On January 12, 2016, President Barack Obama delivered his final State of the Union address, forcefully making the case for the accomplishments of his administration to date and outlining his goals for his final year in office. The President addressed a Republican Congress that is not only skeptical of his agenda, but openly hostile to President Obama's efforts to use executive branch actions to usurp what congressional Republicans consider their constitutional prerogatives. The President begins a State of the Union rollout tour with trips scheduled for Omaha, Nebraska and Baton Rouge, Louisiana in an effort to spur public support for major elements of his 2016 agenda.
Unlike earlier State of the Union speeches designed to primarily lay out the administration's priorities for the year to come, President Obama's final address had a different feel. It was, in part, a nostalgic victory lap, as he singled out themes and situations that influenced and informed his decisions for the last seven years. Yet rather than simply recite a list of his greatest victories, President Obama used the speech to outline plans to use his final year to extend and protect his administration's policy legacy. The President also made it clear he will fight Congressional efforts to dismantle or undermine his signature policy accomplishments.
The President touched on three major domestic themes in his speech: (1) achieving economic opportunity for all; (2) using innovation to drive change in healthcare, energy, and the environment; and (3) improving the political environment and democratic engagement of all citizens. In addition, President Obama spent major portions of his speech discussing the challenges America has faced abroad and how he intends to grow American influence in the world before leaving office. Each of the speech's major themes has been a priority during President Obama's two terms in office, and are leading factors in determining how history will judge the successes - and failures - of his administration.
The foreign affairs elements of the President's speech were aimed at defining his legacy abroad at a highly volatile moment for American interests. President Obama reminded voters that the combination of American economic power and our military capabilities mean the United States remains the essential leader in solving almost any international dispute. He espoused a smart power approach that eschews nation building for a more nuanced approach. The President saluted the efforts of the military and medical communities to help stop the spread of Ebola in Africa, and renewed his pledge to close the Guantanamo Bay detention center. President Obama focused on recent achievements and the potential for American economic success from the pending Trans-Pacific Partnership trade agreement and the reopening of diplomatic relationships with Cuba. In the Middle East, the President challenged Congress to authorize a resolution of military force against ISIL while rejecting claims foreign terrorism poses an existential threat to the nation. On the issue of nuclear proliferation, President Obama touted the long-term benefits of the controversial agreement to delay Iran's development of nuclear weapons.
In the economic prosperity and opportunity portion of his speech, President Obama reminded the nation that he inherited the worst economic crisis in decades and that his policies have restored some of the losses sustained in that crisis. The speech did not included any specific financial sector reforms but the President placed the blame for the Great Recession squarely at the feet of Wall Street and big business. As expected in a hotly contested election season, the President framed the vast majority of his economic messages as creating the conditions needed for the middle class to thrive and grow. Many of his proposals in this area were built around using education to climb the ladder of opportunity in America and reprised policy priorities from recent years: expanded Pre-K, free community college, and improved retraining opportunities for workers transitioning to new careers. The President also proposed wage insurance to protect people from economic ruin as they move between careers, and he called on Congress to reduce the annual cost of college instead of just restraining the growth of tuition over time.
President Obama's pivot to innovation to drive change in climate change, energy, and healthcare was intertwined with both his economic prosperity message and his broader goals in foreign policy. President Obama cited the recent Paris climate accords to highlight how the United States has used climate change to improve our economy, preserve the environmental progress of the last eight years, and renew our role as leaders in the international community. President Obama also presented the case for a number of regulatory actions his administration is expected to take in its final year to solidify his environmental and clean energy legacy.
As for the innovation portion of the speech, President Obama evoked the space race of the 1960's - and the associated public benefits to the United States in winning that innovation-based competition - to declare a "moon shot" for curing cancer and announced Vice President Biden will spearhead this effort inside the federal government. While this campaign will surely include calls for inter-agency coordination and massive new resources in the upcoming release of the proposed FY 2017 budget, it is less clear if the President will look to clear away regulatory barriers that slow the process of quickly and effectively bringing new treatments to market.
