INTRODUCTION

On Tuesday, President Barack Obama delivered his fifth State of the Union Address before a joint session of the 113th Congress. In setting forth his priorities for the remainder of the year, he emphasized the theme of expanding equality of opportunity for all Americans. He urged Congress to make this a “year of action.” In calling on Congress to adopt measures to help ordinary people get ahead in life and overcome barriers to social mobility, he proposed, among other initiatives, expanding low-income tax credits, ensuring that women receive equal pay in the workplace, expanding educational opportunities through traditional means as well as new initiatives to connect businesses and universities, creating a new retirement savings vehicle (the “MyRA”), increasing the minimum wage, and otherwise helping to promote good, middle-class jobs. He threatened to veto an Iran sanctions bill that would derail the negotiations underway to resolve “one of the leading security challenges of our time without the risk of war.” Finally, he made it clear that he intends to move initiatives by Executive Order, where possible, and otherwise take unilateral action to advance his agenda if Congress fails to respond with legislation, starting with an Executive Order that will increase the minimum wage to $10.10 for individuals working on new federal contracts for services.

In the Republican Response, Representative Cathy McMorris Rodgers (WA), the Chair of the House Republican Conference and the most senior female member of the House Republican Leadership, also stressed the importance of helping individuals and families by offering a Republican vision:

“[T]hat empowers you, not the government. It’s one that champions free markets—and trusts people to make their own decisions, not a government that decides for you. It helps working families rise above the limits of poverty and protects our most vulnerable. And it’s one where Washington plays by the same rules that you do. It’s a vision that is fair and offers the promise of a better future for every American…Because our mission—not only as Republicans, but as Americans, is to once again to ensure that we are not bound by where we come from, but empowered by what we can become. That is the gap Republicans are working to close. It’s the gap we all face: between where you are and where you want to be.”

Given the remarkably similar themes put forward by President Obama and Representative McMorris Rogers but given the stark differences in how they would accomplish their goals, what do we expect now? As we discuss below, we think Congress will surprise the skeptics by moving forward to produce bipartisan legislation on many significant matters, starting with the farm bill, which the House approved today and the Senate should clear in the next few weeks. In addition, we expect Congress to advance immigration reform, a water infrastructure bill, a surface transportation bill, terrorism risk insurance legislation, cyber security legislation, and the Marketplace Fairness Act. Last night President Obama surprised the patent bar when he called on Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.” Senate Judiciary Committee Chairman Patrick Leahy (D-VT), Chairman Bob Goodlatte (R-VA), and Senator Chuck Schumer (D-NY) thanked the President and showed renewed optimism for swift movement on patent reform legislation. Senator Schumer summed up congressional optimism well: “This gives it momentum. This is important. I think we can get it done.” As a result, we expect action to pick up on the Senate side as patent reform advocates take up the President’s call for movement. Given the truncated congressional schedule and politics of some of the issues facing it, the 113th Congress could be quite busy moving legislation during the expected lame duck session after the elections. But whether early or late in the year, we expect many bills to move.

At this time last year, we had anticipated that Congress would get back to writing major legislation, in part because we sensed the American public was looking for action, not rhetoric, after years of legislative gridlock. Moreover, we anticipated that pent-up demand would impel Congress to begin legislating again. With the 112th Congress having passed so few bills—a total of only 283, with only 81 enacted by the end of 2011—we expected more legislative action. (By comparison, the 80th “Do Nothing Congress” that President Harry Truman campaigned against in 1948 produced 906 public laws—passing more in its second year (511) than the 112th Congress did over the entirety of two years.) We got that one wrong. By the time Congress adjourned in December 2013, even fewer bills had become law than during even the first session of the 112th Congress—a total of 72 for the entire year.

