Update 696 – Economic Policy Week in Review
Debt Limit Deal Talks Going Down to the Wire
Negotiators from the White House and House Republicans met throughout the week to hammer out details on a debt limit deal. While nothing is final, indications suggest that the two sides are focused on a handful of issues, slowly getting closer to a two-year extension, with agreement needed yesterday if Congress is to address the limit before next Treasury’s X-date deadline of next Thursday.
Outside of the risk of default looming, little else saw attention on the Hill this week. Republicans on the House Financial Services Committee advanced a series of bills that would weaken Dodd-Frank and make homeownership harder for first-time homebuyers. Also this week, the House passed a resolution that would repeal the president’s plan to cancel millions in student loan debt. We cover all of the above, below
2020 Vision will be hosting a Progressive Congress Action Network discussion on the debt limit negotiations next Tuesday, May 30 at 2:00 pm, with House Budget Ranking Member Rep. Brendan Boyle and Senator Chris Van Hollen of Senate Budget. Register to join the call here.
Good Memorial Day weekends all,
Debt Limit Negotiations Ongoing
It’s been another tumultuous week for debt limit negotiations. Congress has left town for the holiday weekend without a deal and is in recess for Memorial Day weekend. Members have been instructed to be ready to return within 24 hours if needed. Republicans are currently planning for a vote Tuesday or Wednesday next week, but a final agreement will need to come soon for Congress to meet the June 1 deadline and if McCarthy is to keep his promise of giving members 72 hours with a bill before a vote.
Negotiators are still working out the details. Right now there seems to be a rough agreement on imposing budget caps for two years, while also lifting the debt limit for roughly the same period, taking us past the 2024 election. Republicans initially demanded that FY24 spending revert to FY22 levels, with President Biden offering a freeze at FY23 levels. Both parties now seem to be open to something between FY22 and FY23 levels for nondefense spending. The range and the terms of issues debated narrowing, less-discussed this week were the break-the class options like the administration invoking the 14th Amendment to continue debt payments without a deal.
The status of the key elements of the deal under discussion:
- Unspent COVID Funds: Probably the lowest-hanging fruit in negotiations, estimated at $65 billion in deficit-reduction, could see bipartisan support.
- Defense: Defense spending would increase to the level proposed in Biden’s FY24 proposal, also likely to garner bipartisanship support.
- CR Mechanism: Negotiators are also reportedly discussing a mechanism to encourage Congress to pass all 12 appropriations bills on time. If they didn’t, a continuing resolution would automatically kick in at a level agreed upon in advance. The exact details of the mechanism are still unclear.
- Work Requirements: House Democrats have continued to express their frustrations with the progress of negotiations, citing concessions from Democratic leadership on issues like work requirements and spending cuts. What work requirements will look like in a final deal is still unknown, but the addition of any work requirements at all was a red line for many progressives.
- IRS: In order to manage the threat of budget cuts to critical programs, the administration agreed to roll back $10 billion in IRS funding from the Inflation Reduction Act, which could then be redirected to other nondefense programs.
With June 1 now just under a week away, Congress will have to move quickly once an agreement is reached. Procedural hurdles will take some time to overcome, and legislators should do their best to avoid letting a resolution come down to the wire. Although the markets have been showing remarkable confidence so far that some sort of resolution will be reached, Fitch announced Wednesday that they would be putting the U.S.’s AAA credit rating on a negative watch. The credit agency noted that despite the negative watch, it still expects a resolution before the X-date.
House Appropriations Markups Canceled
Late Monday night, the House Appropriations Committee canceled its planned markups of some Fiscal Year 2024 appropriations bills originally scheduled for this past Tuesday and Wednesday. Between the two days of markups, the full committee was originally slated to markup FY24 Interim Subcommittee Allocations; Military Construction, Veterans Affairs, and Related Agencies; Legislative Branch; Homeland Security; and Agriculture, Rural Development, Food and Drug Administration, and Related Agencies bills. The markups have not been rescheduled at this time.
Appropriations Chairwoman Kay Granger (R-TX) cited ongoing debt limit talks as the reason for the cancellation. Ranking Member Rosa DeLauro (D-CT) had a different explanation. In a statement released Tuesday, Rep. DeLauro said, “House Republicans did not release any 2024 spending bills until after they passed their Default on America Act, and they have now come to the realization that their default plan is unworkable… It is unclear whether the House will be able to pass any of the 12 appropriations bills on the House Floor if they include the harmful cuts they are proposing.” Rep. Steve Womack (R-AR) conceded that Republicans were still working to secure the votes for their appropriations bills, though he credits debt limit talks for the bulk of the delays.