Other than the "moon shot" proposal, President Obama offered surprisingly little on healthcare. The President framed the historic nature of passing the health reform law and reviewed the statistics that best demonstrate how the law expanded coverage and access for millions of Americans, reduced the growth rate of medial spending, and improved the general business environment.
Finally, President Obama discussed at length the need to fix the nation's political discourse to allow more citizens to fully engage in the democratic process. The President called for non-partisan redistricting of Congressional seats to reduce political polarization, a reduction in the role fundraising plays in politics, and general calls to make voting easier. It is unlikely any of these initiatives will be seriously debated in 2016.
What Was Missing?
The White House made it clear before the speech that this was a reflective, big-picture conversation with the President as opposed to a wish list of policy priorities. Nevertheless, the speech surprised Senators and Representatives for the small number of actionable ideas and initiatives it contained. President Obama did not mention tax reform at all, even though Congress passed a major tax extenders package in December on a strong bipartisan basis and there is growing interest in tackling international tax reform as soon as this year. There was no real mention of transportation policy despite the fact Congress recently passed a bipartisan long-term highway and transit bill that will be a significant driver of economic growth. There is growing bipartisan interest in criminal justice reform that the President is likely to support and has a chance to pass in 2016, but it was also not mentioned. It was surprising that President Obama did not highlight his administration's leadership in seven years of growing policy and legal victories for LGBT Americans. There also were expectations that immigration reform and gun control would receive more attention in the speech, given the priority the President places on those topics.
Congressional Reaction and Legislative Plans for 2016
Congressional reaction to the President's speech was mixed, as one would expect when facing a House and Senate controlled by the opposite party. Republicans gave a muted reception to the recitation of the greatest hits of the Obama Administration, and plan to use the legislative process this year to reverse or minimize the impact of many of the President's pending regulatory and executive actions. As the 2016 campaign season ramps up, some congressional Democrats also will begin to further distance themselves from the President if doing so is necessary to improve their own election prospects.
Even as the public considers Washington to be in a perpetual state of gridlock, 2015 was quietly and surprisingly an effective year for legislative success in Congress. In a bipartisan fashion Congress completed major legislation such as Medicare physician payment reform, a long-term highway bill, tax extenders, trade promotion authority, reauthorization of elementary and secondary education programs, and cybersecurity improvements. The year ended with an omnibus appropriations bill that lifted the Budget Control Act spending caps and provided a two-year agreement that should make it easier to handle the upcoming FY 2017 appropriations process. Now the question will be whether the momentum of 2015 can continue into an election year.
New Speaker of the House Paul Ryan (R-WI) will be a pivotal congressional figure in 2016 as he balances competing objectives. The Speaker has committed to introducing a comprehensive agenda early this spring on major issues like tax reform, fighting poverty, a replacement for the Affordable Care Act, trade policy and reinvigorating national defense resources. In doing so, the Speaker hopes to provide a platform of ideas to be adopted by the eventual Republican presidential nominee later this summer. The Speaker wants to introduce big policy ideas to give voters a pre-election preview of what an all-Republican Washington could accomplish it they take back the White House and retain control of the Senate. But the Speaker knows it may be counterproductive to his party's short-term electoral interests to vote on major ideas this year that are destined to die by filibuster in the Senate or be vetoed by President Obama. We believe the Speaker will avoid putting vulnerable incumbents in the position of taking tough votes on legislation he knows cannot become law this year.
2016 marks the tenth and final year both Harry Reid (D-NV) and Mitch McConnell (R-KY) have served together as their party's respective top leaders in the Senate, and the scars built up by the battles of years past will make the legislative process very difficult this year. Senator Reid will retire at the end of this Congress, likely to be succeeded as Democratic Leader by Senator Chuck Schumer (D-NY). Senator Reid's primary mission in his final year will be to prevent legislation that challenges the President's accomplishments in any respect and to undermine any legislative momentum created by House Republicans.
