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September 29, 2023

What to expect in Washington (September 29)

Congress continued to take steps toward a continuing resolution (CR) to extend government funding past midnight on Saturday, September 30, but some members said a shutdown of some sort seemed inevitable. Rep. Tim Burchett (R-TN), one of roughly 10 "never-CR" House members, said on Fox Business September 28, "I think we're headed towards a shutdown. I really do. I don't know how long it is. They usually average two to three days. We have had several in the last few decades. So, it won't surprise me if that happens this weekend." As has been prognosticated intermittently for weeks, the potential for an agreement may come down to border security, which House Speaker Kevin McCarthy (R-CA) continues to press as an issue of wide support, and which is the subject of a bipartisan amendment under development in the Senate.

The House is expected to pivot to a CR proposal today. Released overnight, it funds the government through October 31, includes border security provisions, and establishes a 16-member "Fiscal Commission" that must produce legislation and vote on a final report by November 15, 2024. The terms of the CR are expected to be amended to adhere to the FY2022 top-line spending level of $1.471 trillion.

The Senate Thursday cleared another procedural hurdle (76-22) related to the CR (H.R. 3935) that extends government funding through November 17, provides about $6 billion each for Ukraine and disaster funding, and extends the Federal Aviation Administration (FAA) authorization and aviation taxes through the end of the year. Absent an agreement, the first cloture vote would occur on Saturday, September 30, according to the Periodical Press Gallery. (Senator Rand Paul (R-KY) has said he won't consent to expediting consideration of a CR with Ukraine funding.) The Senate group negotiating a border security amendment includes leadership-level members and dealmakers like John Thune (R-SD), Susan Collins (R-ME), John Cornyn (R-TX), and Kyrsten Sinema (I-AZ).

Both the House and Senate efforts are nowhere near completion as Congress heads into the weekend, staying in session. Questions remain over whether the House can pass a bill and, if so, how differences with the Senate over Ukraine, border, spending, and other issues can be bridged, unless the border issue somehow supersedes all other objections. Also looming but receiving less attention than government funding are other important September 30 deadlines such as reauthorization of the FAA and related aviation excise taxes (such as the ticket tax) as well as agricultural programs that would be reauthorized by the pending farm bill.

The New York Times reported, "Mr. McCarthy's political play — along with broad agreement that the situation at the nation's southern border has grown untenable — has spurred bipartisan talks on Capitol Hill about adding new immigration measures to government funding legislation. Some lawmakers now say it is likely that any deal to end what appears to be an inevitable shutdown on Saturday at midnight will eventually have to include some money or policy provisions to address the border."

The Wall Street Journal: "McCarthy said concerns among both Democrats and Republicans about the pace of migrants crossing the U.S.-Mexican border could provide enough common ground for them to work out a short-term deal to keep the government open past Sept. 30, when the fiscal year ends. He said he had spoken with some Democratic senators about border enforcement as recently as Thursday morning. 'They want something on the border. They're working on it,' he said of Democrat senators. 'And so I think there's an opportunity here. We know we have to keep the government funded. We know we have a concern about the border — both sides.' Asked directly by a reporter if he expects a shutdown, McCarthy said: 'No, I'm saying we work through this and get it done.'"

The Washington Post: "By Thursday evening, Senate Republicans were considering an amendment to the continuing resolution that would include $6 billion in funding for border security — but no new immigration policy — according to two Republican aides who spoke on the condition of anonymity to discuss negotiations. Two bipartisan sets of senators — Sens. Chris Murphy (D-Conn.) and James Lankford (R-Okla.), and [Collins], Thom Tillis (R-N.C.) and Sinema — appeared to be involved in the talks … 'There's not a consensus position amongst Republicans as to what immigration changes they want,' Murphy said. 'Some want funding, some want policy, some want big policy, some want small policy. It's very hard to work out all of those differences and the differences with Democrats between now and Saturday.'"

Alternatives — There has also been speculation for weeks about an end-around Speaker McCarthy's dilemma of having his Speakership threatened if he aligns with Democrats, which may be the only way to get a CR out of the House. Most of the focus has been on a discharge petition by which a majority can bring a measure to the floor without leadership, under certain parameters.

Politico Huddle September 27 said Democrats have as options, if Republican leadership refuses to bring up the Senate bill, or any bipartisan stopgap to keep the government open, defeating the previous question and a discharge petition. The report said, "A discharge petition comes with slightly more complications though, as it would require 218 signatures and then seven days to ripen before lawmakers could use the measure to force a floor vote. Defeating the previous question, while a complicated concept, only requires a key vote on the floor and no waiting period." It said, "The previous question … comes up before a rules resolution on the floor. While defeating a rule blocks GOP leaders from doing something, defeating the previous question allows the naysayers to move forward with their own legislation … If Democrats can convince enough Republicans to vote no on the previous question, it leaves the rule live on the floor and open to amendment and further action."

Asked September 27 if he had talked with House Democratic Leader Hakeem Jeffries (D-NY) about a discharge petition or something the House can send over to stave off a shutdown, Senate Majority Leader Chuck Schumer (D-NY) said, "I've talked to Leader Jeffries two or three times a day, and we're figuring out the best strategy to get the House to behave in a bipartisan manner."

There continues to be speculation about conservatives pushing a motion to vacate the speakership.

