This week, as members return to D.C., the dynamics surrounding the lame duck session have begun to take shape. This note provides a snapshot of key policy items to watch; we will keep you updated as discussions occur.
With Senate Democrats set to continue (and possibly expand) their narrow majority in the 118th Congress, Majority Leader Schumer will likely pivot away from prioritizing confirmation of judges and nominees during the lame duck and toward legislation as Republicans prepare to take control of the House. For example, last evening, Schumer filed cloture on the motion to proceed to the Respect for Marriage Act. The Senate will also consider S. J. Res. 63, a Republican resolution of disapproval regarding the COVID emergency declaration.
Government Funding: The current continuing resolution (CR) expires on December 16. While there is strong interest from Appropriators (especially retiring Sens. Leahy and Shelby) in passing an omnibus spending bill to fund the government through September 30, 2023, serious negotiations on topline spending levels and policy riders have not yet begun. The vast majority – if not all – of House Republicans will oppose an omnibus, with conservatives pushing for a short-term CR extending into the first quarter of 2023, which they believe will give them leverage on various issues. If an omnibus materializes, House Democrats will have to navigate their progressive and moderate factions to pass a bill with mostly Democratic votes. Regardless of what shape a spending bills forms, it will likely include supplemental funding for disaster relief and Ukraine.
NDAA: The House-passed National Defense Authorization Act (NDAA) contains hundreds of extraneous amendments like the SAFE Banking Act and bipartisan legislation to establish an outbound CFIUS regime (for a list of House add-ons, see here). Although the Senate has not yet passed its version of the NDAA, we expect amendments to generally stay within the confines of defense policy. Ultimately, we expect most non-defense policies in the House NDAA will be dropped from a final agreement and that Congress will enact a bipartisan NDAA in December for the 62nd consecutive year.
Tax: A tax package is a question mark for lame duck action. Democrats are asking for permanency or extension of the Child Tax Credit (CTC) expansions included in the American Rescue Plan, among other provisions. Permanence of the CTC expansions would cost roughly $1.4 trillion over 10 years. Meanwhile, Republican tax writers want to address several expired provisions including R&D amortization, deductibility of net business interest expense up to 30% of EBITDA, and TCJA bonus depreciation, but they are notionally very far apart from Democrats on the size and scope of any potential package. From a Republican perspective, a tax negotiation is possible only if Democrats dramatically reduce their CTC ask. Even then, a tax packages faces hurdles amid broader legislative and political uncertainty.
Debt Limit: Democrats and the White House want to raise or suspend the debt limit during the lame duck, but we think this is an unlikely outcome. House Republicans will aggressively oppose any attempt to include the debt limit in an end-of-year package, and Senate Republicans may not be eager to deal with the issue if current projections that it doesn’t need to be raised until Q3 of 2023 hold. Democrats will likely not have time to address the debt limit on party lines through budget reconciliation.
PAYGO/Sequestration: Congress is also likely to address looming sequestration spending cuts that would cut $36 billion from Medicare in 2023 under the PAYGO law. Some conservatives want to use PAYGO to force spending cuts, but the law has never taken effect for the simple reason that Congress does not want to cut Medicare. Accordingly, we believe Congress will act to waive PAYGO, either in an end-of-year package or in a separate bill at some point.
Retirement: We continue to believe SECURE 2.0 has a strong chance of being enacted this year. The bill is viewed as non-controversial and it is a legacy item for Senator Portman and Ranking Member Kevin Brady, both retiring. SECURE 2.0 could be attached to any moving vehicle, if necessary.
Other Possible Items: Nominations/judges, Electoral Count Reform Act.