Conversely, Senator McConnell must navigate treacherous waters in his second year as Majority Leader. His majority is squarely in play, as Republicans defend 24 of the 34 seats up in 2016, and many of those incumbents hold seats in states won once or even twice by President Obama. Thus, Senator McConnell must pick his legislative priorities carefully and make good use of the time available on a tight legislative calendar. Senator McConnell's vow to maintain regular working order will be threatened by the minority's ability to turn any debate into a chance to force vulnerable incumbents into casting tough votes on controversial issues. Regardless of the pace of legislative activity, Senator McConnell is likely to continue last year's slow confirmation process for President's Obama's judicial and executive branch nominees.
We expect the 2016 legislative session to be broken into three distinct phases of what is a relatively short legislative year, especially before the election.
- The first phase will last until perhaps Memorial Day and presents an excellent chance for Congress to actually legislate before election season begins in earnest.
- The second phase will run through the summer, with the earlier political conventions, until the election in November. During this phase of the year, the congressional focus will be on hearings and legislative actions that draw the sharpest contrasts between the political visions of the two parties, as opposed to actually passing legislation that can become law. During this portion of the year, there will be critical behind the scenes maneuvering to set up the end games for major legislation to move at the end of the year. If leading economic indicators visibly deteriorate in the first four months of 2016, the summer months may feature congressional debates about the merits of the economic plans of the leading presidential candidates.
- The final phase of the legislative year will be the post-election lame duck session, when we expect conditions to exist for major legislative compromises, especially if control of the White House or Senate changes hands in the election.
Regardless of other priorities, Republicans in both chambers of Congress will continue to look for opportunities to use the legislative process to restrain the President's ambitions in the final year. The Obama Administration's legacy-building now hinges in large part on its ability to finalize pending major rulemakings in such sectors as energy, telecommunications, healthcare, financial services, labor, and education, and the race is on to complete those regulations this year. Meanwhile, Republicans in Congress will use the legislative process to restrain what it perceives as executive overreach on many of these proposed rules. Republicans will also attempt to use the Congressional Review Act (CRA) to overturn some of the more controversial rulemakings of the Obama Administration. Successful use of the CRA requires a substantial number of Democrats to vote against the President's interests and overrule an expected veto. Perhaps the most likely instance where that could occur in 2016 would be the pending Department of Labor's fiduciary rule, where numerous Democrats have already supported legislative efforts to prevent implementation of this rule.
In yet another election cycle where being an incumbent may prove to be a liability (polling data continues to show most voters consider America on the wrong track, a sobering prospect for incumbents), members of both parties in Congress have incentives to build on last year's productive session and demonstrate to voters a longer list of bipartisan accomplishments. Many of the major policy challenges Congress is likely to prioritize in 2017 will have their genesis in hearings and legislative activity that takes place in 2016, making it very important to be engaged on these issues at the beginning stages of the legislative debate this year. We also think the post-election lame duck session has the opportunity to be extremely productive, as Congress may choose that moment to finish work on the Trans-Pacific Partnership, elements of international tax reform, the package of annual spending bills, and other legislative priorities.
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Analysis of State of the Union Topic Areas
Below our State of the Union summary provides you with an analysis of the President's proposals in major policy areas and how we expect Congress to address these proposals in the remaining year of the Obama Administration.
2016 Snapshot: President Obama is unlikely to tackle any additional major new healthcare reform policies, but is certain to continue strengthening program integrity in the ACA, smoothing implementation of the ACA's payment and delivery system reforms, and working with states to expand Medicaid coverage wherever possible. His health care policy priorities in 2016, however, have shifted to focusing on scientific breakthroughs that will alleviate the burden of chronic and disabling diseases on families and the economy.
Although President Obama referenced his signature healthcare reform law during his final address, he pivoted to the "moon shot" goal of finding a cure for cancer as the centerpiece of his health care priorities. The FY 2016 omnibus bill ended a long drought for the National Institutes of Health by increasing the agency's medical research budget to US$32.1 billion, including additional funding for cancer research and the Precision Medicine initiative launched by the President in last year's address. The White House's heightened focus on accelerating the pace of research comes as scientists are making breakthroughs in understanding cancer genetics and developing new drugs that can prolong lives, and Congress is working on legislation to expedite drug and device approvals, increase interoperability of health records, and simplify clinical trial requirements.
