Outlook on the 114th Congress

Congress returned from one of its longest end of the year recess’ in recent memory – all of two and half weeks – to begin the 114^th Congress yesterday.  This will also be the first time in eight years that Republicans had majorities in both chambers, and so much attention has been focused on the Republican congressional agenda.  The following memorandum outlines a few key policy areas that we anticipate action on over the coming weeks and months.

Divided Government or Divided Congress? (A/K/A Politics makes strange bedfellows)

While many have focused their commentary on how President Obama will, or will not, be able to work with Republican Majorities in both the House and the Senate, it is worth nothing that in both chambers there appears to be internal divides among both parties that could certainly make for interesting  politics.  And while for the first time in his tenure, Speaker Boehner will have a little more flexibility to deal with the far right of his party, it is likely that Majority Leader McConnell will now encounter some of the same challenges that the Speaker had experienced in past years in trying to wrangle an often fractured Republican caucus.   Dealing with Tea Party leaders like Sen. Ted Cruz (R-TX) and Mike Lee (R-UT), while also factoring in how other potential 2016 Presidential candidates like Rand Paul (R-KY) and Marco Rubio (R-FL) attempt to stake out conservative political turf, could be a challenge for McConnell, a thirty-plus year veteran of the Senate.  Complicating matters will be the influence that Cruz, Lee and Paul, along with various right-wing stakeholders have on House conservatives – both the “true believers” as well as anyone worrying about a primary – and so Leadership in both chambers will be challenged with appeasing this portion of their constituency while advancing an agenda showing that their party can govern while in power. 

While there will likely be disagreements within the GOP on how to legislate while controlling both chambers of Congress, the slim majority that Republicans hold in the Senate will ultimately require a certain level of negotiation to get any significant measures to President Obama’s desk.   In which case, the most likely scenario is that Republicans will focus on legislation that can achieve strong bipartisan support as they work to modify (or depending on your perspective, repeal) parts of the Obama legacy legislation such as Dodd- Frank or the Affordable Care Act (ACA).  Such reforms, offered as pragmatic bipartisan modifications, have a much better chance of getting through the House with large majorities, and with the Senate by a strong majority, and thus could shift the responsibility of “governing” to the President by daring him to veto such measures. 
 
A Deadline Driven Congress?

Similar to past years, much of the Congressional agenda will be set by firm (albeit not concrete) deadlines.  Beginning at the end of February and running throughout the rest of the fiscal year, the legislation associated with these deadlines will consume significant attention, and have the potential to distract from an otherwise-focused legislative agenda.  A partial list of these key points in the calendar follow:

Beyond these issues, Congress will also be busy with a variety of other matters including:

TRIA:  After failing to pass in the final days of the 113^th Congress, the Terrorism Risk Insurance Act officially expired on December 31, 2014. However, a reauthorization is expected to move quickly – at least through the House as the House is taking up the version of TRIA that passed last year with over 400 votes later today or tomorrow.  Timing in the Senate is uncertain but it sounds like leadership is working to find a time agreement to move the measure.  Complicating the timing are questions about how liberal Senators who opposed the swaps provision during the final days of the last session will rally to either delay consideration or attempt to strip it from the bill that will come over from the House.

Dodd Frank Reforms:  As mentioned above, it is unclear whether the House and Senate leadership will choose to move more moderate modifications, or will opt to pass so-called “message bills” – with little  chance of ever getting to the President for signature – with an eye on dealing with broader issues of Dodd-Frank under a possible Republican President in 2016.  One example of a message bill can be seen in H.R. 37, one of the first bills the House took up this week.  This legislation made 11 changes to Dodd-Frank, including changes to the swaps, end user, and Volcker requirements – the same bill as legislation (H.R. 5405) that also passed last year.  Obviously, unlike last year, there is a chance that the Republican controlled Senate could take up this bill; however, the President is certain to veto it and it seems at this point that Congress wouldn’t be able to override it.  We fully anticipate more targeted Dodd-Frank reform legislation to be considered, with significant attention on two specific entities created by Dodd-Frank, the CFPB and the FSOC. 
 

Trade Bills:  One of the few issues that commenters noted actually may improve for the President under the 2014 electoral outcome was trade, and it possible that the 114^th Congress could see two major trade bills.  First up is most likely the Trans-Pacific Partnership (TPP), an agreement between the U.S. and 11 Asian and Pacific countries, not including China.   While negotiators continue to hammer out this agreement – and reports indicate that they could finished this year – Congress will first need to determine whether it will approve any final agreement as a stand-alone measure (subject to potential congressional amendments), or approve a Trade Promotion Authority (TPA), which would ensure a straight up or down vote on what the President negotiates.     If Congress wants to approve TPA it needs to do it fairly early in 2015 in order to ensure enough runway for the various procedures required under the act.  Additionally, if the issue slips too far into 2015, it is very possible that the trade deal could fall victim to Presidential politics.  However, if it succeeds, it could also pave the way for a similar trade agreement with Europe, known as TTIP.  The business community is watching these negotiations carefully, especially the insurance industry, both because of the scope of countries engaged in the negotiations  – which should facilitate access to new markets – and also because the agreement is likely to strip away state-owned competitors. 

Tax Reform:  Once again we begin a Congress with the President and the respective Chairmen of the tax writing committees in apparent agreement on the need to enact some type of tax reform.  Unfortunately, as they say, the Devil is in the details, and it remains unclear whether a real consensus for a deal can be obtained.  However, unlike last Congress, the dynamics are different, as House Ways and Means Chairman Paul Ryan is at the beginning, not the end of his six-year term as Chairman.  Some observers believe that the need to raise the debt limit at some point in the second quarter of the year could provide a way to advance entitlement reform, tax reform, the doc fix, or a partial repeal of ObamaCare via the reconciliation process.  While it is unlikely that all of those “cars” could ride on the reconciliation “train,” it is possible that some major legislative initiatives could be done via the reconciliation process.  

However, until both sides stop using their opponents’ respective positions on comprehensive tax reform to score political points, it is more likely that the 114^th Congress spends its time laying the foundation for tax reform in 2017.