Treasury extraordinary measures are nearing their deadline as both parties struggle to advance their legislative priorities. Congress is off to its slowest start in decades. Major bills remain stalled until late spring or early summer.
WHAT YOU NEED TO KNOW
- Congress is off to its slowest start in decades with major legislation stalled until late spring/early summer.
- Decisions on the budget and debt ceiling have been elusive, and time is running short.
- Banking, defense, and energy-related issues enjoy a modicum of bipartisan agreement, but passing anything will have varying degrees of success.
Congress is off to one of its slowest starts in recent memory. House Republicans have passed only one of their marquee bills, and Senate Democrats continue their slog to confirm nominees both judicial and agency wide. While House Republicans passed a series of messaging bills that are essentially dead-on-arrival in the Democrat-controlled Senate, they’re struggling to garner support within their conference for their top priorities, including immigration reform and big-tech regulation.
As we look ahead to the spring and early summer, both ends of Pennsylvania Avenue will be focused on a handful of issues that could shape up or shake up the landscape for the remainder of 2023.
Debt Danger
The Treasury Department will soon exhaust extraordinary measures to cover debt payments. President Biden and House Speaker McCarthy (R-CA) have not met since February 1, and the debt-ceiling debate remains tense. McCarthy has sent letters outlining House Republican demands, including:
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Recapturing unspent COVID-19 funds
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Cutting non-defense discretionary spending
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Strengthening work requirements for federal programs
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Overhauling energy policy to boost domestic production
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Drafting border legislation to curb fentanyl
Biden insists that paying the nation’s debt is non-negotiable and will not yield on policy issues. If both sides fail to compromise, tensions could escalate as the X-date approaches in June–July.
Budget Standoff
Washington’s annual budget process has become a political game. Deadlines are missed, submissions are treated as aspirational, and House and Senate rarely align. This year, Republicans link the budget to debt ceiling negotiations, creating additional pressure.
Passing a budget with significant spending cuts will challenge House Republicans. Without agreement, the appropriations process stalls, potentially leading to static government funding for the next fiscal cycle.
Defense in the Driver’s Seat
High-ranking Pentagon brass spent the first few months of the year canvassing Capitol Hill seeking support of the Biden administration’s $842 billion request for spending on defense. While defense spending currently garners bipartisan support for an increase over 2023 topline numbers, defense hawks in both parties are balking at the submission and seeking to boost defense spending above the Pentagon’s request.
The ultra-conservative wing of the House, once again, remains the wildcard in this scenario. Since defense spending is part of the discretionary spending side of the ledger, it could be subject to their demands to cut spending.
Banking on Compensation
After the Silicon Valley Bank collapse, lawmakers on both sides support stronger penalties for executives at failed banks. Several bills are moving through Senate committees to reclaim CEO compensation and increase regulatory oversight. Despite agreement on stricter standards, the banking industry and some House Republicans oppose the measures, warning of potential government overreach. Banking legislation may only advance if future bank failures increase pressure.
Fossil Fuels vs. Climate Change: One and Done?
The Lower Energy Costs Act also reignites debate over sustainability, as investors increasingly explore options to invest in renewable energy amid shifting energy policy priorities. Before adjourning for the two-week April recess, House Republicans managed to pass one of their top priorities with Democratic support. The Lower Energy Costs Act (LECA) repeals a number of climate, healthcare, and tax programs that were enacted in 2022’s Inflation Reduction Act. This includes the $4.5 billion energy-efficient home rebate program; the Environmental Protection Agency program aimed at ramping up national green banking and emission reduction; and emission fees targeted at fossil-energy companies.
LECA also directs the Interior Department to complete a quarterly lease sale of oil and gas, lifts a moratorium on coal leasing on federal land, and prohibits the president from declaring a national ban on fracking.
Lastly, there’s a provision aimed at easing permitting restrictions that tend to delay energy projects. Permitting reform was championed in 2022 by Sen. Joe Manchin (D-WV) but not included in the final Inflation Reduction Act. This could be the only area of bipartisan agreement in LECA and could serve as a starting point for Senate negotiations. The rest of LECA’s components would be hard-won in the Senate, and, even if it were to survive a vote, the Biden administration has made clear its intentions to veto the bill.
After the spring recess, Congress and the White House will face major decisions with limited time on the clock. While there are still narrow areas of potential agreement between Republicans and Democrats, the gulf between them on critical issues could widen further and the ripple effects of delays or a roadblock on these issues could have far-reaching ramifications for the economy.