The House's 21st Century Cures Act passed by an overwhelming 344-77 vote in the House last year. We expect the Senate Committee on Health, Education, Labor, and Pensions (HELP) to unveil more details on its parallel initiative, the Innovation for Healthier Americans Act, in the coming weeks. The Senate bill offers healthcare industry stakeholders an opportunity for continued input on a variety of issues including research funding, health information technology, clinical trial regulation, and drug and device approval pathways. At a minimum, the work invested in the House and Senate "Cures" proposals are building a foundation for the next round of FDA user fee legislation, which programs must be reauthorized in 2017. At the same time, the Chronic Care Working Group, led by Senators Johnny Isakson (R-GA) and Mark Warner (D-VA), is focusing on consensus approaches to contain cost and improve outcomes for Medicare beneficiaries living with multiple chronic conditions. The Working Group is currently soliciting feedback on a series of policy proposals. We expect them to introduce and seek to move legislation in the 2016 session.
In his final address to Congress, President Obama emphasized the leadership role the United States continues to play in global health security, reminding his audience of the United States' key role in mobilizing a global response to the Ebola epidemic in West Africa. He also highlighted the need to address the prescription drug and heroin abuse epidemic in the country. Congressional interest in addressing the crisis aligns with that of the administration, with bipartisan momentum growing for legislative solutions, and new funding available in the omnibus targeting the drug ep in high-risk communities.
While the President did not address prescription drug costs as contributing to increased healthcare costs, we expect drug pricing, as a key factor in rising healthcare costs, to remain on the congressional agenda and a discussion point on the campaign trail. Last year, the Centers for Medicare and Medicaid Services (CMS) made public the spending data for the most expensive drugs in Medicare Part B and Part D. CMS is likely to release similar data on Medicaid in 2017 to improve drug pricing transparency for researchers and the public.
Of course this year also marks the Obama Administration's last opportunity to prevent erosion of reforms made by the Affordable Care Act (ACA). While Republicans continue to seek wholesale repeal and develop an alternative, they are also working to gain Democratic support for dismantling some of the ACA's financing mechanisms, including permanent repeal of the medical device tax and the Cadillac tax.
Energy and Environment
2016 Snapshot: The Obama Administration will focus on implementing key elements of the Climate Action Plan, including regulatory efforts to reduce greenhouse gas emissions from new and existing power plants, while Republican congressional leaders will attempt to thwart that effort via traditional and non-traditional tools. At the same time, expect a bipartisan group of legislators to focus on passing more narrow US energy policy reforms that focus on US electric policy, energy export policy, and energy efficiency.
President Obama called for an aggressive commitment to clean energy development and transition from fossil energy resources. In doing so, the President touted several results from his administration's seven-year record in this area, including support for the American Recovery and Reinvestment Act of 2009's investments in clean energy sources, a 55-percent net reduction in petroleum imports, and overall stewardship over US carbon emission reduction that, the President argued, leads the world. President Obama indicated, however, that he will not rest on these laurels in 2016. Instead he called for a renewed commitment to ensure that these results continue beyond his administration and announced regulatory initiatives, including plans to revise regulations that govern land and royalty revenue management policies for coal and oil production, that the President asserts will "better reflect" costs that traditional energy production imposes on taxpayers and our planet.
A number of items associated with the President's calls to action are already well underway and reflect foundational tenants of the President's Climate Action Plan first revealed in June of 2013. In January of 2015, for example, the Department of Interior's Office of Natural Resources Revenue proposed to revise royalty valuations for oil, gas, and coal produced from Federal on and offshore leases - and in turn generate additional revenue for the Federal Government. Additionally, the Environmental Protection Agency (EPA) continues pushing forward with steps to implement the Clean Power Plan, which aims to dramatically curb greenhouse gas emissions from new and existing power plants. Finally, the State Department and other members of the administration will coordinate the US effort to implement an international agreement known as "COP-21," an agreement signed by 195 nations in December of 2015 designed to combat climate change and reduce global greenhouse gas emissions. Additional elements of the Climate Action Plan will continue on in aid of these regulatory efforts and beyond.
