After Months of Inactivity, a Frenzied Washington This Week
There are many adages that accurately describe politics in Washington, DC. Where you stand depends on where you sit. If you want a friend, get a dog. If you can’t stand the heat, get out of the kitchen. Though each was borne out of some kernel of fact, there is no truth about our nation’s capital as inescapable as this: Nothing motivates Congress to act like the threat of spending the holidays here. Facing the end of a year in which they controlled both chambers of Congress and the White House but have thus far had little show for it, many Republicans believe that enactment of tax reform is existential. With Thanksgiving and Christmas just around the corner but no significant legislative movement on the bill to speak of, Republicans on Capitol Hill had a terrifically productive week.
The House of Representatives today passed, along party lines, a very significant tax reform bill. The legislation would create four individual tax brackets, maintaining a 39.6% rate for the highest-income Americans, almost double the standard deduction, make quite a few changes to popular deductions like the state and local tax and home mortgage interest deductions, and would lower the corporate tax rate to 20%. Though 13 Republican members of the House defected and opposed the measure, passage of the bill through the House is inarguably a huge victory for the Republican Party. House Democrats, all of whom voted “no” on the bill, also viewed passage of the legislation as a victory. When the vote tally crossed the majority threshold and passage was assured, many Democrats began cheering and waving goodbye to their GOP colleagues, insinuating that by passing a tax reform package some pundits have argued benefits corporations and wealthy Americans more than middle-class and lower-income Americans, with today’s vote, House Republicans are doomed to losing their majority in next year’s mid-term elections.
Despite today’s milestone, the path forward for tax reform remains unclear. To comply with somewhat arcane Senate rules that would allow a tax reform bill to pass that chamber with only Republican support by limiting the bill’s overall impact the deficit, the Senate tax bill is quite a bit different than its House companion. Unlike the House bill, for example, the Senate bill would repeal the individual mandate under the Affordable Care Act – a politically divisive issue that could threaten its enactment. The decision to add the measure to the Senate bill was made in part because doing so reduced the cost of the total package by roughly $300 billion. House leaders, unburdened by the Senate rules, were happy not to have had to include such a political hot potato in their bill. The Senate bill would also make the individual tax rate reductions included in the bill temporary; to comply with Senate rules and reduce the overall cost of the package, they would expire in 2025. President Trump and House Republicans have both been on record with their preference that the reductions be permanent.
It also isn’t entirely certain that Senate Majority Leader Mitch McConnell (R-KY), who can afford to lose only two of his own on this vote, has the votes within his own conference to pass his version of the tax reform bill. Senator Ron Johnson (R-WI) this week announced his opposition to the bill because he believes the current draft disproportionately benefits corporations over small businesses. Senators Susan Collins (R-ME), John McCain (R-AZ), and Bob Corker (R-TN) have also voiced concerns, but none have yet said definitively whether they will oppose the measure. Even presuming the Senate does pass its bill, the two chambers of Congress would still need to negotiate the differences between their two respective bills. Presuming they did, both chambers would then need to vote on the negotiated text before a tax reform package would be sent to the White House for President Trump’s signature.
Beyond tax reform, the White House had a good week on other fronts, as well. The Senate today confirmed, by a vote of 54-43, Joseph Otting to be the next Comptroller of the Currency. The former CEO of OneWest Bank, Otting is the latest in a series of Trump appointees who have taken the helm at the financial regulatory agencies over the last several months. Like his colleagues, Otting will be tasked with implementing the administration’s deregulatory agenda.
President Trump will also have the opportunity to shape the Consumer Financial Protection Bureau (CFPB), an entity created by the Dodd-Frank Act designed to spearhead consumer protection supervision and regulation across the financial services industry. Current Director Richard Cordray, an Obama-era appointee, announced this week that he would leave the agency by the end of November. Press reports this evening suggest that President Trump will tap Office of Management and Budget Director Mick Mulvaney, who has described the CFPB in the pas as “one of the most offensive concepts” in government and a “sad, sick joke” as the Interim Director of the agency while the White House considers a nominee for Cordray’s permanent successor. There is little question that Mulvaney, who as a member of the conservative House Freedom Caucus emphatically rejected any compromises on government spending during his tenure as a member of Congress, which in large part led to the government shutdown of 2013, is willing to assert himself to pursue his ideological policies. Clearly, change is on the horizon at the Bureau.
Lastly, the current government spending resolution expires on December 8th. House Speaker Paul Ryan (R-WI) this week floated the possibility of passing another temporary, stopgap spending resolution that would allow the government to remain open through the beginning of 2018, effectively punting what could be a tough vote on an omnibus spending bill until January or February of next year. There was little pushback from within the Republican ranks to this trial balloon, which likely was a huge relief to the Speaker. The President continues to insist that Congress finish its work on tax reform before Christmas – an ambitious timeline that will require all of Ryan’s attention for the next six weeks.