But Congress had shown it could achieve consensus on major issues, which we think will carry through this year. In December, for example, under the leadership of Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI), Congress reached agreement on a two-year budget bill that, among other things, blunted the impact of sequestration by increasing spending by $63 billion over current law in 2014 and 2015. Earlier this month, under the leadership of Senator Barbara Mikulski (D-MD) and Representative Hal Rogers (R-KY), Congress produced a $1.012 trillion, 1,524-page omnibus spending bill that will fund the government through the end of the fiscal year. Notably, the legislation included full-year funding for each of the twelve appropriations bills, as Congress agreed on even the most controversial bills, such as Labor-HHS, without resorting to a continuing resolution to essentially maintain the status quo. Whereas the December budget agreement had set overall spending levels for the balance of the fiscal year, this massive legislation spelled out where the dollars will be spent over the balance of the fiscal year. As importantly, approval of the legislation with broad, bipartisan support signaled the beginning of a return to “regular order,” a process by which Congress makes policy and spending decisions by moving separate appropriations measures rather than a simple Continuing Resolution that essentially preserves the status quo. Moreover, the opportunity for project-specific funding as part of the legislation should help move bills in the future. With the FY 2014 omnibus appropriations bill having come together, Senate and House appropriators will seek to build on this momentum by endeavoring to move each of the dozen FY 2015 appropriations bills by regular order this year, with project-specific funding providing a helpful measure of “grease” to keep the cogs of legislating move more smoothly.

Contrary to the skeptics, we don’t think the Ryan-Murray budget bill and ensuing Rogers-Mikulski omnibus appropriations bill represented a “one-off” effort that will soon be forgotten as partisan tensions in an election year get in the way of finding common ground. In recent years, we have come to expect partisan gridlock to stand in the way of legislating, with the specter of government shutdowns and debt defaults constantly looming. But split control is not fatal.

In 1996, for example, two years after the Republican Revolution of 1994, with Republicans in control of both houses of Congress, President Clinton signed into law the Telecommunications Act of 1996, which deregulated and reformed communications policy provisions first enacted during the New Deal, after the legislation cleared Congress with overwhelming bipartisan support. After vetoing the first two Republican efforts to revamp the federal welfare system, President Clinton also signed into law the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, which had passed with strong bipartisan majorities in both chambers (78-21 in the Senate and 328-101 in the House). In 2000, President Clinton persuaded Congress to extend Permanent Normal Trade Relations to the People’s Republic of China, with strong bipartisan support in the Senate (though with only limited Democratic support in the House). (By comparison, with President Obama having asked Congress to extend Trade Promotion Authority, which lapsed in 2007, he will need broad Republican support in both houses to prevail.)

More recently, we saw glimmers of the process again at work in the 112th Congress, which adopted and sent to the President:

  • A major surface transportation bill to support highway construction and mass transit projects.
  • The RESTORE the Gulf Coast States Act of 2012 to allocate billions of dollars in Clean Water Act fines from the Deepwater Horizon spill to restore the environment and the economic health of the Gulf Coast region.
  • The FAA Modernization and Reform Act, which provided the agency with $63.4 billion through 2015, including approximately $11 billion to fund the agency’s Next Generation air traffic control system.
  • Legislation to address the fiscal cliff and staved off a massive increase in middle class taxes.

What drives our sense of optimism now? First, given the electoral stakes in 2014 and the potential for lingering fallout from the government shutdown, Republicans in particular will want to demonstrate that they are capable of governing both by eschewing another shutdown and by moving legislation that can be signed into law. More generally, congressional incumbents need to show they can make some progress on the key issues confronting our nation before the November elections. A recent Washington Post-ABC News poll found that only 16% of Americans approve of the job Congress is doing (while the President’s approval stood at only 46%). The pollsters found “anti-incumbency near the almost 25-year high it hit in October, with just 27 percent inclined to re-elect their representative in Congress. . . . And while the Republican Party holds a crucial 7-point lead over the Democrats in trust to handle the economy, it also has problems of its own, on empathy, helping the middle class and related issues such as raising the minimum wage and extending unemployment benefits.” Republicans will try to demonstrate they have solutions this year to build public confidence for complete GOP control of Congress after this election. House Republicans will undoubtedly continue to approve legislation that will die in the Senate, such as efforts to block the President from advancing his climate change agenda, and Senate Republicans will try to force vulnerable Democrats to take tough votes. In addition, both parties will seek to force votes on “message” bills and amendments. But these partisan initiatives should not ultimately derail efforts to move bipartisan legislation forward.