President Obama's agenda will meet with intense opposition from a Republican-led Congress intent on eviscerating elements of the president's major agenda items. Senate Majority Leader McConnell (R-KY) and House leadership remain committed to exercising traditional appropriations, authorization, and non-traditional tools including the Congressional Review Act to block implementation of the Clean Power Plan while litigation attacking various aspects of the final rule wind their way through the courts. Additionally, Republican legislators will likely attempt to chip away at the president's authority to implement the US commitments under the COP-21 agreement in addition to the Interior Department's royalty revenue proposal, which the administration hopes to finalize before the end of the President's term.
At the same time, senior leaders on both sides of the Capitol will pursue less partisan efforts to reform US electricity policy, liquefied natural gas export policy, and policies designed to improve and promote energy efficiency through the North American Energy Security and Infrastructure Act of 2015 (H.R. 8) and the Energy Policy Modernization Act of 2015 (S. 2012) offered by House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Senate Energy and Natural Resource Committee Chairman Lisa Murkowski (R-AK), respectively. Each bill seeks to amend US energy policy in a narrowly tailored yet "comprehensive" package that both enjoy at least a modicum of bipartisan support.
2016 Snapshot: The President's ability to direct US foreign policy remains tempered by frequent confrontations with Congress, and that is likely to continue in 2016.
President Obama spent a good part of his address on national security, and his comments were clearly aimed at responding to rhetoric coming from some Republican presidential candidates. While the President emphasized the importance of destroying terrorist networks such as ISIL, he stressed the need for the US to use "a patient and disciplined strategy" that can include coalition building, sanctions, and diplomacy to meet global challenges. President Obama asked Congress to provide him with an authorization for use of military force (AUMF) against ISIL, and House Speaker Paul Ryan (R-WI) appears to be supportive of pursuing such a vote. Nevertheless, the fact an AUMF vote on ISIL did not have enough political support to proceed in a non-election year indicates how difficult the politics on that vote can be for both parties.
The President used the Iran nuclear deal as an example of how engagement and sustained dialogue can result in a breakthrough agreement on security issues. The President left little doubt that he viewed the Iran deal as a part of his legacy that reduced the long-term outlook for nuclear proliferation and strife in the Middle East.
The President also used his speech to again call for the closing of the Guantanamo Bay detention facility used to house enemy combatants, but he faces strong opposition on this issue from a bipartisan group in Congress. As in years past, we expect that Congressional opposition through this year's National Defense Authorization Act (NDAA) and the defense appropriations bill to block the transfer of enemy combatants from Guantanamo Bay to military or civilian facilities in the United States.
Additionally, the President's speech took direct aim at China and Russia by stating America remained the primary leader in solving problems in the international community. He also made the case for America continuing the type of global leadership he has exerted in places like Syria - where he has avoided putting troops on the ground - as opposed to engaging in the nation-building strategies espoused by President George W. Bush.
The President's foreign policy, be it on Syria, ISIL, Iran, or some other challenge, has plenty of critics on Capitol Hill. For the reasons stated above, it is far from clear that he would win a vote on an AUMF against ISIL or any other major military effort. Additionally, the Iranian nuclear deal remains controversial on both sides of the aisle, particularly in light of this week's short hostage situation and the recent missile tests conducted by Iran in defiance of certain UN Security Council resolutions.
As a result, we expect Congress to continue to assert its role in foreign affairs in a number of ways in the coming year. For example, the House passed legislation this week that would impose harsher sanctions on North Korea in response to its recent nuclear tests. We also anticipate that the coming implementation of the Iran nuclear deal will spark confrontations between the White House and Congress on the issue of whether sanctions on Iran can, or should, be eased.
2016 Snapshot: Although President Obama did not mention cybersecurity in his State of the Union address, the White House will take action soon as it releases its cyber incident response plan to clarify the federal roles for responding to cyber attacks. Congress plans to capitalize on its success with information sharing legislation to continue its work on other cyber legislative priorities and oversight in the coming year.