Shutdown effects — IRS September 28 released a long-awaited "FY2024 Lapse Appropriations Contingency Plan," stating that about a third of employees are designated as "excepted/exempt" and would continue working during a shutdown (30,063 employees or 33.4% of the employee population of 89,944), with the remainder furloughed. The plan said, "In fiscal year 2024, the IRS does have available multi-year funding under the Inflation Reduction Act … and will use that funding for the activities outlined in this plan. Employees working on excepted and exempt activities during a lapse in appropriations will be paid using IRA resources."

Further, "if the IRS is confronted by a lapse in appropriations during the Tax Year 2023 filing season, the IRS will continue return processing activities to the extent necessary to protect Government property, to include tax revenue, maintain the integrity of the federal tax collection process. The IRS will also continue activities to implement the green energy credit provisions of the Inflation Reduction Act, activities that implement the IRS Inflation Reduction Act Strategic Operating Plan and the Direct File pilot program."

The Department of Health and Human Services' plan would furlough about 42% of staff.

At the House Financial Services Committee on September 27, SEC Chairman Gary Gensler testified that in the event of a government shutdown, between 90% and 93% of the SEC's staff would be furloughed, leaving the SEC operating with a "skeletal" staff of about 400 of its total 4,600 employees. "The public won't have somebody in full force overseeing the market," and examinations, enforcement and disclosure review would effectively stop, Gensler said. Potential whistleblowers could "still file a tip, complaint and referral … [but] there won't be people on the other side to really review it and investigate it … If there were a market event … senior leadership would be there. But again, we'd be down to a skeletal staff."

Gensler said the market for initial public offerings (IPOs) "would be largely shut down with the government," and firms already in the process of going public would be in a "subliminal state where they cannot access the markets." He said that in some cases, existing public companies would not be able to make new offerings because the SEC will lack the staff necessary to process the paperwork. "The public won't have somebody, really at full force, overseeing the market or companies that want to go public," he said. Gensler said that during a shutdown, the SEC "cannot finalize rules," but public comment files will stay open, though staff would not read them as they come in.

According to its 2021 shutdown contingency plan, the Commodities and Futures Trading Commission (CFTC) would furlough almost all of its employees and cease oversight, enforcement and regulation. Agencies like the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) would continue as normal because they are funded by industry fees instead of congressional appropriations. Monthly subsidies for public housing and low-income housing aid would be at risk during a shutdown, Reuters reported, but the Federal Housing Administration (FHA) would continue to back insured mortgages, and Ginnie Mae would continue to back the secondary mortgage market.

Tax — During the September 28 Senate Finance Committee hearing to consider nominations including Marjorie Rollinson to be Chief Counsel for the IRS and an Assistant General Counsel in the Department of the Treasury, Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) agreed that the IRS Chief Counsel position will involve significant important work in implementing the Inflation Reduction Act (IRA). Chairman Wyden said, "Having a confirmed Chief Counsel will ensure this work is carried out to the letter of the law." Ranking Member Crapo was critical, saying, "Since the bill's rushed and strictly partisan passage, the Biden Administration has resorted to unilaterally walking back and diluting a number of key provisions. The IRS has simply disregarded statutory deadlines … including enhanced information reporting and EV tax credits … Other provisions have gone into effect without necessary guidance."

International tax was another focus of Republicans. Ranking Member Crapo asserted the Administration "invited foreign governments to pursue new discriminatory taxes against our companies in the form of the Undertaxed Profits Rule (UTPR), a surtax which also likely violates our existing bilateral tax treaties. As a collateral consequence, Treasury must now exhaust precious resources issuing regulations to attempt to mitigate the double taxation it created by unilaterally committing to a global tax deal that undermines U.S. interests." Senator Todd Young (R-IN) said Treasury has received pushback regarding the Administration's handling of OECD negotiations including the UTPR and suggested the failure to secure favorable treatment of nonrefundable tax credits, such as the R&D credit, under the proposed Pillar Two regime could act as a disincentive for companies looking to make investments in R&D activities in the United States.

Senator Ben Cardin (D-MD) September 27 accepted the role of Chair of the Senate Foreign Relations Committee, previously held by Senator Bob Menendez (D-NJ). The Committee has jurisdiction over tax treaties and in July approved a bill authorizing the US to reach a tax agreement with Taiwan.

Health — The House Ways and Means Committee September 28 approved the Bipartisan HSA Improvement Act (H.R. 5688) and the HSA Modernization Act (H.R. 5687).

The IRS and Treasury Department September 27 issued proposed regulations (REG-115559-23) on how to report liability for the IRC Section 5000D excise tax imposed on manufacturers, producers or importers of certain designated (negotiation eligible) drugs sold during the applicable statutory period.

Banking — By a vote of 14-9, the Senate Banking Committee on Wednesday, September 27 approved the Secure and Fair Enforcement Regulation (SAFER) Banking Act (S. 2860), which would allow banks to provide financial services to cannabis businesses without fear of sanctions from federal banking regulators. All of the committee's Democrats, save for Sen. Raphael Warnock (GA), supported the bill, along with Senator Sinema. Three Republicans voted for the bill: Sens. Steve Daines (R-MT), Kevin Cramer (R-ND) and Cynthia Lummis (R-WY). In remarks on the Senate floor, Majority Leader Schumer called the markup "a huge step forward" and promised to "bring SAFER Banking to the floor for a vote as quickly as possible."


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