The latest from our Washington DC insider:
Humphrey-Hawkins hearings announced. Fed Chair Jerome Powell will deliver his semiannual monetary policy report to the Senate Banking Committee at 10 AM, Tuesday, February 26th and to House Financial Services Committee at 10 AM, Wednesday, February 27th. I will forward transcripts as soon as they become available.
President Trump’s schedule (EST):
12:45 PM: Receives his annual physical exam at Walter Reed National Military Medical Center in Bethesda, MD.
“Congress Moves to Counter OPEC’s Pursuit of Pact With Russia.” Last night’s Wall Street Journalarticle led with:
WASHINGTON—A bipartisan group of U.S. senators rolled out a bill [press release] Thursday that would allow the Justice Department to sue members of OPEC for antitrust violations as the oil cartel looks to formalize closer ties with Russia.Sens. Chuck Grassley (R., Iowa), Amy Klobuchar (D., Minn.), Patrick Leahy (D., Vt.) and Mike Lee (R., Utah)—all members of the Senate Judiciary Committee, where the bill would likely be considered before being taken up by the full Senate—unveiled the legislation. That comes one day after The Wall Street Journal reported that Saudi Arabia and its Persian Gulf allies are backing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market. Such an alliance would transform the cartel.“The oil cartel and its member countries need to know that we are committed to stopping their anticompetitive behavior,” Mr. Grassley said in a statement.The senators dubbed their bill the No Oil Producing and Exporting Cartels Act, or NOPEC. Separately, the House Judiciary Committee on Thursday unanimously advanced a parallel measure that will now require approval by the full House.This bill has been around since June, 2000 without becoming law. Strong oil industry opposition and a veto threat from President George W. Bush kept it from enactment in 2007 and again in 2008 despite passage in different bills by veto-proof margins in both houses of Congress. More in this CRS report. I doubt it will be enacted this time as well.
Shutdown? President Trump met with Senate Appropriations Chair Shelby (R-AL) yesterday. Yesterday afternoon, CQ Roll Call reported:
Senate Appropriations Chairman Richard C. Shelby after meeting with Trump: “This is the most positive I’ve been, or I’ve seen, in the talks since, oh gosh, maybe ever.” He added: “If we can work within some of the parameters we talked about today, we’ll keep to ourselves right now, I think he would sign it.It’s too early to be sure, but signs of avoiding a February 16 shutdown are looking good.
“Return of Budget Rule Latest Barrier for Tax Extenders.” This morning’s CQ Roll Call article led with:
Newly reinstated budget rules in the House are an unwelcome hurdle for industries ranging from short-line freight railroads to biodiesel producers, as lawmakers wrestle with how to handle 26 lapsed tax breaks that’d be worth about $14 billion on recipients’ 2018 returns.As their first act of the 116th Congress, House Democrats adopted the old pay-as-you-go rule (H Res 6) for legislation that receives a floor vote, which stipulates that any new tax cuts or mandatory spending benefits have to be paid for, either with revenue raisers or spending cuts. House Republicans got rid of that rule when they took control in 2011, requiring offsets only for new spending.That means that to get through the House, the roughly $14 billion cost of a one-year extension of the tax breaks, retroactive to the start of 2018, would have to be financed so as not to add to deficits.”We need to adhere to PAYGO in regard to all tax provisions,” said Rep. Lloyd Doggett, D-Texas, a senior Ways and Means member.A package of tax “extenders” introduced by House Republicans in last year’s lame-duck session, which included a permanent railroad track maintenance credit and a seven-year extension and phaseout of the lucrative biodiesel tax credit, plus one-year extensions of 24 other provisions, would have cost about $30 billion. The version that ultimately passed the House, only to get hung up in the Senate, contained only the railroad and biodiesel extensions, which alone cost $18.8 billion.The biodiesel tax credit expired Dec. 31, 2017, and as of Sunday this will mark the longest the young industry has gone without the tax incentive, said Donnell Rehagen, chief executive officer of the National Biodiesel Board, an industry trade association. When President Trump signed last year’s budget deal (PL 115-123) Feb. 9, that previously had been the longest stretch since the tax break, now worth more than $3 billion a year to the industry, was first enacted in 2004 (PL 108-357).Industry officials say they are still hoping for the multiyear extension of their tax credit proposed last year, but would settle for a one-year extension in order to relieve the financial pressure on them.PAYGO has routinely been waived in the past, but it probably won’t be this time. So passage will depend upon how creative sponsors can be in paying the $14 b. or by including it in a bill, such as the government funding bill in which PAYGO is waived.