The Obama Administration has made cybersecurity one of its priorities, yet the President did not highlight any of his initiatives in his address. In previous speeches, President Obama called on Congress to pass cybersecurity information sharing legislation, which it accomplished in December by including the Cybersecurity Act of 2015 as part of the FY 2016 omnibus appropriations bill. Although it was not mentioned in his speech, the White House announced this week that it is developing a cyber incident response plan that will provide guidance to the federal government on how to respond to a major cyber attack on the nation's critical infrastructure. The plan will be released within the next 90 days as an executive order or a presidential policy directive and is expected to include specific roles and responsibilities for each federal agency in the event of a cyber attack.
Congress is putting pressure on the Obama Administration to improve cybersecurity after the Office of Personnel Management (OPM) cyber breach revealed last summer affected over 22 million current and former government employees. Congress wants the Obama Administration to have a plan in place to respond to future cyber attacks and data breaches that occur on federal networks and to any of the 16 sectors of the economy defined as critical infrastructure (e.g., financial services, information technology, energy, etc.). Additionally, the Department of Homeland Security (DHS) is in the process of updating its cyber incident response plan to reflect the best practices and lessons learned from the OPM breach and cyber attacks against major US companies like Sony, Target, and others. Many in Congress support the release of a government-wide cyber incident response plan. We expect committees with jurisdiction over cyber issues will closely scrutinize any plan as it is implemented.
After the success it achieved last year with the passage of cybersecurity information sharing legislation, Congress will play an oversight role to ensure DHS properly implements the legislation while also working on other cybersecurity legislative priorities in the coming year. House Homeland Security Committee Chairman Michael McCaul (R-TX) is working with DHS, including the National Protection and Programs Directorate that has jurisdiction over cyber issues, to reorganize the department to allow it to more effectively and efficiently carry out its cyber duties. He plans to release legislation in March that would authorize DHS's reorganization, which has been a priority for him given DHS's attempts last year to reorganize itself without explicit authorization from Congress. Chairman McCaul also plans to introduce a bill that would create a national commission to study how law enforcement and public safety officials can operate effectively in the digital age and in response to cyber threats.
Senate Select Committee on Intelligence Chairman Richard Burr (R-NC) and Vice Chair Dianne Feinstein (D-CA) also are looking to introduce legislation focused on the use of social media by terrorist groups that recruit followers and propagate terrorist messaging online. The legislation is likely to address the role of encryption since US intelligence agencies have long sought a mechanism that would permit government access to encrypted data, warning about the rising "Going Dark" problem where criminals and terrorists may use encryption to avoid surveillance and detection. The House Energy and Commerce Committee likely will move its data breach notification and data security legislation this year as well.
2016 Snapshot: The President's trade agenda faces significant challenges in 2016, but there is a chance that Congress may consider the TPP before the year is over.
President Obama briefly touched on two trade matters in his speech. He urged Congress to approve the Trans-Pacific Partnership (TPP) agreement, indicating that it "cuts 18,000 taxes on products Made in America" and would allow the United States, rather than China, to "set the rules" in the region. Separately, President Obama urged Congress to lift the trade embargo on Cuba, arguing that it would "consolidate our leadership and credibility" in the Western Hemisphere.
The President's trade agenda remains a difficult sell on Capitol Hill, and the opposition does not fall along traditional party lines. The TPP is opposed by many Democrats, and is a source of great criticism by Democratic presidential candidates on the campaign trail. Many of the Democratic party's leading interest groups - labor unions, environmentalists, human rights organizations - have concerns with the TPP that make it more difficult to build political support inside the President's party.
