Washington Weekly: Government Funding Approaching Deadline

The Senate approved various Biden administration judicial nominees and failed to pass legislation to expand access to in vitro fertilization (IVF) (see below). The House passed two immigration-related bills and a number of bills related to environmental, social and governance (ESG) policies (see below). Both the Senate and House passed a $3 billion emergency funding bill for the Department of Veterans Affairs (VA) (see below).

The Senate will vote on Biden administration nominees. The House will vote on bills to address forest thinning and wildfire management, impose sanctions against China’s top leaders if they develop policies that violate Hong Kong’s autonomy or increase aggression towards Taiwan and a resolution condemning Biden administration officials for their role in the Afghanistan withdrawal. Both chambers hope to pass a short-term government funding bill to mid-December (see below).

Government Funding Approaching Deadline.

The House again tried, but failed, to pass a bill that would extend government funding from October 1 (the end of the fiscal year) through the end of March of next year. In the interest of placating many of his Republican colleagues (and former President Trump), House Speaker Mike Johnson (R-LA) included a provision in the bill that would require voters in federal elections to show proof of citizenship. However, a handful of other House Republicans ultimately rejected the bill because it did not cut domestic spending and increase defense spending. This puts the Speaker in a position where he will likely follow the Senate’s version of a government funding bill. The Senate bill will extend funding over a shorter period (into December) and won’t have any riders like the voting measure. The Speaker’s acquiescence to the Senate will trigger more grumbling (including calls for him to be replaced) from some House Republicans, but that will not happen so close to the election. We still expect a “clean” government spending bill to be approved prior to October 1 and a shutdown of government avoided.

Extra Funding.

While the temporary extension of government funding will keep funding levels at last year’s levels, some federal programs will get an immediate increase either as a part of the bill or separately. The Senate and House this week voted to approve an extra $3 billion to address a potential shortfall of veterans benefits (the VA said up to 7 million veterans could otherwise lose their benefit payments due on October 1). It is likely that the Secret Service, which has now dealt with two attempted assassination attempts on a presidential candidate over the past two months, also will get additional funding (up to an extra $1 billion). The Social Security Administration also is warning that it will face a cash shortage that will affect its ability to timely deliver benefits and needs an extra $727 million. Many agencies have extra funding requests they consider urgent, but other than those mentioned above, they will have to wait until December to get those funds and even then they may not be successful in a tight budget environment.

Dueling Political Message Votes.

The House and Senate this week scheduled votes on bills that are not going to become law, but instead have messaging appeal in an election year. Senate Republicans blocked a bill pushed by Senate Democrats that would have created a federal right to in vitro fertilization (IVF) and guaranteed insurance coverage of IVF and other fertility treatments. Democrats used the vote to highlight Republican opposition to certain reproductive rights. House Republicans voted on a range of bills aimed at both environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) policies. This includes legislation to reduce influence of ESG initiatives in retirement plans, a bill to limit the Securities and Exchange Commission’s ability to require ESG disclosures and a bill that would prohibit college accreditors from requiring colleges and universities to adopt specific partisan, political or ideological standards as a condition of accreditation. The political goal was to connect House Democrats with these programs. It’s common to have these votes scheduled so close to the election and in a divided government, but we doubt they will sway many voters.

State and Local Tax Deduction.

As high tax state residents are well aware, the 2017 tax law capped the state and local tax (SALT) deduction at $10,000. Since enactment, a number of elected officials have made promises to help their constituents in high tax states that have been negatively impacted by this cap. As of yet, their efforts have fallen short. But, the cap expires at the end of next year and as the political landscape at that time is now unknown (it depends on the outcome of the elections), it is looking more likely than not that there will be some level of relief from the $10,000 SALT cap. Senate Majority Leader Chuck Schumer (D-NY) recently called for the cap to be lifted and former President Trump joined the parade this week and vowed to “get SALT back, lower your taxes.” The details of a tax bill next year will be fluid, but we think it’s safe to predict that there will be some level of relief for those now impacted by the current SALT cap in 2026.