Second, much needs to be done to boost the economy and address the concerns of the American public, including measures aimed at addressing income inequality. The President hadn’t been alone in talking about the subject last night. Senators Marco Rubio (R-FL), Rand Paul (R-KY), and Mike Lee (R-UT), as well as Representative Paul Ryan (R-WI), all have made important speeches focusing on the subject. They have different ideas than the President about how to address the issue, but surely there are areas on which they can find common ground to address the needs of the people who elected them.

Finally, beyond the high-profile, partisan issues, such as defunding Obamacare and mandating approval of the Keystone XL pipeline, a host of major issues are now teed up for Congress to address. As the leaders of the Budget and Appropriations Committees have shown recently, Congress is capable of getting big things done. With the Second Session of the 113th Congress now underway, we think they will confound the skeptics by doing so.

FUNDING THE GOVERNMENT AND THE DEBT CEILING

With the President having signed into law the comprehensive appropriations legislation that cleared Congress two weeks ago, we believe the risk that the government will be shut down again this year has been eliminated. Congress has not yet addressed the debt ceiling, but we expect it will further increase the debt limit by a set dollar amount (or will do the equivalent by “suspending” it through 2014, as it did twice last year, at which time it will be re-set at a new, higher amount). With the debt limit now suspended through February 7, the Treasury Department will soon need to take “extraordinary measures” in order to make payments beyond that day. The Secretary of the Treasury recently warned Congress that the Treasury Department’s ability to take these measures is likely to be exhausted by the end of February. The potential debate comes at a particularly difficult time for the Treasury Department, which faces substantial cash outlays in February and March, including payment of tax refunds, but doesn’t see substantial infusions of cash until the second half of April, as tax receipts arrive.

Notwithstanding ongoing discussions among Republican legislators about tying extraneous measures to the debt ceiling legislation in moving legislation in the next few weeks, such as a provision mandating approval of the Keystone XL pipeline, we expect Congress to eventually provide the Treasury Department with the authority to continue borrowing into next year. In the end, we don’t expect Republicans ultimately to insist on controversial extraneous amendments that could threaten to trigger a default on the debt. In our view, the question isn’t whether Congress will act, but how soon.

IMMIGRATION REFORM

In our State of the Union Analysis last year, we expressed the view that “congressional action on one or more bipartisan bills on comprehensive immigration reform is a virtual certainty in 2013. Whether this effort will result in a new law this year, however, is another matter altogether.” We noted that pitfalls could arise in either chamber. They of course did, but the Senate was able to overcome them and approve a comprehensive bill last July by a strong, bipartisan vote of 68-32. Now, we are beginning to see the outlines of a path by which the House could address important aspects of immigration reform and both could work together to get legislation to the Rose Garden by the end of the year.

We’ve been down this road before, but have reached a series of dead ends over the past decade. Building on the efforts of Senators John McCain (R-AZ) and Ted Kennedy (D-MA) in 2005, for example, Majority Leader Harry Reid (D-NV) introduced a comprehensive immigration reform bill in 2007 crafted by a “Gang of 12” Senators that included Senators McCain and Kennedy, as well as Jon Kyl (R-AZ), Dianne Feinstein (D-CA), and Lindsey Graham (R-SC). President George W. Bush publicly backed the bill, but was unable to persuade a sufficient number of Republicans in the Senate to vote for its passage. Since then, only a few legislative measures addressing immigration issues have moved forward.

