Washington Weekly: Five-Week Sprint for Congress

The Senate approved Biden administration judicial nominees. The House passed legislation to waive the federal drilling permit requirement for certain geothermal energy projects. It also passed a bill to set an earlier application deadline for the Free Application for Federal Student Aid. Republicans in both chambers held leadership elections for next year’s session (see below).

The Senate will continue to vote on Biden administration nominees. The House will vote on a bill to expand energy development leases, while House Democrats will hold their leadership elections. Both chambers will continue to work on government funding legislation (see below).

Five-Week Sprint for Congress.

Congress returned to Washington this week to begin a five-week period that will conclude at the end of the year. In this time, lawmakers must pass a government funding bill by December 20 to avert a partial government shutdown. It also must pass a 2025 defense authorization bill and several other bills that have an expiration at year-end. The government is currently operating under last year’s funding levels and needs fresh funding in the current fiscal year, including more funding to help areas and individuals dealing with the aftermath of recent hurricanes that slammed the south. The funding bill must be bipartisan because of the divided nature of government for the rest of the year, which will make crafting a final bill a struggle. Nonetheless, cooler heads should prevail, and a bill will either be completed by December 20 or the deadline will be extended. Either way, we don’t envision a government shutdown late next month.

Trump Picks for Senior Positions.

President-elect Trump will continue over the next few weeks to select key officials for his most senior staff and cabinet positions. Most of his selections to date have not been too surprising except for his picks to lead the Defense Department (Fox News commentator Pete Hegseth) and the Justice Department (Congressman Matt Gaetz). Additionally, his pick to serve as Director of National Intelligence, former Democratic Congresswoman Tulsi Gabbard, has raised some eyebrows. These three will have a difficult time getting confirmed by the Senate, where even some Republicans have problems with them, particularly Gaetz. They lack the experience that their predecessors have had and are perceived to be Trump loyalists more than subject matter experts. Nonetheless, Trump won the election and is entitled to pick people for senior positions that he believes will best help him carry out his agenda. It is not certain at this time how far these three will make it in the confirmation process. These picks and the President-elect’s ability to get them approved is shaping up to be his first test of strength among Senate Republicans.

Cannibalization of House Republicans.

President-elect Trump already has selected three current House Republican members to serve in his administration. This is problematic for House Republicans given how slim their majority will be. One nominee – Congressman Matt Gaetz (FL) – already has resigned, while the two others likely will do so when they assume their new positions. The governors from the affected states will choose a special election date to fill the vacancies. In the case of Congresswoman Elise Stefanik (NY), who was chosen to serve at the UN, the Democratic governor will choose the date of a special election date that will maximize the chance that a Democrat wins the seat. Her seat is not a traditional swing seat, but in a special election there is no guarantee that Republicans will maintain that seat (Stefanik beat an incumbent Democrat to win the seat in 2014). A Trump administration could benefit from the selection of these House members for key positions, but it comes at a potential cost of fewer House Republicans.

Meet John Thune.

Senate Republicans this week elected Senator John Thune (R-SD) to be the chamber’s new majority leader, replacing longtime leader Senator Mitch McConnell (R-KY). Thune is no stranger to Republican leadership positions, but he has never held the top spot. Thune is more of a traditional conservative and less of a MAGA type. His relationship with Trump is based more out of necessity than mutual love. He is well-liked by most people he comes in contact with. He is serving his fourth term in the Senate and previously served in the House. He is articulate, personable and a good strategist. He grew up in Murdo, SD (population 448 in 2023) and played basketball in college. He and his wife have two daughters and five grandchildren. He has a habit of listening to some really awful bands from the 1970s, including Journey and Styx. He is a friend to UBS and has visited our office in Sioux Falls. Unlike the media-shy McConnell, he will be a fixture on TV in his new role.

Musk/Ramaswamy Government Efficiency Project.

