Congress Leaves Town: Results for 2013 and outlook for 2014

 

Congress only has a couple of legislative days left in this calendar year. The House has already left town. There have been few achievements as political bickering prevailed. Congress passed only one regular appropriation bill, failed to adopt a budget so far, (although this is still possible) and failed to move on important issues such as tax reform. A series of missteps, miscalculations and scandals from the Administration occupied a great deal of Congressional attention. An impasse over the implementation of Affordable Care Act resulted in a partial government shutdown of 16 days.  There is enough blame and finger pointing to go around for all those involved.

Budget

Looking forward to next year, the most important business in Congress will involve the fiscal affairs of the government. The government will run out of money to spend on January 15, 2014. However, unlike October, a shutdown is not likely. There has been an agreement increasing the budget by almost $70 billion. A capitulation of sorts by Republicans who are scared of another government shutdown. It appears business as usual in Washington for short term spending for longer-term budget gimmicks. Gasp. However, Republicans have no need to fight over funding health care; they are winning the political issue hands down for the time being and do not have the legislative power to make any substantive changes. Health care will be a major issue in the 2014 election.

There are substantive and political issues in the budget agreement, such as tax reform, sequestration, extension of unemployment insurance and other significant issues that divide the two major political parties. Move on, I guess, nothing to see here.

Debt Ceiling

In addition to funding the government though the end of its fiscal year, the federal debt ceiling will be hit sometime in the second week of February. Raising the borrowing authority of the government is a big deal but the process is probably not going to be as confrontational as in October.  It is not clear how much of an increase will be agreed upon and for how long. Unless changed by any budget reset, the sequester will eventually continue to squeeze and limit discretionary spending in an un-artful way, but is a squeeze.

Tax Reform

The Chairman of the House and Senate tax writing committees have been promising for months to start serious consideration of major tax law changes.  It is obviously not going to happen this year.

However, tax reform did move slightly forward at the end of last month as retiring Senate Finance Committee Chairman Max Baucus (D-MT) released three separate proposals: (1) changing the way multinational corporations are taxed (2) tax and administration and enforcement and (3) changes in the way capital costs are recovered. A separate memorandum was provided earlier on this subject. Senator Baucus has given the members of his Committee until January 17th to comment on the proposals.

Over on the House side, Chairman Camp has delayed the Way and Means Committee from moving on legislation, and has not released any substantive draft beyond outlines of international taxation changes. Earlier in the spring and summer, the Ways and Means Committee formed a number of subgroups to study specific areas but that has not translated into concrete public proposals.

Chairman Camp is reported to have a bill ready for release, but the House Republican leadership has pushed him to hold back release until 2014.  Therefore, fate of tax reform in 2014 is not clear.

To some extent, it is tied to the budget process, as there is clear and distinct disagreement on increasing taxes between the parties. Until this major issue is resolved – either in a budget agreement or otherwise - tax reform is up in the air.

Energy and Environment

Some in business have had high expectations that Congress would thwart or stall the Obama Administration’s aggressive regulatory schemes, especially on climate change - on coal specifically. This, however, has not come to fruition.

The Obama Administration has released a climate action plan, the centerpiece being Clean Air Act regulations cutting deeper into coal uses, focusing on new sources with an existing sources proposal to come.

While there has been lots of discussion, there has been no movement.  Chairman Fred Upton (R-MI) and his subcommittee chairs dealing with the energy and the environment have a long list of arguable points with EPA, but little has happened. 

Political Outlook

The Administration must deal with pressing issues – and with Congress - from a significantly weaken political position. President Obama's disapproval ratings are at an all time high and recent polls have said the public has  “trust and honesty” concerns with him. However, his zeal for his programs is undiminished and his defense of the health care implementation remains very strong in spite of its difficulties. 

Even with a revised budget agreement there is little reason to think cooperation between Congress and the Administration will improve in 2014. The Administration continues to push a regulatory agenda and take ad hoc action in other areas even where its authority is questioned. Therefore, it is unlikely Congress will approve any new initiatives (spending) from the Administration.  

Next year is another important election year. Given the electoral map in the House, it is likely it will continue to have a Republican majority.  Any political damage caused or associated with the government shutdown has largely dissipated and overwhelmed by the furor over the health care law “rollout”.

Political comity in the Senate deteriorated through the year, culminating in historical action on revising the cloture rules. Now with the control of the Senate at stake in November, Republicans will attempt to put a number of vulnerable Democrats in hard votes situations with Majority Leader Reid (D-NV) trying to avoid them.   

The list of vulnerable Senate Democratic seats is quite long – starting in Alaska with Mark Begich and ending in the Deep South, where Senators Mark Pryor (Arkansas), Mary Landrieu (Louisiana) and Kay Hagan (North Carolina) are in significant trouble.  Open seats in Montana, West Virginia and South Dakota appear tough for Democrats to retain. Other possible vulnerable states for Senator Democrats are in New Hampshire, Minnesota, Iowa (open), Michigan (open), Oregon and Colorado.  

Conclusion

The next year will most likely be filled with political maneuvering, with little major legislative initiatives passed. What else is new? However, it is always best to remember politics is highly volatile and the public has at times short memories.  A major change in Congress most assuredly would push Mr. Obama into the last days of impotency.