Washington Weekly: Campaign Homestretch

The Senate approved various Biden administration judicial nominees and passed legislation to improve the management of royalties from oil and gas lease sales. The House passed a number of bills related to strategic competition with China (see below).

The Senate will continue to vote on Biden administration nominees and vote again on legislation that would expand access to and coverage of in vitro fertilization (IVF). The House will continue to debate and may vote on a short-term extension to fund the government beyond the end of this fiscal year (see below).

Campaign Homestretch.

Early voting begins late next week in a handful of states, including the swing state of Pennsylvania. Both of the major candidates will spend virtually all of their time over the next 52 days in the seven key swing states (WI, MI, PA, NV, AZ, GA, NC), which collectively have 93 electoral votes and will determine which candidate wins. We get many questions about potential October or November “surprises” that could have a late impact on the election. But with the acceleration of early voting in most states, late surprises, should they materialize, will have less impact than in prior years given that many people would have already voted. A September surprise could have an effect, though we now are close to halfway through the month. We already had plenty of surprises in the summer, including an assassination attempt on one major candidate, the withdrawal from the race of the sitting president, the selection of two relatively unknown vice-presidential candidates and the melt-down of the primary third-party candidate who was expected to be competitive enough to help sway the final result.

Government Funding a Priority.

The House and Senate need to pass just one bill – a measure to extend government funding beyond the end of this fiscal year (September 30) – before both chambers leave Washington to go back to campaign through election day. Not surprisingly, the House and Senate leaders have very different proposals about how to do that. House Republicans this week tried to pass a government funding bill through March 2025. That bill also contained a provision designed to ensure that non-citizens cannot vote in US elections. It did not have enough support to pass. House Republican leaders will try again next week with a similar or revised plan. What the House does is not as relevant as what the Senate will do in the next couple of weeks. The Senate is likely to rally behind an approach to fund the government through December without any controversial riders, and we think that bill will be approved by both chambers at the end of September.

House Vote on Preventing Non-Citizens from Voting.

House Republicans’ efforts to add a provision that requires voters to provide documented proof of citizenship when they register to vote is largely a symbolic measure. It will likely not be included in any final government funding bill. The requirement would apply only to federal elections, not state and local contests. Three states and Washington, DC have municipalities that currently allow non-citizens the right to vote in local elections. Experts have differences of opinion as to whether non-citizens can and do illegally vote in federal elections. Most House Democrats argue that this provision is not necessary given current prohibitions. However, House Republicans believe loopholes exist that would be shut down by the legislation. The measure probably won’t become law, but it is a topic that we will all hear about on the campaign trail.

House Focus on China.

The House is also focusing this week on the passage of a wide range of bills that restrict or otherwise shape US relations with China. Included are measures to restrict China’s purchase of US agricultural land, support Taiwan’s membership in key international bodies, require Senate ratification of agreements made within the World Health Assembly (focus is on the potential passage of a pandemic preparedness agreement), disallow China’s use of US funding of promotion of electric vehicles and prosecute individuals engaged in the theft of trade secrets. Some of these individual measures will become law later this year as part of a defense authorization bill that will be finalized in December. These efforts give lawmakers a chance to showcase their concerns about trade and security competition with China, a popular topic at election time.

Capital Gains.

There has been chatter about the future of the taxation of capital gains and unrealized gains as part of a “wealth tax.” Vice President Kamala Harris has broken ranks with President Biden’s call for making upper income earners pay ordinary income tax rates on their capital gains. Instead, she has called for increasing the cap gains tax rate to 28%. It is unclear if Harris agrees with Biden’s proposal of an increase to the Net Investment Income Tax (NIIT) from 3.8% to 5%. Her proposal to increase taxes on cap gains is noteworthy and will be in play for legislative action next year if Democrats sweep the election this fall. A “wealth tax” on unrealized gains is less likely to gain traction. It is important to keep in mind that if changes to cap gains taxes do advance next year, they are unlikely to be retroactive. There will be other speculation about the Vice President’s plans on this and other tax issues, and we caution folks to not assume any specific results from her positioning for now.

Repeal Green Energy Incentives?

A noteworthy letter recently was sent to House Speaker Mike Johnson (R-LA) by 18 fellow House Republicans. These Republicans advocated to keep clean energy tax credits in the Inflation Reduction Act (IRA) if Republicans maintain the majority in the House next year. While these lawmakers oppose the IRA more generally, they are concerned that energy credits are now being utilized, and this investment is creating jobs and spurring innovation and repealing them would cause a serious disruption. This warning shot from these Republicans is impactful, especially since the margin in the House is likely to be narrow after the election and these 18 lawmakers could stymie efforts to eliminate these green energy provisions.

Rail Safety Bill.

Senate Majority Leader Chuck Schumer (D-NY) indicated he would like to schedule a vote on a pending rail safety bill before the Senate adjourns in late September. The bill is in response to the horrific train derailment in East Palestine, OH in February 2023. That accident released toxic pollutants throughout the town and has caused severe environmental and health problems. In the aftermath, Senator JD Vance (R-OH) crafted a bill with the other Ohio Senator, Sherrod Brown (D), to enact new safety procedures for trains carrying hazardous materials, including a minimum two-person train crew for such trains. The bill passed out of a Senate committee last year but has since stalled. The rail industry and many Senate Republicans oppose the bill as a regulatory over-reaction to the incident. With Vance’s increased prominence, can he now convince other Republicans to support the bill? The bill’s passage would give Vance a personal boost, but it would also give a boost to Senator Brown, who is engaged in a tight re-election race. While this bill may get a vote later this month, momentum for its passage has waned a bit and it still faces an uphill climb.

Capital Pit-Stop.

The federal banking agencies have received significant opposition to proposed changes to bank capital requirements (called Basel 3) since unveiling them in June 2023. Lawmakers on both sides of the aisle have been vocal in expressing concerns about the potential impact of the proposed changes on the cost and availability of credit for consumers and businesses. In appearances before Congress, Federal Reserve Chairman Jay Powell has tried to assuage lawmakers’ fears by indicating that regulators have heard their concerns and were working on a re-proposal. For months, regulators have been working out and negotiating key details of that re-proposal. In a speech this week, Fed Vice Chairman Michael Barr outlined many of the extensive changes being made to the original proposal and how those changes would reduce the extent of the capital increase on banks. The regulators hope to release and vote on a re-proposal later this month. The re-proposal will be subject to a short comment period and regulators may face pressure to make additional changes in a final rule.

Debate Impact.

Most polls showing the impact of Tuesday’s debate between Vice President Harris and former President Trump won’t be released for a few more days. What we do know is that at least 67.1 million viewers watched the debate on TV, significantly more than the 51.3 million viewers who watched the first debate this year between President Biden and Trump. Still, it’s a decrease from the debates between Trump and Clinton in 2016 (84, 66.5, and 71.6 million respectively) and similar to Biden and Trump in 2020 (73.1 and 63 million respectively). When factoring in those who watched through streaming, it’s clear that a significant portion of the American electorate tuned in to the first, and perhaps only, debate between Harris and Trump. What remains unclear is what the impact will be. Polls have shown that the vast majority of voters have already determined who they will vote for. Rarely do debates move the needle that much. Still, in what is expected to be another incredibly close election, every vote matters and this week’s debate may have been the best opportunity for both candidates to reach the few remaining undecided voters.