remains possible Congress and the Administration will seek passage of legislation related to China currency manipulation.
