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February 26, 2024

What to expect in Washington (February 26)

The Senate returns from the President's Day recess today (February 26), the House is back on Wednesday (February 28), and a partial government shutdown looms this weekend when some appropriations run out after March 1 (the rest of government funding expires March 8). There has been discussion of a continuing resolution (CR) that could last one week, until mid-March, or through March 22, according to various reports. President Biden has invited House Speaker Mike Johnson (R-LA), Democratic leader Hakeem Jeffries (D-NY), Senate Majority Leader Chuck Schumer (D-NY), and Republican leader Mitch McConnell (R-KY) to the White House on Tuesday to discuss the issue and the national security supplemental.

Senate Appropriations Chair Patty Murray (D-WA) and House Appropriations Chair Kay Granger (R-TX) struck a deal on the totals for the dozen annual spending bills at the end of January, but there are policy issues to be sorted out still, including on issues like the Women, Infants and Children (WIC) nutrition program. House Republicans held a conference call Friday night. Politico reported that Speaker Johnson expressed confidence in moving the first tranche of Military Construction-VA, Agriculture, Transportation-HUD, and Energy & Water appropriations bills, but acknowledged a partial government shutdown was possible and said disunity in the GOP conference, as demonstrated by failed floor rule votes, has potentially given Senate Democratic leaders the upper hand.

"House Speaker Mike Johnson (La.) told members of his Republican conference Friday night that some elements of the spending bills lawmakers will consider are 'not home runs and grand slams' … but carried plenty of wins on policy and spending cuts with which the GOP should be pleased," the Washington Post reported February 23. "I don't think anybody on this call thinks that we're going to be able to use the appropriations process to fundamentally remake major areas of policy … " Johnson said. "But we will be able to secure a number of policy victories, both in bill text and report language, or other provisions and cuts that severely undermine the [Biden] administration's programs and objectives. These bills will be littered with singles and doubles that we should be proud of, especially in our small majority."

Some conservatives want a longer-term CR to allow the Fiscal Responsibility Act (FRA) 1% spending cut mechanism to trigger on April 30. On Fox News February 23, Freedom Caucus member Chip Roy (R-TX) said, "Right now, Republicans are holding the golden ticket in their hand, that if we will just pass a CR for the remainder of the year, we can trigger a 10% cut to nondefense discretionary spending … Right now, we literally have in our hand, because of the hard work we did last year putting caps in place, the caps will trigger a 10% cut to that massive bureaucracy that Biden has been siccing on the American people, the very bureaucracy that President Trump rightfully is starting to run against. So, Republicans should set the stage for the president. We should put that continuing resolution in place, trigger the caps."

Tax - Of course, appropriations legislation is eyed as a possible legislative vehicle for the House-passed $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). Senate Finance Committee Republicans have called for a markup of the bill, which could be amended in Committee or on the floor, and possibly be appended to appropriations legislation that is required to meet government funding deadlines. Punchbowl News reported last night that Finance Ranking member "Crapo wants changes, but bill backers aren't eager to open the deal to significant edits. The most vocal GOP senators opposing the bill have been Finance members, while a couple of publicly declared 'yes' votes are not. That dynamic underscores two realities. Tax bill supporters may be right to feel optimistic that if the bill gets to the floor, it could pass with Republican support. And the top Senate GOP tax writer's opposition is still a powerful roadblock."

Regarding the potential for a CR to delay action on appropriations legislation, Morning Tax said today, "Those extra couple weeks could give Democrats and Republicans in the Senate the time they need to work the issues that GOP senators have with the bill, which would then allow them to attach it to a more robust spending package later in March. Or maybe Democrats and Republicans come to an agreement on amendment votes that allows the bill a standalone vote in the Senate. Or perhaps Democrats get tired of the gridlock in mid- to late-March, and just seek to attach the tax bill to a spending measure and dare Republicans to stand in the way."

Supplemental - On another related topic, the $95 billion national security supplemental funding bill for Ukraine, Israel, and other priorities that passed the Senate prior to the President's Day recess, an article in the February 22 Wall Street Journal (WSJ) rekindled speculation about a discharge petition, the seldom-used process by which a majority can bring a measure to the floor without leadership, under strict parameters. "Rep. Jim McGovern of Massachusetts, the top-ranking Democrat on the House Rules Committee, quietly filed a resolution on Feb. 15 for consideration of a bill 'to advance responsible policies' — a possible vehicle to force a vote on Ukraine aid," the story said. "The McGovern resolution started the clock on the ability to gather signatures on a new discharge petition to force a vote on the bipartisan, Senate-passed foreign-aid package if Johnson continues to refuse to put it on the floor for an up-or-down vote."

Energy tax — The projected cost of Inflation Reduction Act (IRA) energy provisions, including tax incentives, has grown since its August 2022 enactment, to more than $650 billion as estimated by the Joint Committee on Taxation (JCT) in May 2023, at least $700 billion in the latest Congressional Budget Office (CBO) baseline, and close to or exceeding $1 trillion in various private sector estimates. The escalating revenue potential has made the provisions even more of a target for Republicans to use as a revenue offset for other priorities. The party still holds skepticism over clean energy efforts, but some of the credits are supported by Republicans and there are significant projects in red states. Former President Trump has criticized EV credits, creating the expectation he may seek to roll back IRA credits and tighten guidance.

The New York Times reported February 19, "Former President Donald J. Trump, the front-runner for the Republican nomination, has repeatedly attacked central elements of the Inflation Reduction Act, including tax credits for purchasing electric vehicles. As a result, corporate executives have begun facing questions in recent weeks about the possibility that the legislation could be rolled back or changed in ways that could affect their clean energy investment decisions." The report noted that Republicans have unsuccessfully tried to repeal some of the law — repeal of some energy credits was included in the Limit, Save, Grow debt limit bill, and Build It in America Act, the GOP precursor to the current bipartisan tax bill — "but a Republican administration would most likely try to influence the programs in other ways, such as through regulatory changes that would not require an act of Congress."

In a widely reported speech last year, former President Trump said, "You can be loyal to American labor, or you can be loyal to the environmental lunatics, but you can't really be loyal to both. It's one or the other."

Politico reported February 21, "hundreds of conservatives, including many who worked in the last Trump administration, have penned a 900-page memo, dubbed Project 2025, to preview some of the actions Trump could take if returned to the White House. Recommendations include dismantling a carbon capture tax credit — technology many Republicans support because it could allow fossil fuel-burning plants to remain active while also reducing emissions — and gutting a program to assist cash-strapped nuclear reactors — at a time when Republicans are touting nuclear power as an alternative fuel source to oil, gas and coal."

An article in the weekend WSJ described the efforts of other groups backing former President Trump attempting to assemble an "administration in waiting," prepare potential appointees to the executive branch, and craft action plans for federal agencies, including some groups who support "changing the way incentives are provided to solar and wind power companies" and want to stop what they call the Biden administration's "war on American energy."

Congress — Upon reconvening today, Senator Ben Cardin (D-MD) will deliver Washington's Farewell Address, a Senate tradition, and at 5:30 p.m. there is a vote related to the nomination of Jacqueline Becerra to be US District Judge for the Southern District of Florida.

On Tuesday, February 27, the Senate Health, Education, Labor & Pensions Committee will hold votes on nominations including Julie Su to be Secretary of Labor.

On Wednesday, February 28 (10 a.m.), the HELP Committee will hold a hearing on "What Can We Do to Expand Defined Benefit Pension Plans for Workers?"

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For additional information concerning this Alert, please contact:

Washington Council Ernst & Young