Republicans have their own set of challenges on the TPP. While many Republicans voted in favor of giving the President the fast track negotiating authority for the agreement, several have expressed concerns about various details of the final deal. Highlighting the uncertainty surrounding TPP's prospects, in December House Speaker Paul Ryan (R-WI) expressed hope that the deal could be voted on as soon as possible, but those comments came just days after Senate Majority Leader Mitch McConnell (R-KY) warned the President that he would be making a mistake to seek a vote on the deal before the 2016 elections. The US Chamber of Commerce's endorsement of the TPP suggests a path for Congress to ultimately get comfortable with the deal and vote for it, but we think such a vote is likely to occur in the lame duck session when the electoral ramifications of the vote are minimized.
As for the prospects of lifting the Cuba embargo, we think Congress is not ready to move that quickly and will be looking for more incremental changes. We expect to see a growing number of Senators and Representatives engage on Cuban issues going forward, and to visit the country themselves to determine current conditions and future opportunities. Although President Obama called for lifting an embargo, it is clear the votes to do so are not yet in place.
Despite uncertain prospects for completion of either agenda item, we expect several congressional committees to examine both the TPP and Cuba policy in detail throughout the year, which can help lay the groundwork for further action in the next administration.
2016 Snapshot: A tax code overhaul is not expected to pass the Congress in 2016, though some proposed reforms could be considered, notably international tax code reform.
President Obama opened his speech by thanking House Speaker Paul Ryan (R-WI) for his constructive approach to making tax cuts permanent for working families in 2015, and mentioned throughout his speech the need to strengthen the middle class through tax reform. The tax extenders package passed in December provides proof that a bipartisan effort on tax code changes can succeed, but it also may make it more difficult for a tax package to pass this year because there are fewer "urgent" tax issues that need to be addressed. In making the case for the Trans-Pacific Partnership, President Obama stressed that the agreement would lead to 18,000 cuts to taxes on products made in America, along with supporting domestic job growth.
Major tax legislation is often considered more difficult to move in election years. Nevertheless, the White House and Congress know the tax code is now an active hindrance to investment and growth at all levels of the American economy. The continued use of corporate inversions to move companies abroad for tax purposes is just one example of how tax policy is a leading contributor to the sluggish economic recovery.
While Senate Majority Leader Mitch McConnell (R-KY) has said that tax reform will not happen during this administration, Speaker Ryan has focused his policy interests on fundamental tax reform and he will surely try to make progress on that goal in his first year running the House. In the Senate, Finance Committee Chairman Orrin Hatch (R-UT) announced he intends to introduce a tax reform package in the next few weeks aimed at addressing inversions and other issues. In addition, newly installed House Ways and Means Committee Chairman Kevin Brady (R-TX) said this week he would like to move on international tax reform this year. Chairman Brady anticipates a vote on international tax code reform because of bipartisan support and the need to lower the gates for international profits to flow back into the US. Chairman Brady views international tax reform as a precursor to a larger tax code reform, though he also believes that comprehensive tax reform will occur under the next administration. Even if that effort fails to get to the President's desk in 2016, it sets the table for further action on more comprehensive tax reform in 2017.
2016 Snapshot: The President's calls for universal Pre-K and free community college will largely go unaddressed on Capitol Hill. Congressional leaders will wait to review progress of the new HHS-administered preschool development grant program and will continue to argue that states (not the Federal Government) should determine what is best in terms of lowering the cost of college at their public institutions. The President also said the country should work to recruit and support more great teachers, a task that will largely fall on the Department of Education's actions this year, including through its Teach to Lead initiative and its final rule on teacher preparation (expected to be released later this month). Additionally, Acting Secretary John King will launch a month-long "Opportunity Across America" tour tomorrow, which includes a focus on supporting and lifting up the teaching profession.
In his speech, President Obama discussed his priorities for building on education opportunities where progress already has been made. While he praised the December 2015 passage of the Every Student Succeeds Act (ESSA), which reformed No Child Left Behind, he focused on the work yet to be done on either side of that legislation - specifically calling for universal Pre-K and free community college. A year ago, President Obama proposed making two years of community college free for certain students, and in September 2015, he tasked Dr. Jill Biden to lead an advisory board to help push the idea. In his address, he committed to continuing the fight this year to get the plan underway, as he believes it is one of the best ways to tackle the rising cost of college.