Given this history, why do we think Congress can make progress this year? For starters, the American public is ahead of Congress in supporting change. As a result, state legislatures and governors in 45 states, including both blue and red states, have been active in advancing immigration reform measures, with 184 laws and 253 resolutions having been adopted in 2013 alone. Eight states, for example, adopted legislation extending driver’s license eligibility to unauthorized residents and four states expanded in-state tuition for unauthorized immigrant students, bringing to fifteen the number of states that offer in-state tuition through legislation. Eleven states adopted resolutions urging Congress to address comprehensive reform. On Capitol Hill, broad sectors of the business community have continued to push for legislation as a means of promoting economic growth. From employers wanting to hire the best STEM graduates or to those who want to employ farm workers legally, broad consensus exists about the need to do something, and soon. In her remarks, Representative McMorris Rodgers said: “And yes, it’s time to honor our history of legal immigration. We’re working on a step-by-step solution to immigration reform by first securing our borders and making sure America will always attract the best, brightest, and hardest working from around the world.”

In his State of the Union Address last year, President Obama reiterated the broad principles that he believes should guide the debate in achieving what he described as “real reform” to current law:

“[S]trong border security, [building] on the progress my Administration has already made—putting more boots on the southern border than at any time in our history, and reducing illegal crossings to their lowest levels in 40 years . . . a responsible pathway to earned citizenship—a path that includes passing a background check, paying taxes and a meaningful penalty, learning English, and going to the back of the line behind the folks trying to come here legally . . . [and] fixing the legal immigration system to cut waiting periods, reduce bureaucracy, and attract the highly-skilled entrepreneurs and engineers that will help create jobs and grow our economy.”

Last night, the President called on the House to move a bill, but he did not get into specifics as he had last year. Instead, he said in relevant part:

“[I]f we’re serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, law enforcement—and fix our broken immigration system. Republicans and Democrats in the Senate have acted. And I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams—to study, invent, contribute to our culture—they make our country a more attractive place for businesses to locate and create jobs for everybody. So let’s get immigration reform done this year.”

Last year, House committees produced five separate immigration reform bills, none of which has yet to be considered by the full House and none of which addresses the most polarizing issue separating the two political parties: determining a pathway to citizenship. The House Republican leadership has ruled out the “comprehensive” Senate bill, including the Senate’s approach to resolving the citizenship issue: a minimum 13-year pathway to citizenship for most current undocumented immigrants. But talks are underway to find alternative ways to address the issue, and potentially linking it with border security measures that would gain bipartisan support.

Because it triggers extremely different views and ultimately touches every American of every political persuasion, immigration reform will be politically hard to achieve. Nonetheless, we remain optimistic that Congress will approve immigration reform legislation this year.

TAX POLICY

In his speech last night, President Obama again called on Congress to enact comprehensive corporate tax reform legislation that would raise revenue for infrastructure spending and would “close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home.” In addition, the President announced he will direct the Treasury Department to create a new retirement savings product called a “MyRA,” which he billed as a starter retirement savings account that “encourages folks to build a nest egg.” The White House has indicated that the program will be offered through a Roth IRA and backed by the government, similar to savings bonds.

Last year, the tax writing committees discussed the need for comprehensive tax reform in a multitude of hearings. Ultimately, though, the committees had little to show by way of tangible legislation, with just three minor tax bills enacted into law. Instead, 2013 was more notable for the tax reform “road show” of Chairmen Dave Camp (R-MI) and Max Baucus (D-MT), as well as the formation of various tax working groups, the release of wide ranging tax reform options papers and specific working drafts. As Chairman Baucus departs for Beijing, the Finance Committee will be chaired by Senator Ron Wyden, who, like Chairman Baucus, has a deep interest in tax reform and a history of working in a bipartisan and bicameral manner to achieve results.

Ways and Means Committee Chairman Camp still intends to introduce and mark up tax reform legislation in the coming months, but the path forward is uncertain due to deep ideological differences over fundamental goals. Republicans continue to want to restructure the Internal Revenue Code on a revenue neutral basis, while Democrats would like to use tax reform to raise revenue for other priorities, including infrastructure spending and deficit reduction.

