Washington Weekly: No Government Shutdown

The Senate confirmed several Trump administration nominees, including former Oregon Congresswoman Lori Chavez-DeRemer to serve as Labor Secretary and passed a bill to permanently classify fentanyl-related substances as Schedule I controlled drugs. It also approved a resolution affirming that Hamas cannot retain any political or military control in Gaza. Today, it will pass legislation to fund the government through the end of the fiscal year (see below). The House passed the six-month government funding legislation that the Senate will vote on today. It also passed a bill to allow more time to combat pandemic-era unemployment insurance fraud and a Senate-passed resolution to overturn a Biden administration Internal Revenue Service rule on digital asset sale reporting requirements.

The Senate and House will be out of session and return to Washington the week of March 24.

No Government Shutdown.

Later today, the Senate will approve House-passed legislation providing funding for government operations until the end of the fiscal year (September 30). The bill reduces funding for various non-defense programs by $13 billion, while increasing defense spending by $6 billion. Overall, the total funding level is flat from last year. Passage of the bill was less dramatic than some of the headline news, though it was only settled the day that current funding was set to expire (today)`1. With a renewed focus on downsizing government, a flat level of spending for government operations is likely what we will see under a Republican-controlled Washington. The main result from this week’s action is that we won't be reminded of the tiring government shutdown threats until the fall when new funding will have to be approved for fiscal year 2026.

House Flexes Its Muscle.

Passage of the government funding bill was a big deal in the House, where Republicans have the narrowest majority and where they often have had a hard time unifying. House Speaker Mike Johnson (R-LA) deserves some credit for that, but more is due to President Trump, who personally called a dozen or so wavering House Republicans to urge their support of the bill, the majority of whom had never voted for a government funding bill before this. The Senate often forces the House to capitulate on larger bills, but the House acted first this time and delivered a bill that a bipartisan majority in the Senate found difficult to oppose given the urgency of expiring funding. Many members from both parties showed a weariness in the never-ending government shutdown threats, and hopefully this sentiment will carry over into future debates over government spending so that they are resolved more quickly.

Tariff Disputes Continue.

President Trump’s threats on and imposition of higher tariff will continue to be the news of the day for the foreseeable future. The administration’s posture on higher tariffs seems to change every day. This has been unsettling for the markets and for business leaders. This week, the President moved ahead with higher tariffs on steel and aluminum imports, which were met with retaliatory tariffs from the EU and Canada. Easing the higher tariffs on Canada could come very soon if there are further concessions from the Great White North on shutting down the fentanyl trade into the US. More broadly, Trump is personally seeing and hearing more of the significant resistance to higher tariffs from the US business community, including in a meeting with CEOs at the White House this week. We should all expect the stop-and-start nature of higher tariffs to continue for the next few weeks and months, if not longer.

Tax Bill Coming Soon.

While we are still months away from any attempt to pass a final tax bill, there is a lot of groundwork underway on the measure behind the scenes. House Republicans on the tax-writing committee huddled twice this week to begin mapping out their version of a tax bill that above all will extend the lower individual rates in place since 2017. Senate Republicans from the Senate’s tax writing committee sat down with President Trump yesterday to exchange views on bill specifics. The details of the tax bill as it moves forward in both chambers will be fluid for the next few months. When will it pass? House Republicans are aiming to have it completed by Memorial Day while Senate Republicans are targeting this summer. This is an aggressive schedule, though we think it is achievable if the President applies regular pressure toward that goal. There will be bumps on the road along the way. We would not be surprised if it takes until the fall for a final bill to pass. Expect to start hearing details of a bill in the coming weeks but understand that the specifics will change over time.

Inflation Reduction Act Future.

