Now that the US Congress has resolved the continuing resolution and Zika funding, we look ahead to the anticipated lame-duck session and then to 2017 term. While the exact details of how both of these will play out are dependent on the outcome of the November 2016 elections, there are some broad parameters that should be consistent regardless of the election outcomes and that stakeholders can rely on to start planning now.
In the lame-duck, we expect a large legislative package that would provide comprehensive funding for the federal government through the end of the current fiscal year (September 30, 2017). The commitment to resolve funding for Flint, Michigan, and other water infrastructure funding in the Water Resources Development Act bill will mean that those issues are also addressed, though Congress still needs to determine whether such funding gets rolled into one large bill or rides on its own. Also, either incorporated in one giant omnibus piece of legislation or running alongside the funding bill will be legislation that addresses Medicare and legislation on some tax policy. It is also possible that additional legislation with respect to the fiscal crisis in Puerto Rico could be considered.
The omnibus spending will likely adhere closely to the existing budget caps negotiated by former Speaker John Boehner prior to his retirement. Negotiations will center on which policy riders to include, with the exact nature of those riders heavily dependent on the outcome of the elections. Depending on the outcome of several pending Federal Communications Commission (FCC) proceedings, for instance, the riders could include restrictions on the FCC’s authority over video navigation devices and privacy.
The viability of such riders will also depend on whether current House Speaker Paul Ryan needs Democratic votes to pass the funding legislation. If he does, the final legislation will include fewer policy riders.
Congress may also address a pending increase in premiums for Medicare Part B. If so, we expect that Congress will do so in a manner similar to the last time Congress addressed this problem. Premium increases will be put off and, for purposes of meeting congressional budget rules, the difference will be assumed to be made up later in the budget window. We have no expectation that these future premium increases will actually come to pass. Instead Congress will create another perpetual issue: i.e., an ongoing, continuous need to address Medicare payments to providers.
While broadly analogous to the situation Congress previously confronted regarding Medicare payments to physicians under the sustainable growth rate (SGR) formula, the major difference here is that this package will continue to use its own self-contained offsets, therefore limiting the need to find additional offsetting receipts, which was a perennial problem with the SGR. However, the fact that a large Medicare package will be moving in the lame-duck creates the possibility of a vehicle for other healthcare-related legislation.
We expect that there is a good chance for tax legislation to move in the lame-duck session, starting with legislation that addresses severe shortages in pension plans for mine workers. This legislation was marked up by the Senate Finance Committee in September and creates a vehicle for the consideration of other tax legislation.
In addition to the mine workers’ pension legislation, members of Congress, especially Senate Republicans including Senate Majority Leader Mitch McConnell and Finance Committee Chairman Orin Hatch, have been fairly forward leaning about their willingness to consider proposals to provide longer-term extensions of a series of energy-related tax extenders (section 48 extenders). There is a general understanding that these provisions should have received longer extensions in the 2015 tax extender bill (the PATH Act), but drafting errors resulted in only two-year extensions. However, many other tax extenders also expire at the end of this year. Historical practice has been for Congress to retroactively renew these policies the year after they expire. Congress may find it difficult to provide longer-term extensions for these energy extenders while leaving other tax extenders for next year.
One additional policy that will likely get considerable discussion during the lame-duck session is consideration of the implementing legislation for the Trans-Pacific Partnership (TPP). We believe the odds of congressional passage of TPP during the lame-duck session are extremely low. There are simply too many significant policy differences between Congress and the Obama administration on the final agreement. Differences in opinion on the treatment of biologics and tobacco in the agreement have cost the administration far more GOP votes than it can afford to lose. And these changes did not increase in any significant way the number of Democrats who would vote for the agreement. When factoring in the toxic presidential campaign rhetoric, it would take an unimaginable external policy shock to get TPP enacted into law this year.
No matter which candidate wins the presidential election, there are some key policy issues that will need to be addressed, and there will be significant pressure on policymakers to address other issues as well.
Early in the new year, Congress will need to address the debt limit. The legislation that suspended the application of the debt limit expires in March 2017. The timing, from a cash management perspective, is actually good for the Treasury Department. Most tax refunds will have been paid out while the suspension is in place. In addition, the expiration of the suspension will coincide with the time of year when tax receipts are particularly high and the Treasury Department has significant flexibility in terms of the “extraordinary measures” it can take to operate around the debt limit.
Several major health care programs expire in 2017, including the Children’s Health Insurance Program and other health care extenders. It is quite likely that the debate around these policies will become wrapped up in broader health policy and Affordable Care Act negotiations. High on the list for Democrats and insurance companies is achieving a solution to the restrictions on risk corridor payments.
If tax extenders have not been addressed in the forthcoming lame-duck session, they will need to be addressed in 2017. In addition, both presidential candidates have made infrastructure spending a priority. The tax revenue available to policymakers through international tax reform is considered a highly desirable bucket of money to fund that infrastructure spending. However, we believe that international tax reform alone, despite the increasing pressure on the US international tax system, is not politically viable. This will create significant pressure on policymakers to reach an agreement on reforming a broader swath of business tax policies. This exercise, if successful, would lower the US corporate rate as well as reform the international tax aspects of the US system. In addition, the tax base would be broadened by eliminating tax expenditures and making other revenue-raising changes. Pass-through businesses and high-net-worth individuals would be at a high risk of a net tax increase as a result of such an agreement.
It is quite likely that the next administration will need to make some effort to renegotiate or at least engage with the other TPP countries to address congressional concerns about this agreement and find a path forward on it and the negotiations over the Transatlantic Trade and Investment Partnership (TTIP). The continued progress by other countries to negotiate preferential trade agreements that exclude the United States will put increasing pressure on the next administration to find means to expand US trade programs.
The FCC’s creating more controversy by taking an expansive view of its jurisdiction under the Communications Act will increase the impetus for Congress to begin overhauling the nation’s communications laws and clarifying the FCC’s authority. Reform of the Telephone Consumer Protection Act (TCPA) may be part of this broad reform effort or may proceed separately. But the desire to reign in robocalling while also curbing frivolous TCPA-based lawsuits is creating a bipartisan, bicameral consensus to act. As part of its efforts to update the Communications Act, or simply as a recognition that the United States lacks a national privacy framework governing the Internet ecosystem, Congress may also tackle privacy legislation.