While discussions will no doubt continue on tax reform, the Senate is likely to focus on and quickly move legislation resuscitating expired tax “extenders”—the litany of provisions that expire on a year-to-year basis affecting both individuals and corporations. These include, for example, the R & D tax credit, the active financing exception, and a variety of energy credits. Chairman Camp has not yet indicated that he is prepared to take up tax extender legislation, but there will be increased pressure to do so as the year progresses.

FINANCIAL SERVICES

The President highlighted various economic growth and job creation success stories in struggling communities such as Detroit. His remarks follow the Promise Zones Initiative he announced in his address last year. Of note, on January 9, 2014, the Obama Administration announced the first five of twenty “Promise Zones,” located in San Antonio, Philadelphia, Los Angeles, Southeastern Kentucky, and the Choctaw Nation of Oklahoma.

The President did not mention financial services reform or changes to the Dodd-Frank Act, which we read to suggest that the regulatory agencies will likely move forward to implement without further revisions to the underlying law. By contrast, the President voiced support for housing finance reform and encouraged Congress to “send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive.” As stated in his SOTU Fact Sheet released by the White House, President Obama’s goals for housing reform include:

  • Putting private capital “at the center of the housing finance system.
  • Ending the GSE’s “failed business model.”
  • Ensuring access to responsible mortgages, such as the 30-year fixed rate mortgage.
  • Supporting “affordability” and access to affordable rental housing.

The Administration has been working with Senate Banking Committee on legislation to reform the Government-Sponsored Enterprises (GSEs). Additionally, there are already competing bills in the House. House Financial Services Committee Chairman Hensarling’s GSE reform bill, the PATH Act (H.R. 2767), differs significantly from the recently announced GSE reform proposal by Democratic Representatives John Delaney (D-MD), John Carney (D-DE), and Jim Himes (D-CT). According to Michael Stegman, Treasury Secretary for Housing Finance Policy, “[w]e are hopeful that comprehensive, bipartisan housing finance reform is achievable this year.”

HEALTH POLICY

Not surprisingly, the President did not dwell on health policy in his remarks, other than to emphasize what he sees as the parts that are working and encouraging Republicans to work with him to address problems that have emerged rather than passing yet-another Obamacare repeal bill. After the disastrous roll-out of the federal health insurance exchange in late 2013, an experience that was shared by some of the state exchanges, the Obama Administration will be working hard to ensure that technical improvements to the data systems supporting exchange operations continue into the remainder of the initial open enrollment period that ends March 31, 2014. The Administration also will continue its push for the enrollment in the exchanges of healthy young adults, in order that the risk incurred by plans with large numbers of chronically ill older adult enrollees can be adequately assumed. Final enrollment figures for the open enrollment period will be available in early spring and are very likely to be well under the most conservative initial estimates. The Administration has declared that the exchanges are succeeding in reducing the numbers of uninsured, but these pronouncements have been countered by analyses that show that others have lost coverage due, for example, to decisions employers have made to cease providing health insurance for their part-time workforce.

Congressional Democrats will continue to block efforts to undo the fundamental components of Obamacare by “repeal-and-replace” legislation, although the Administration may allow further slippage in some of the Affordable Care Act’s key implementation dates (e.g., including rigorous enforcement of the individual mandate—or even temporary relief from penalties—and the January 2015 start of the employer mandate). In addition, the President’s focus on generating new manufacturing and job creation by bringing jobs home could bolster the medical device tax repeal effort, which enjoys significant bipartisan support.

The Supreme Court will rule on whether private companies owned by those who have religious objections to certain forms of contraception coverage required under the ACA can eliminate coverage for those services from the plans offered to their employees. There also are other cases under appeal in the lower courts that challenge the provision of subsidies to eligible individuals obtaining insurance through the federal exchanges.