USMCA (NAFTA): Pelosi – “…we’re not there yet.” At yesterday’s news conference, House Speaker Nancy Pelosi (D-CA) had this exchange:
QUESTION:One, I was wondering if you support the Bicameral Congressional Trade Authority Act of 2019–sort of reclaim some of the trade authority for Congress? And also, I was wondering if–what, if any, are the elements of the USMCA that are concerning to you?PELOSI:Well, two questions. One, first of all, I–I really haven’t seen that legislation, but I do support reclaiming some of Congress’–it is Congress’ prerogative. We have given some of that authority to the president and there is legislation here that I am familiar with that would give him even more authority and I don’t support that. The concerns that we have about–and hopefully, they’re resolvable because I’m optimistic always–with the–what are we calling it now?The U.S.-Mexico-Canada, I don’t know if it has an acronym–formerly known as NAFTA, but not NAFTA, the concerns center around workers’ rights. They center around the environment. They center around prescription drug prices. Those are some of the subjects, but the overarching issue is enforcement. You can have the best language on any subject in a bill, but if you don’t have the enforcement provisions very strongly spelled out–not as a sidebar, not as a side letter, but central to the treaty, then there’s a problem.So, I–I believe that the trade representative has been most accommodating in being available for members. Hopefully, he’ll come to answer some questions soon, but he–we’ve had good rapport with Mr. Lighthizer. The–I believe that the committees of jurisdiction–that being the Ways and Means Committee largely, will be having sessions with members, so that members can see what is in that legislation, what we’d like to see in the legislation, and how we can be supportive. I have always thought that this was probably one of the easier trade agreements to come to agreement on, but so far, we’re not there, yet.Ratification will be an uphill fight, but I think it will happen for two reasons: 1) USTR Lighthizer has done an excellent job of keeping members of both parties involved on a daily basis; and 2) once The Wall and government funding is resolved, the White House will make this its next top priority on Capitol Hill.
“Democrats Kick Off Push for Medicare Drug Price Negotiations.” Yesterday afternoon’s CQ Roll Call article led with:
The leader of the Ways and Means Health Subcommittee on Thursday offered a proposal [press release] to require the Department of Health and Human Services to negotiate prices for drugs covered by the Medicare prescription drug benefit.Rep. Lloyd Doggett, D-Texas, is set to formally introduce the bill later Thursday with more than 100 House co-sponsors. A companion bill was introduced in the Senate backed by Sens. Sherrod Brown, D-Ohio; Amy Klobuchar, D-Minn.; and Tammy Baldwin, D-Wis.House Democrats are expected to debate the legislation to allow Medicare to negotiate drug prices, although Senate Republicans are unlikely to take up such a plan. The measure includes tactics to urge drugmakers to reach an agreement with Medicare on a price.Ways and Means will hold a hearing on “The Cost of Rising Prescription Drug Prices” at 10 AM, Tuesday, February 12th. Witnesses have not been announced yet.
PayDay Lender Settlement Documents Demanded by House Financial Services. In yesterday’s letter to the Consumer Financial Protection Bureau, Chair Maxine Waters (D-CA) and Oversight and Investigations Subcommittee Chair Al Green (D-TX) demanded documents pertaining to the CFPB’s settlements with Sterling Jewelers, Enova International, and NDG Financial. With subpoena power, this fight could get nasty and end up in the courts, but the settlements are likely to stand. More in Wednesday’s press release.
“DeFazio: Pelosi Wants a ‘Short Timeline’ for Public Works Bill.” Last night’s CQ Roll Call article led with:
House Transportation and Infrastructure Committee Chairman Peter A. DeFazio said he was a given a “short timeline” Thursday by Speaker Nancy Pelosi to produce a bill to boost spending on infrastructure.President Donald Trump called on Congress to send him such a bill in his State of the Union speech Tuesday, and several of his fellow Republicans said during a nearly seven-hour committee hearing Thursday they were optimistic it could happen, though there were differences on how to pay for it. DeFazio, D-Ore., could not give a total price tag, but he said he’s revamping a proposal he made last year that would have generated $500 billion for the Highway Trust Fund with bonds backed by increases in the gas tax of 1.5 cents a gallon or less per year. “I would say that’s a bottom-line number for surface transportation for roads, bridges, highways and transit, and I hope it can be larger,” he said. He also said he would push to increase spending on harbors by tapping unspent taxes collected on shipping, and would let airports increase a passenger fee to pay for terminal improvements, a change airlines oppose.DeFazio’s comments came after 10 witnesses urged Congress to address a backlog in needed projects that the American Society of Civil Engineers estimated in 2016 at more than $2 trillion over the coming decade. When the committee broke for half an hour to vote, DeFazio said he had a short discussion on the House floor with Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md. “They have a short timeline for what they want from my committee,” DeFazio said, without being more specific. The committee’s ranking Republican, Rep. Sam Graves of Missouri, said during the hearing that Congress “can’t afford to do nothing.” But Graves said he prefers a tax tied to the miles vehicles travel, to require drivers of electric and hybrid vehicles to share in the costs of highways and bridges. Ray, a former Republican congressman from Illinois who served as Transportation secretary under President Barack Obama, told the committee the “stars are aligned for a big infrastructure bill” to pass this year if Trump plays an active role in getting Senate passage. But LaHood said if nothing is approved in the next six months, it would not happen until after the 2020 presidential election.
Pete Davis is an economist who worked on the tax and budget committees of Congress for 11 years and who follows Washington for money managers.