Additionally, the President has called for a universal Pre-K program since 2013, when he rolled out a plan that included a series of competitive grant programs to improve quality and expand access to early learning programs. President Obama also touched on the importance of providing students with opportunities in computer science, bringing high-speed internet access into schools, as well as bolstering graduates in Science, Technology, Engineering, and Mathematics (STEM) fields. Recent changes under the new ESSA law will provide greater flexibility for teachers and states to use STEM funding for computer science programing and professional development.
Last year, Senator Tammy Baldwin (D-WI) and Congressman Bobby Scott (D-VA), both key leaders on education issues, introduced legislation backing the President's free community college plan. Republicans, however, have expressed concerns with the plan, including Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN) who believes that such plans should be developed at the state level. As for Congress's focus on Pre-K expansion, we do not expect much movement. While ESSA includes a preschool development grant program (handled by the Department of Health and Human Services (HHS) instead of the Department of Education) and makes it easier for states to incorporate early learning by accessing Title I funds, it did not enact a universal Pre-K program. Despite the fact that most Democrats would like to see more support for early learning, many congressional Republicans think ESSA went too far on its preschool grant program and do not have the appetite to continue to expand the program.
While Congress is unlikely to further develop either plan, the Obama Administration could look for ways to make progress on its America's College Promise proposal in the coming year, potentially establishing a pilot program incentivizing states or schools offering two years of free community college. While members of Congress would like to demonstrate to voters they are tackling the issue of college affordability in some respect this year, a Higher Education Act (HEA) reauthorization bill is unlikely to pass both chambers and be signed into law this year. It is still possible that a draft discussion bill will be released or for several discrete pieces of legislation to move, including one around financial aid.
2016 Snapshot: The President's executive actions on gun control will face significant challenges by congressional Republicans who will use the FY 2017 appropriations process to deny the President's funding requests on this issue. Congress may pass legislation improving mental health programs as part of addressing this issue. We also expect some interest groups to pursue legal action against the Obama Administration to try to stop the President's executive actions on gun control.
In his speech, President Obama vowed to keep pushing his agenda to reduce gun violence. In the week leading up to his speech, the President issued several executive actions on gun control, which broadly interpret the definition of gun dealers to require more background checks, modernize the National Instant Criminal Background Check System (NICS), and seek increased funding for law enforcement, mental health care, and gun safety technology. These actions, however, are not the Obama Administration's first to address gun control. In January 2013, the President issued 23 executive actions on guns, which included providing greater incentives for states to share information on background checks and instructions to the US Attorney General to participate in the review of individuals restricted from gun ownership.
The President's executive actions will face roadblocks from conservatives in Congress and a possible reversal by a future Republican administration. House Speaker Paul Ryan (R-WI) called the President's actions "a distraction" and emphasized the need for a Republican presidential win. While legislation to overturn the actions is unlikely given the President's veto power, Congress does have authority to deny the President's funding requests needed for executive branch agencies to carry out the President's gun control directives. Rep. John Culberson (R-TX), Chairman of the Appropriations Subcommittee on Commerce, Justice, and Science, has expressed his readiness to defund line items in the Department of Justice's budget that would support implementation of the executive actions. Additionally, legal challenges to the President's executive actions will largely depend on regulatory actions at the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
A priority of House Republican leaders will be moving The Helping Families In Mental Health Crisis Act (H.R.2646) introduced by Rep. Tim Murphy (R-PA). Republican leaders want the bipartisan bill to pass through the House Committee on Energy and Commerce quickly to show their support for improvements in access to mental health care. The bill, with more than 150 cosponsors, would expand mental health programs, training, and Medicaid coverage. It also would create a new office to oversee all federal mental health programs. In the Senate, Majority Leader Mitch McConnell (R-KY) has indicated there is bipartisan interest in moving mental health legislation in 2016. It is expected to be a combination of several existing bipartisan bills introduced by Senators Lamar Alexander (R-TN), Patty Murray (D-WA), John Cornyn (R-TX), Bill Cassidy (R-LA), and Chris Murphy (D-CT).