This week, the President-elect announced the creation of a Department of Government Efficiency (DOGE) to be led by Elon Musk and Vivek Ramaswamy. DOGE sounds like an official department, but it will operate outside of the government without taxpayer funding. It is tasked with issuing recommendations to increase government efficiencies by July 2026. We have little doubt that this body will make ambitious recommendations, but we are less certain of the extent to which these recommendations will be enacted by Congress. The recommendations likely will include significant spending cuts, elimination of duplicative federal programs, reorganization of agencies, new rules around the federal workforce and perhaps closure of some agencies. The Trump administration may be able to implement some of the recommendations, but the bulk of them will need approval by Congress (where a bipartisan proclivity for more federal spending has become the norm over the years). Looking ahead, the consideration of these recommendations will likely be a major (perhaps the major) point of contention between the two parties just before the 2026 congressional elections.

Social Security Fairness Act.

The House passed a bipartisan bill this week known as the “Social Security Fairness Act” that would repeal the so-called Government Pensions Offset (GPO). The GPO reduces Social Security spousal or widow(er) benefits for those who receive pensions from certain federal, state and local governments. The bill also eliminates the Windfall Elimination Provision that reduces the earned Social Security benefits of an individual who also receives a public pension from a job not covered by Social Security. These two provisions impact almost three million retirees. The bill now goes to the Senate where many Senators have cosponsored companion legislation. While this bill is a priority for some lawmakers, we are skeptical that it will be passed into law before the new year because of fiscal concerns and a jam-packed end of year.

Tax Battle Ahead.

Even with control of the “trifecta” (the White House, Senate and House), Republicans have a tough challenge ahead of passing into law a significant tax bill before the 2017 tax cuts for individuals expire at the end of 2025. Senate and House Republicans will try to move quickly in passing an extension of the 2017 law early next year. They already have started to educate members who were not in Washington in 2017 about the details of the bill and the consequences of not renewing it. Some will be concerned about the $4.6 trillion price tag of extending the current tax cuts. Lawmakers from high tax states like CA, NJ and NY will want to significantly raise the $10,000 state and local tax (SALT) deduction cap, which will increase the cost further. Additionally, decisions need to be made about all the campaign promises that President-elect Trump made, such as the elimination of taxes on tips or overtime wages. We believe Republicans will get a tax bill passed into law next year, but the process and the details will be very fluid and messy.

Outbound Investment Restrictions.

There continues to be a lot of maneuvering in Washington about the best way to address national security concerns from China’s efforts to bolster military capabilities through advanced technologies (some of it imported from the US). Just before the election, the Biden administration finalized a rule to establish a notification system for investments involving sensitive technologies and prohibit transactions in a smaller subset covering semiconductors, quantum technologies and artificial intelligence. Many in Congress would like to go further. House Speaker Mike Johnson (R-LA) recently introduced comprehensive legislation that combines outbound investment restrictions (similar to the Biden administration rule) with the application of sanctions to a broader array of foreign entities. The Senate also has its own bipartisan bill on outbound investment. There is interest in adding this issue to year-end defense authorization legislation. The more draconian approach to sanctions will be fiercely resisted by the business community. While some form of outbound investment restrictions is possible, it’s unclear that there will be consensus on a specific approach.

Immigration Challenges.

Donald Trump’s vow to gain control of the southern border and restrict illegal immigration flows certainly played a role in his election victory. Since his election, he has chosen two officials for senior positions who are considered tough on immigration and advocates for significant deportations of non-citizens from the US. Can he carry out these campaign promises? It will be very difficult in the near term, mostly because of the estimated higher cost to the government of deportation activities, which isn’t available today. Deportations will certainly occur next year, but it is likely the new administration will focus on the newest non-citizens who have entered the US since 2021, either illegally or as part of the asylum process. That population is estimated to be about seven million and will likely be the first focus of the new administration in the deportation effort.

The Polls are In.

Particularly with polls showing a dead heat between former President Trump and Vice President Harris, there were questions before the election about the accuracy of polls and whether pollsters had figured out how to account for Trump voters. While we never received the electoral college nailbiter that polls predicted, that's more reflective in how swing states typically break in the same direction than any major errors in the polls. For the third straight presidential election, the polls did underestimate Trump voters (by 2.7% overall). Within the swing states, it was 2.2% – both figures that were within the margin of error of polls. The polling industry was at a critical crossroads this year given the public's negative perception of its performance in 2016 and 2020, but we believe it mostly passed the test this year.