SEC Reg Agenda.

Since Chair Gary Gensler took the reins of the SEC in April 2021, the SEC has been busy. It has finalized close to 40 rules and has faced legal challenges on some of those rules. Some rules (including one requiring greater disclosures by hedge funds) have been overturned by courts, while others remain locked in court battles. With roughly a month and half to go before the November elections, the SEC still has over 30 pending rule proposals that await finalization. This week, the SEC finalized a rule to reduce the price increments (from one penny to half a penny) for the quoting and trading of most US stocks. The rule is a part of a broader effort to overhaul US equity markets (some of the more controversial proposals, including one that would require retail orders for stocks to go through a complicated auction process, remain pending). Chair Gensler and other SEC commissioners will appear before Congress next week. Lawmakers, particularly Republicans, will voice concerns about individual rules and proposals, the volume of the SEC agenda and the lack of analysis of the impact of these rules (both individually and collectively). With such a lengthy backlog of rulemakings still pending, the direction of the SEC agenda will turn on the results of the presidential election.

Who Won?

While we know election day is 45 days from today, it remains less clear how many days we are from knowing who will win the presidential election and which party will control each house of Congress. It took several days for the presidential election to be called in several states in 2020, and similar delays occurred in the 2022 mid-term elections. Following election day in 2022, there were unanswered questions about who had won Senate and gubernatorial races in Arizona and Nevada for several days. This year is likely to be a repeat in both Arizona and Nevada (both swing states), which predominately vote by mail. There also could be delays in Pennsylvania and Wisconsin (two other swing states), which are not allowed to process their mail ballots until polls close on election day. This means that election workers won’t be able to begin all of the tedious labor such as opening envelopes, flattening ballots and preparing them to be tallied until polls have officially closed. Those mail ballots will be among the last to report. That dynamic could result in a “red mirage” where Republicans appear to have a large lead at the start of the night (because more Republicans vote on election day), with Democrats narrowing the gap as mail-in ballots are counted. Unless it’s a blowout, we’re unlikely to have confirmation of who the next president will be on election night, so don't stay up too late that night expecting to learn of that result.

T-Swift’s Impact.

Taylor Swift’s endorsement of Vice President Harris following the recent presidential debate made waves among her fans. It also raises an age-old question – how much do celebrity endorsements matter? While both parties are quick to trot out endorsements from other prominent politicians, local grassroots organizations or celebrities, there’s little to show that these endorsements move the needle in terms of persuading voters. So far, there’s little evidence that Taylor Swift’s endorsement has made any immediate impact. However, where it might play an important role for Harris is in voter turnout. There are expected to be eight million newly eligible voters who were not yet 18 in the 2022 elections. Youth voters are traditionally a voting bloc that leans Democrat but also has low turnout. They also are a big portion of Taylor Swift’s fanbase. The link she shared for eligible voters to learn how to register to vote was visited over 400,000 times in the first 24 hours (vote.gov traditionally receives about 30,000 site visits per day), and recent polls have continued to show increased voter enthusiasm among young voters, though it’s impossible to know how much (if any) of that is attributable to Swift. This endorsement is unlikely to make voters reconsider who they are casting their ballot for, but it could have an impact with voter turnout among younger voters, which could be a deciding factor.

Incumbency Remains Strong.

Nearly 75% of voters believe that the country is on the wrong track. The House of Representatives also has an approval rating of only 20%. Nevertheless, incumbent Members of the House have fared well in 2024 primary elections. Only four incumbents lost to a primary challenger this year (one of which was a Member-on-Member primary due to redistricting), leading to a 99% incumbent success rate. While incumbents have structural advantages on their side, it remains striking that they have continued to be reelected at such a high rate given the general mood of the country and most voters’ desire for change. We’ll see if this trend continues in November, but it’s a good sign for Republicans in the House who haven’t had a single retirement in a competitive district compared to Democrats’ four. With House margins as close as they are, every advantage matters.