Congress has pursued the opportunity for a bipartisan and bicameral solution to the lingering impact of the Sustainable Growth Rate (SGR) formula on physician payments by tying future compensation to physicians’ achievement of certain quality metrics. Committee leaders are struggling to identify sufficient offsets to cover the cost of comprehensive SGR reform. If agreement isn’t reached by March 31, Congress will need to adopt another short-term “fix.” The Centers for Medicare and Medicaid Services (CMS) also will be closely tracking the initial impact of various payment reform demonstrations that it is funding on actual costs of care, looking for models to implement nationwide to reduce Medicare and Medicaid costs, particularly for those with multiple chronic conditions.

GOVERNING VIA EXECUTIVE ORDER

In the coming year, as in prior years, the President is likely to put pens to work issuing Executive Orders as a means of addressing issues Congress will not or cannot address. In 2012, for example, he issued an Executive Order when Congress did not approve the DREAM Act. Last year, he issued an Executive Order on cyber security that called for the creation of voluntary standards to enhance the security of critical infrastructure and improve the government’s ability to deter attacks, while again urging Congress to adopt a more comprehensive legislative approach. In his State of the Union Address last year, he was quite explicit in saying that if Congress did not address climate change, he would “direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.” In June, with Congress having not acted, he directed the Environmental Protection Agency to begin implementing major elements of his “Climate Action Plan” by setting tough new limits on CO2 emissions by new power plants and by working with state regulatory authorities to cut emissions from existing power plants.

In advance of the speech yesterday, the White House announced that the President intended to work with Congress to pass legislation that would increase the minimum wage and then index it to inflation. During his address, the President made it clear that he would soon issue an Executive Order to increase the minimum wage to $10.10 for individuals working on new federal contracts for services.

Last night, in addition to making the minimum wage announcement, he also made it clear that he intends to continue issuing Executive Orders to advance his agenda this year, while offering a willingness to work with Congress. For example, he said:

“I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA . . . a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.”

In those areas in which the President intends to move by Executive Order either directly or by directing agency action, such as EPA’s efforts to advance his climate change initiative, we are skeptical that his doing so will lead Congress to act. As a result, the courts—rather than Congress—will serve as the check on the scope of the President’s ability to act unilaterally.

In the end, we don’t expect these unilateral initiatives to ultimately poison the atmosphere and block action on measures where the two parties see the value in working together to get something done for the good of the country. In the end, Democrats and Republicans can find common ground on many issues, and the President will act unilaterally where they can’t do so by producing legislation.

THE AMERICAN VOTING EXPERIENCE

In his State of the Union Address last year, the President announced that he would be establishing a commission with a mandate “to identify non-partisan ways to shorten lines at polling places, promote the efficient conduct of elections, and provide better access to the polls for all voters.” In our State of the Union Analysis last year, we noted with pride that the President had appointed our partner, Ben Ginsberg, as co-chair of the commission. Last Wednesday, the commission presented its report to the President. The commission unanimously concluded that “problems that hinder the efficient administration of elections are both identifiable and solvable,” and put forward recommendations to ensure that no voter should have to wait more than 30 minutes to cast a ballot.

Last night, the President said in part:

“Citizenship means standing up for everyone’s right to vote. Last year, part of the Voting Rights Act was weakened, but conservative Republicans and liberal Democrats are working together to strengthen it. And the bipartisan commission I appointed, chaired by my campaign lawyer and Governor Romney's campaign lawyer, came together and have offered reforms so that no one has to wait more than a half hour to vote. Let’s support these efforts.”

In future elections, we hope that the commission’s recommendations have been implemented, the American voting experience will be improved, and more of our fellow citizens will be able to participate in a process essential to democracy.

 

Topics:  Barack Obama, Climate Change, Debt Collection, Energy Efficiency, Energy Policy, Federal Budget, Foreign Policy, Healthcare, Immigration Reform, MyRA, Natural Gas, Renewable Energy, State of the Union, Tax Reform

Published In: Elections & Politics Updates, Finance & Banking Updates, Health Updates, Immigration Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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