We have received a number of questions about whether the green energy tax incentives from the Inflation Reduction Act (IRA) signed into law by President Biden will survive in the aforementioned tax bill. Many Republicans want to completely eliminate these incentives, including President Trump, but there are some (and fewer) Republican lawmakers who want to take a more measured approach. Many of the IRA provisions provided significant funds and incentives to Republican districts, and some Republican lawmakers are looking to save the incentives that are benefiting their local economies and districts. These include Republicans from Iowa, which benefits from the tax credit for biofuels. Others are looking to end these incentives more gradually. In fact, 21 House Republicans signed a letter this week advocating for these incentives. While that is not a large number, it is enough to get the attention of House leaders who must have the support of virtually every member to pass a tax bill. The most likely scenario is a middle of the road approach on the IRA, with several tax provisions being nixed and some retained in the bill being crafted now.

Stablecoin Milestone.

Congress came into this year with a lot of pent-up interest in advancing crypto legislation into law. The Senate Banking Committee was out of the gate first this week by passing a bill to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). The bill would require larger stablecoin issuers to be subject to federal regulation while allowing smaller ones to be regulated by a state regulator. It also would set reserve requirements for stablecoins (they need to be backed 1:1 by short-term, liquid assets) and subject stablecoin issuers to anti-money laundering requirements. While many Democrats expressed concerns about what they saw as shortcomings of the bill, a strong showing of five Democrats voted for it. The House Financial Services Committee held a hearing this week on the subject and is poised to pass a similar version of the bill in the coming weeks. Passage in the Banking Committee with bipartisan support is an important milestone but passing it in the Senate is a much bigger hurdle, particularly if it needs to be packaged with a more complex and contentious bill on crypto market structure.

Pressure on Russia and GOP-Trump Split Ahead?

All eyes are on Russian President Putin and whether he will agree to a month-long ceasefire in its war in Ukraine. A ceasefire would be a positive development, but there would still be a difficult road ahead for a successful negotiation to end the war fairly and achieve a realistic basis for peace in Ukraine. Even if he agrees to a ceasefire (still an open question), Putin will make many difficult demands as a part of negotiations. He likely feels he is in a good position to have them met given his positive rapport with Trump. We’re not so sure. Some of the demands will be opposed by a strong bipartisan group in the House and Senate. One likely demand -- relaxed US sanctions – are especially a delicate area in Congress. Trump may be open to that, but he would be met with a wall of resistance from lawmakers. Trump has threatened higher tariffs on Russia if a ceasefire is not agreed to, but trade between the countries is not at a high enough volume to make this a serious threat. Long-term peace negotiations will be tricky for Trump. He is aggressively pursuing peace and is willing to make concessions to get there, but the US public is still very solidly in support of Ukraine and against Putin. This could weigh significantly on Trump’s mind, and these negotiations could take many twists and turns once they begin (like US tariff policy).

The Never-Ending Daylight-Saving Debate.

As Americans get used to "springing forward" last weekend, the perennial debate over daylight saving time (DST) has reemerged with Senator Rick Scott (R-FL) introducing the "Sunshine Protection Act.” The bill aims to make DST permanent nationwide. It came close when it passed the Senate unanimously in 2022 but stalled in the House. Proponents argue that extended evening daylight boosts economic activity and reduces energy consumption. However, critics, including health experts, caution that misalignment with natural circadian rhythms could lead to adverse health effects. Even with 20 states having passed resolutions favoring year-round DST, implementation at the federal level seems unlikely. This is a debate that gains traction twice a year as Americans struggle to adjust to the time change, but one which quickly peters out once everyone adapts.

Senate Changes.

This week, Senator Jeanne Shaheen (D-NH) announced that she won’t seek re-election next year, joining Senators Gary Peters (D-MI), Tina Smith (D-MN) and Mitch McConnel (R-KY) as the fourth Senator to announce a retirement. Former senators -- Vice President J.D. Vance and Secretary of State Marco Rubio – already vacated their Senate seats earlier this year. Additionally, three senators are strongly considering bids for governor in their respective states. This turnover amounts to one-third of all Senators up for re-election in 2026 and about 10% of the overall chamber. Who needs term limits, which are popular with voters, when they are happening naturally?