Washington Weekly: December in Washington

The Senate approved several Biden administration judicial nominees. The House passed a bill to allow industry groups to petition the Small Business Administration to examine whether a federal regulation would have significant economic effects on a large number of small businesses and a bill to commission a civic education curriculum to teach high school students about the history of communism. Both chambers continued work on government funding legislation (see below).

The Senate will continue to vote on Biden administration judicial nominees. The House will vote on a Senate-passed bill to add 66 judgeships over time to trial courts across the US in districts where populations and caseloads have grown and a bill to prohibit the Department of Energy from enforcing certain energy efficiency standards for washing machines.

Trump and His Team.

President-elect Trump continued this week to choose individuals to potentially serve in his administration. As we have said before, not all of his choices will make it through the Senate confirmation process. Those with weaker prospects may withdraw from consideration. Matt Gaetz already withdrew as the nominee for Attorney General after it was clear he wouldn’t muster a Senate majority to support him. We suspect Defense Secretary-designee Pete Hegseth will soon meet a similar fate. The attention will then turn to Tulsi Gabbard’s nomination for Director of National Intelligence. Most of the President-elect’s other picks seem to be in good shape. We expect Senate confirmation of his picks for Treasury (Scott Bessent), State (Senator Marco Rubio) and Justice (Pam Bondi) to occur in late January or early February. Others will follow in rapid succession in February and March.

Immigration Up First.

Incoming Senate Majority Leader John Thune (R-SD) announced that the Senate’s first order of business in early January will be a budget measure to provide President Trump with greater tools to carry out policies to curb illegal immigration and deport criminal migrants. The measure would provide funding to hire more border patrol personnel, extend the border wall and coordinate with local law enforcement to target criminal migrants throughout the country. As the Senate works on this, the Trump administration will initiate executive actions on immigration (including limits on immigration asylum, parole and refugee admission programs) on day 1 of the new presidency. While many Senate Republicans may have differences with broader parts of the overall Trump agenda, there are no meaningful differences on the immigration issues that will advance next month. New policies and legislation will completely reverse those put in place over the last few years, and we believe these issues will dominate media coverage throughout at least the first few months of next year.

Tax Bill to Lag.

The focus on immigration in January and beyond likely means that efforts on a comprehensive tax bill will be pushed into the second half of the year. That’s not so surprising given the time it will take to write a major tax bill. Lawmakers will spend the next few months crafting the bill, but it will not be close to any final version until late next year.

Crypto Changes.

The outlook for digital asset policy continues to be a hot post-election topic. With the departure of SEC Chair Gary Gensler (who took an aggressive enforcement posture toward crypto actors) and the expected ascension of Trump’s SEC choice Paul Atkins, the crypto marketplace will enjoy a much more permissive and friendly regulatory environment. The SEC also will lift current accounting guidance that requires digital assets held in custody to be recorded as balance sheet items. Over time, new leadership among banking regulators also could ease current limits on banks’ abilities to engage in digital asset activities. In Congress, there continues to be bipartisan interest in legislation (e.g., to delineate regulatory authority between the SEC and CFTC). However, there isn’t consensus on the details and there may continue to be challenges in forging that consensus even in a Republican Congress next year. There will be a big shift in tone and some piecemeal changes next year, but it likely will be a longer pathway for the development of a more comprehensive policy framework out of Congress.

December in Washington.

Congress is only scheduled to be in session in Washington for two more weeks, but it still has to pass some meaningful legislation that is subject to expiration this month. Government funding for the current fiscal year runs out on December 20, so Congress is expected to pass a bill extending that deadline to late March (or even later). A defense authorization bill has to be passed (or extended) by the end of the year, and that is not close to being finalized. A comprehensive farm bill, which reauthorizes farm and commodity support programs as well as the food stamp program, also has to be passed by the end of the year. It’s annoying to the direct constituencies of those bills to see these important issues remain unresolved so close to their deadlines, but such is life in a divided government where the two sides are too resistant to compromise. All of these programs will have their deadlines extended into the future when it is likely they will again be extended.

Pharma Under Fire.

With the nomination of Robert F. Kennedy Jr. (RFK) to be the next Secretary for Health and Human Services (HHS), the pharmaceutical industry is feeling the pressure in Washington. RFK’s views on the sector diverge significantly from previous secretaries of HHS. He has been a vocal critic of vaccines, certain medications and other aspects of the US healthcare system for years. Republican lawmakers also have honed in on a provision of the tax code known as “round-tripping” that allows multinational corporations (including many pharma companies) to route profits from sales to the US through low tax foreign jurisdictions. It is estimated that ending this tax provision would raise $46 billion in revenue, which could be valuable in offsetting lower individual tax rates. We expect RFK to be confirmed by the Senate and for the pharma industry to be playing quite a bit of defense next year.

Charitable Giving and Taxes.

The philanthropic community used this week’s “Giving Tuesday” as an occasion to highlight concerns about the 2017 tax law’s increase in the standard deduction since this has meant that fewer taxpayers itemize their deductions and therefore utilize the charitable deduction. Charitable giving in the US topped half a trillion dollars last year, which is relatively stable compared to previous years. However, the charitable community noted that it was lower than the previous year when factoring in inflation. Senators James Lankford (R-OK) and Chris Coons (D-DE) introduced legislation last year for a universal deduction for charitable giving. Their bill won’t advance this year, but there will be a renewed push for it next year as part of a larger tax bill.

Hunter Biden.

President Biden’s pardon of his son Hunter raises many questions. These include how a future President Trump may use the same pardon authority, whether there will be bipartisan legislation to prevent sitting presidents from pardoning family members, what other pardons President Biden might issue before he leaves office in January, and the impact of the pardon on his legacy. Regardless of Hunter Biden’s new legal status, his problems won’t disappear with the general public, the media and Congress. Congress will certainly hold hearings on his legal cases next year and how they might connect (or not) to the current President. The younger Biden will also likely be called to testify before House and the Senate committees, where he will be asked tough questions. His answers to questions and appearance before Congress will have to be skillfully and carefully managed since (despite the pardon) he can be charged with forward offenses, such as giving false information to Congress or ignoring a congressional subpoena. Although most of his legal challenges seem to have been wiped away by the broad presidential pardon, we expect to continue to hear about his cases and the circumstances surrounding the pardon for a long time.

Dwindling Majority.

A month after election day, all 435 House elections have now officially been decided. Republicans won 220 of them, a slim two seat majority heading into the 119th Congress. While Republicans are thrilled to continue to hold a majority, that’s about where the good news ends for them in the House. With the recent resignation of Representative Matt Gaetz (R-FL) and the expected confirmations of Representatives Elise Stefanik (R-NY) and Mike Waltz (R-FL) to serve in the Trump administration early next year, the Republican majority in the House will shrink to 217-215 over the first part of the year. A tie vote in the House fails to pass legislation, which means that each individual Member of the Republican caucus will wield tremendous influence. Speaker Mike Johnson (LA) will need every Republican to vote with him (assuming full attendance). Absences due to health issues, inclement weather, or any other reason may lead to Republicans temporarily not having the votes needed to pass important legislation that they otherwise could. While Republicans have ambitious plans for their agenda next year, they’ll be walking a tightrope in the House as they attempt to advance it.