The House and Senate returned to work last week following the Thanksgiving holiday. With only a few weeks remaining before Congress is expected to adjourn for the year, negotiations to avert the upcoming fiscal cliff intensified, as the President dispatched Treasury Secretary Tim Geithner to Capitol Hill to speak directly to House and Senate Republicans. Reactions to the Secretary’s presentation were mixed, as House Speaker John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY) contended that Geithner brought with him little more than a check-list of Democratic priorities. Congressional Democrats countered that Boehner and McConnell are more responsible for the impasse, as they had yet to present a proposal of their own until yesterday.
Below we will outline the ongoing negotiations as well as discuss the most noteworthy issues currently pending before Congress as the 112th Congress nears its completion.
Deal Parameters Are Discussed
Last Thursday, Secretary Geithner presented Congressional leaders with a detailed proposal to avert the year-end fiscal crisis. The plan included $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending and federal relief regarding home mortgage refinancings and a permanent end to Congressional control over statutory borrowing limits. The proposal was met with strong Republican resistance, who accused the Administration of making an insincere effort at compromise.
In the offer, the President expressed a willingness to cut as much as $400 billion in Medicare and other social programs in exchange for the increased revenue. Republicans, however, were quick to point out that that the plan did not identify where the cuts would be made and, instead, would leave it up to Congress to make those decisions.
Perhaps most upsetting to Republicans was the decision by the Administration to include at least $50 billion in new stimulus spending to spread across infrastructure projects, mortgage relief, an extension of unemployment insurance and a deferral of automatic cuts to physician reimbursements under Medicare. The proposal also called on Congress to raise the debt limit, the current level of which is expected to be exceeded by February or March 2013; failing to take action by that time could cause a government shut-down and, also, could again put the nation’s credit rating in jeopardy as it did when Congress almost failed to raise the limit in August 2011.
But Republicans did not wait long to offer a counter proposal that similarly reflects the viewpoints of their Caucus. On Monday, Speaker Boehner sent the President a plan to reduce the deficit by $2.2 trillion over ten years. The plan achieves these savings by raising tax collections by $800 billion (though no individual income tax rates will go up); eliminating $600 billion from federal health programs, in part by increasing the Medicare eligibility age from 65 to 67, and saving $200 billion by applying a less generous measure of inflation to all federal programs, including Social Security benefits; the remaining cuts will come from yet-to-be-identified reductions in domestic discretionary spending.
Not unlike the President’s proposal which was quickly rebuked by Republican leadership in Congress, Boehner’s proposal was almost immediately rejected by the White House who said the proposal was “unbalanced.” With so much distance between the parties' offerings, Congress has just three scheduled working weeks within which to secure a deal and avoid the fiscal cliff. What remains to be seen is whether it will be Congressional Republicans or Democrats that will make the next concession in this intense process.
House Elections Yield New Leaders for the 113th Congress
With the 2012 election over, Republican and Democratic members met privately over the last few weeks to discuss who will lead their respective caucuses for the next two years. As expected, Republicans and Democrats re-elected their top leadership. Speaker Boehner, Majority Leader Eric Cantor (R-VA) and Majority Whip Kevin McCarthy (R-CA) will continue to lead House Republicans, while the Democrats re-elected Nancy Pelosi (D-CA) as the Minority Leader and Steny Hoyer (D-MD) as Minority Whip.
While most sitting Committee Chairman in the Republican Caucus will retain their positions, retirements and term-limits created several vacancies (Republican caucus rules only allow a member to hold the top seat on a Committee for six years, unless they are granted a waiver). The Caucus did agree to one such waiver this year—Budget Committee Chairman Paul Ryan (WI) will be allowed to hold on to his position, despite having already served for six years. New Republican leaders for other House Committees include: Michael McCaul (TX) - Homeland Security Committee; Jeb Hensarling (TX) - Financial Services; Ed Royce (CA) - Foreign Affairs; Bob Goodlatte (VA) - Judiciary; Pete Sessions (TX) - Rules; Lamar Smith (TX) - Science, Space, and Technology; and Bill Shuster (PA) - Transportation and Infrastructure.
SEC Chair Announces Resignation
Last week Mary Schapiro, Chair of the Securities and Exchange Commission (“SEC”) announced she would step down as the agency’s head at the end of year. Replacing her will be Elisse Walter, one of the five current SEC commissioners. Walter has worked with Schapiro throughout her career, including tenures at both the SEC and the Financial Industry Regulatory Authority, the securities industry's self-policing organization. Walter was also general counsel of the Commodity Futures Trading Commission when Schapiro led that agency in the mid-1990s.
Last Monday, President Barack Obama announced his choice of Walter, who will take over at a critical time. The SEC is presently seeking stricter rules for money-market mutual funds and must get into shape the so-called Volcker Rule, which would bar banks from making certain trades for their own profit. The agency is also pursuing enforcement actions against banks over their sales of risky mortgage securities before the housing bust.
While the SEC Chair is a position that requires Senate Confirmation, President Obama can appoint Walter to the position without Senate approval because Walter has already been confirmed through 2013. The President will need to nominate a permanent successor before Walter's term ends in December 2013.