While the Senate has remained in session, the House returns from its one-week recess next Tuesday, May 9, for a three week stretch of session that will now be squarely focused on the looming debt limit X date. Looking forward, the Senate is scheduled to be out of session the week of May 22, while the House will recess for the week of Memorial Day, assuming an agreement has been reached by then to increase the debt limit. Below is an outlook on what to expect during the work period.
House Republicans return next week riding high off passage of their debt limit package, which seemingly provides Speaker McCarthy with leverage in the upcoming negotiations with Leader Schumer and President Biden. Treasury Secretary Yellen’s bombshell letter on Monday informing congressional leaders that the X date may be as soon as June 1 has hastened the timeline for negotiations. President Biden has invited the “Big Four” congressional leaders (McCarthy, Schumer, McConnell, Jeffries) to the White House on May 9 to begin these talks, after which it is likely that staff will begin conversations.
In the meantime, the House will move forward with its legislative agenda. Next week will mark another milestone for House Republicans in their list of priority legislation with a comprehensive border security and immigration package set to hit the floor. This package reflects legislation from the Homeland Security Committee and the Judiciary Committee and, as such, a negotiated compromise between Texas Reps. Tony Gonzales and Chip Roy. Additional items expected for the floor this month include:
- UI pandemic relief fraud (Ways & Means)
- Crime and public safety package (Judiciary)
- Fentanyl legislation
- Possible CRA on pistol brace rule (as well as additional CRAs)
- Capital formation package (Financial Services)
Meanwhile, House committees will continue to be especially active and will tee up legislative activity for the floor in June and July. Among the more notable committee activities, we would highlight:
- Ways & Means Committee markup of an economic package, the scale of which remains to be determined, but which could include individual and small business relief, extension of certain expired tax provisions (e.g. bonus depreciation, deductibility of business interest and R&D expensing), IRA repeal, and language related to the OECD Pillar II implementation. This package is currently expected on the floor the week of June 5.
- Armed Services Committee markup of the FY24 National Defense Authorization Act (NDAA) on May 23, making it available for the floor as soon as the week of June 12.
- Appropriations Committee markups of FY24 bills, beginning in subcommittee on May 17. The House will pass a “deeming” resolution setting FY24 discretionary spending levels (outside of Defense) at the FY22 level. This funding level is expected to be revisited during eventual debt limit negotiations. Individual bills could begin to hit the House floor as soon as the week of June 19.
- Financial Services Committee ongoing hearings and oversight related to recent bank failures, beginning with Silicon Valley Bank (SVB). The next hearing is set to occur in the Subcommittee on Financial Institutions and Monetary Policy on May 10 and will analyze the Federal response to recent bank failures. Later in the month, the Fed, FDIC, and OCC will testify, as will state regulators and the former CEOs. The Oversight & Accountability Committee, meanwhile, opened its own investigation related to the San Francisco Fed’s oversight of SVB. Responses to a Chairman Comer April 27 letter are due May 11.
Additional activity related to the Financial Services Committee’s ESG Working Group is expected with a report likely out by the end of May outlining legislative priorities. We anticipate legislation to be marked up in committee by July. Note that Oversight & Accountability has announced the start of its own investigation into corporate ESG with a hearing with State Attorneys General scheduled for May 10.
Finally, outreach from the Administration to Congress on a forthcoming executive order (EO) related to U.S. outbound investment in China has been limited, at best. The EO is expected to be timed with the upcoming G7 meetings in Japan. Though the EO will implement new reporting requirements and approval processes for covered industries, it will fall short of various legislative proposals, all of which would require congressional action to implement.
Given the lack of coordination with Congress-and differing opinions within Congress-enacted legislation is far from a given. At the same time, Congress is expected to conduct oversight and attempt to ensure that there isn’t mission creep (in terms of additional sectors being pulled in) beyond the EO. This overall effort has recently turned to the topic of artificial intelligence (AI) and machine learning. We expect the intersection of competition with China, deterrence of a military conflict with Taiwan, and “the race to” AI to be an increasingly broad focus of this Congress.
The Senate is three weeks through its current five-week work period, during which time it has mostly focused on judicial and executive branch nominations, along with various Congressional Review Act (CRA) resolutions of disapproval pushed by Senate Republicans. We expect this pattern to continue for the next couple of weeks before the Senate adjourns the week of May 22 through Memorial Day, returning to session May 30.
Moreover, given the 51-49 majority, Leader Schumer’s hands have been somewhat tied both in Judiciary Committee and, with respect to controversial nominations, on the Senate floor due to attendance issues with Sen. Feinstein still absent.
For example, the nomination of Julie Su, to be Secretary of Labor, while reported favorably from the HELP Committee, remains stalled ahead of floor action due to unanimous GOP opposition coupled with a few holdouts who have not committed to supporting her nomination, including Sens. Manchin, Tester, and Sinema.
At the same time, the GOP has successfully forced votes on various CRAs that have passed the Senate narrowly, often with Sen. Manchin providing his vote, such as last week’s successful 50-49 overturning the EPAs heavy duty engine emissions rule (President Biden has signed a few CRAs into law and vetoed several others).
Additional resolutions of disapproval the Senate may vote on over the next two weeks include:
- CRA preventing the long-haired bat from being placed on the Endangered Species list;
- CRA on regulations for listing endangered species and designating critical habitat; and
- CRA on the Administration’s “public charge” rule relating to immigrants applying for citizenship.
OUTLOOK/ANALYSIS. Though the House debt limit package has no chance of passing the Senate, Leader Schumer does not have the votes for his preferred “clean” debt limit increase. With a united Republican front in both the House and Senate, Speaker McCarthy holds a good deal of leverage his Democratic counterparts headed into the upcoming Big Four meeting at the White House.
In hastily inviting congressional leaders to the White House following Secretary’s Yellen’s Monday letter, President Biden has seemingly abandoned his hardline position against negotiating on the debt limit (though he has not publicly conceded that point to Speaker McCarthy). Leader McConnell and Senate Republicans continue to defer to Speaker McCarthy, making the May 9 White House meeting a mere formality. The actual negotiation should quickly move into a one-on-one affair between the Speaker and President.
What form a deal takes and how quickly it moves are all to be determined. We continue to believe that a default is exceedingly unlikely and that a deal will eventually include an increase in the debt limit of at least two years, relatively modest discretionary spending restraints, and potentially some ancillary legislative policies like energy permitting reform.
If the X date turns out to fall in early June as Secretary Yellen has warned, it remains possible that a short-term punt extending the debt limit for several weeks or months could be considered in order to give negotiations more time (especially on more complicated elements like permitting reform). Such a delay is nobody’s preferred outcome at the moment.