House Financial Services Bill to Constrain the Fed
On Wednesday, the House Financial Services Committee held another contentious markup — lasting almost nine hours — in which they considered six bills. All six were reported favorably out of the committee.
The markup failed to consider any legislation to prevent the next bank collapse. Representative Andy Barr (R-KY) purported that his bill — H.R. 3556, the Increasing Financial Regulatory Accountability and Transparency Act — would enhance transparency of the Federal Reserve and FDIC, but in reality it would force regulators to comply with layers of new requirements in the midst of responding to financial emergencies. Barr’s bill comprises five separate Republican bills, including one that would weaken the Financial Stability Oversight Council by subjecting its designation authority to Congressional review. Another provision targets the current Federal Reserve Vice Chair for Supervision Michael Barr. That provision seeks to make Barr ineligible for his current role by requiring the holder of his position to have experience working in or supervising banking organizations.
Committee Democrats offered multiple reasonable amendments, including two targeting the incentive-based structure of executive compensation, all of which were struck down by committee Republicans. The committee voted 26-22 along party lines to advance the bill.
H.R. 3564, the Middle Class Borrower Protection Act, was also strongly opposed by Democrats and was advanced out of committee along a party line 26-22 vote. The bill, led by Representative Warren Davidson (R-OH), would repeal the Federal Housing Finance Agency’s recently enacted Loan Level Pricing Adjustments (LLPA) fee increases. Davidson claims that the FHFA’s rule makes credit more expensive for the middle class, it makes mortgages more affordable for first-time homebuyers while increasing loan level price adjustment fees for vacation home and investment property mortgages. The FHFA’s rule represents a step towards a more equitable framework, which Davidson’s bill seeks to revoke.
The remaining four capital markets bills received bipartisan support:
- H.R. 2627, the Increasing Investor Opportunities Act — the bill would amend the Investment Company Act of 1940 to ban limitations on closed-end companies investing in private funds
- H.R. 1553, the Helping Angels Lead Our Startups (HALOS) Act — the bill would define an angel investor for purposes of the federal securities laws and clarify the definition of general solicitation in the Securities Act of 1933 to ensure that startups can discuss their products and business plans at “demo days” without such discussions being considered an investment offerings
- H.R. 2622 — the bill would amend the Investment Advisers Act of 1940 to codify certain Securities and Exchange Commission no-action letters that exclude brokers and dealers compensated for certain research services from the definition of investment adviser
- H.R. 3063, the Retirement Fairness for Charities and Educational Institutions Act — the bill would amend the Exchange Act to allow 403(b) retirement plans to invest in unregistered insurance contracts and collective investment trusts that currently may be invested in by comparable retirement plans, such as 401(k) plans
The majority of bills considered focused on capital markets, even though the committee’s recent hearings have been dominated by investigating and responding to recent bank failures. Committee Democrats also noted that the most serious threat to financial markets remains the threat of default as the X-date quickly approaches.
House Passes Resolution on Student Debt
Yesterday, the House approved a controversial Congressional Review Act resolution by Republicans that seeks to nullify President Biden’s executive order to suspend federal student loan payments and discharge debt. The resolution, led by Rep. Bob Good (R-VA), was approved via a vote of 218-203. Two Democrats voted in favor, and 14 members did not vote.
The resolution would repeal the president’s plan to cancel up to $20,000 of student loan forgiveness, a plan which would benefit tens of millions of Americans. It would also nullify the pause on monthly payments and interest which has been in place since 2020. Biden’s plan is also facing threats from the Supreme Court, which will rule on the program next month.
Rep. Virginia Foxx (R-NC), chair of the House Education and the Workforce said, “The Biden administration is simply transferring the debt from borrowers who willingly took out student loans to hardworking taxpayers who did not.” Under the Congressional Review Act, the resolution will be able to bypass the 60-vote threshold in the Senate and pass via simple majority. The White House has threatened to veto the resolution.
Look Ahead to Next Week
- Senate Banking Committee: Hearings to examine countering China, focusing on advancing U.S. national security, economic security, and foreign policy
- Senate HELP Committee: Hearings to examine solving the child care crisis, focusing on meeting the needs of working families and child care workers
- Senate Budget Committee: Hearings to examine the debt limit
- Jobs Report: The Bureau of Labor Statistics will release the May 2023 jobs report
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