Congress returns today after a two-week recess. Although the 118th Congress has gotten off to a slow legislative start, its upcoming session will require Congress to address several policy issues, including raising the debt ceiling and FY24 appropriations. Below we summarize some of the issues that will be demanding Congress’ attention over the next several months.
Debt Ceiling: The most urgent issue Congress will need to address is raising the statutory debt limit to prevent default. The Treasury Department will employ “extraordinary measures” to continue to pay the country’s financial obligations until sometime this summer.
President Joe Biden and Speaker of the House Kevin McCarthy (R-CA) met in February to discuss the debt ceiling. While described as amicable, it yielded no progress and the two have not met since. The White House insists on a “clean” debt ceiling increase (without strings attached), while McCarthy and other House Republicans have insisted that a debt ceiling increase is coupled with spending cuts. House Republicans are expected to release their plan to curb spending when they return to Washington this week to pressure the White House to negotiate a deal in the remaining weeks before Treasury’s deadline.
The White House and Congressional Democrats have warned about the potentially disastrous financial implications of default. Senate Minority Leader Mitch McConnell (R-KY) has allowed McCarthy to lead debt ceiling negotiations, while remaining confident that the U.S. will never default on its debt.
Appropriations: The Biden administration released its FY24 budget early last month. While the proposed funding levels immediately received pushback from Congressional Republicans, the budget release formally began the arduous process of appropriating priorities for the next fiscal year. Senior administration officials have begun the ritual of defending their agency’s proposed budgets in testimony before House and Senate committees. Appropriation subcommittees will release and begin markup of their respective bills likely later this spring and through the summer. If recent years serve as any predictor, Congress likely won’t pass a final FY24 appropriations bill until the end of 2023.
Inflation Reduction Act (IRA) Implementation: At the end of March, the Department of Treasury released proposed guidance on the IRA which authorizes historic investment in clean energy initiatives. The long-awaited proposal gives guidance on which electronic vehicles (EVs) will be eligible for the full tax credit authorized by the IRA, based on their use of foreign-sourced minerals and battery parts.
The administration’s guidance received mixed responses from Capitol Hill. Senator Joe Manchin (D-WV), who was one of several essential Members who helped craft the bipartisan domestic-sourcing requirements in the legislation, criticized the administration’s proposed rule as a significant departure from congressional intent and the guidance’s interpretation of free trade agreements. Others praised Treasury’s interpretation as realistic and welcomed the broader interpretation as a significant step in accelerating the transition from gasoline-powered cars to EVs.
The guidance will take effect beginning on April 18 and will remain in effect during a period open for public comment until the final guidance is released – likely in June. Meanwhile, the Department of Treasury and the Department of Energy will release further guidance defining “foreign entities of concern” – primarily China, which dominates the EV supply chain. This further guidance will further clarify which EV models qualify for IRA tax credits.
China: Countering China has become a dominant and bipartisan issue in this Congress that is affecting legislative priorities including trade, human rights, Taiwan, espionage, and even TikTok. The House Energy and Commerce Committee recently held a high-profile hearing rebuking the CEO of TikTok for its threat to American national security and individual privacy, as well as its potential harm to children. The Committee subsequently called for a ban of the popular social media app. The White House has backed a bipartisan Senate bill that would give the federal government new authorities to restrict, and potentially ban, technologies from adversarial nations. The legislation is aimed at TikTok. We expect this and other legislation aimed at counterbalancing China will be one of the few areas of bipartisan cooperation in this Congress.
Permitting Reform: House Republicans made good on a promise to pass a massive energy reform bill designed to reduce regulations and lower electricity and gasoline costs for Americans. The package will be “dead on arrival” in the Democrat-controlled Senate while the White House has promised to veto the bill if given the opportunity. However, there are portions of the bill, especially reforming energy permitting (which would streamline rules for energy products), that have bipartisan support. House Republicans have also floated the idea of including energy permitting reform in the debt ceiling negotiations.
Intelligence Document Leak: After one of the most significant leaks of intelligence information in American history, the FBI arrested Jack Teixeira late last week and charged him with unauthorized removal of classified national defense information. Many of the documents contained intelligence assessments pertaining to the war in Ukraine, as well as sensitive – and potentially embarrassing – information about U.S. allies. House Speaker McCarthy and Senate Majority Leader Chuck Schumer (D-NY) have requested an “all member” briefing on the leak, and several Congressional oversight committees, including the Armed Services and Intelligence panels, will receive briefings. Given the potential damage to U.S. national security interests, we expect Congress to remain intimately involved in the fallout from the leak and what the administration is doing to mitigate the risk of future incidents.
Our team will be following all these issues closely.
Sincerely,
The Bridge Team