Update 699 – Economic Policy Week in Review
Freedom Caucus Chaos; Gensler Shocks Markets
Donald Trump’s indictment on seven counts related to the mishandling of federal documents marks the first time a former president has been brought up on federal charges. We leave to others what this could mean for his 2024 presidential bid. Former President Trump is scheduled to be arraigned in Miami Tuesday afternoon. He will be a motivated candidate: federal prosecutions cannot be made of sitting presidents.
Turning to economic policy, Congress tried to return to business as usual amid the fallout from the debt ceiling agreement. But House Republican leadership has struggled to rein in its far-right members who have blocked legislation from moving forward since Tuesday, a symptom of buyers’ remorse over the debt limit deal; a political party-stalemate persists for now. We discuss the week’s highlights and major hearings on debt management, stablecoins and junk fees below.
Good weekends all,
- House GOP in post-Debt Deal Disarray
The debt limit bill passed last week has opened some deep rifts within the GOP. House conservatives began to retaliate against Republican leadership on Tuesday for what they see as broken promises by Speaker Kevin McCarthy (R-CA), blocking bills from coming to the floor. Although talk of ousting McCarthy as Speaker has died down, anger over the deal led eleven conservatives, primarily from the Freedom Caucus, to vote against a rule allowing GOP leadership to bring legislation about gas stoves and regulatory reform to the floor — the first defeat of a House rule on the floor since 2002, a sign of just how unruly McCarthy’s caucus has become. Majority Leader Steve Scalise (R-LA) also voted against the rule in order to bring it back to the floor next week.
This revolt came mere months after the narrow Republican majority took 15 ballots to elect McCarthy speaker, only after he had made a number of wide-ranging concessions to the far-right wing of his caucus. Many of the deals that McCarthy made at that time remain secret, so not even Majority Leader Steve Scalise knows exactly which promises conservatives feel McCarthy has broken. The relationship between Scalise, who was left out of debt ceiling negotiations, and McCarthy also seemed to be souring as the two took public shots at each other this week over who bore responsibility for the latest intraparty difficulties.
Wednesday night, Republican leadership canceled the remaining votes for this week. The House is adjourned until Monday.
House and Senate Republicans are also at odds over defense spending caps from the Fiscal Responsibility Act. Senate Republicans reached a deal with Majority Leader Chuck Schumer (D-NY) to work on a supplemental appropriations bill that would secure funding for defense and military aid to Ukraine beyond the levels set in the bill. McCarthy rejected the idea of a supplemental, angering defense hawks in both chambers. The White House likely won’t run through current funding for Ukraine for a while yet, but tensions over a new supplemental are likely to heat up again later this year.
- SEC Sues Crypto Giants Binance, Coinbase
Back from the debt ceiling brink, the GOP had orchestrated what was supposed to be a big week for their crypto scheme – scheduling a hearing on digital assets and rolling out a lengthy discussion draft that rewrites the rules of the road for the industry. But Securities Chair Gensler had other plans, stealing their thunder.
On Monday, June 5th, the SEC announced it had filed 13 charges against Binance Holdings Ltd., which operates the largest crypto asset trading platform in the world. According to the SEC, charges include but are not limited to misrepresenting trading controls and oversight on the Binance.US platform, the unregistered offer and sale of securities, the commingling of customer assets, operating unregistered exchanges, broker-dealers, and clearing agencies. Gensler claimed that Binance misled investors about their risk controls and consciously chose to evade the rules of the road and put their customers at risk – all in an effort to maximize their own profits.
No more than 24 hours later, the SEC charged Coinbase, the largest US digital asset exchange, with operating as an unregistered Securities Exchange, Broker and Clearing Agency, among other allegations.
These suits, though long-awaited, undoubtedly establish Gensler’s dominance over the “Wild West” crypto industry and demonstrate unequivocally the SEC’s full engagement as the cop on the crypto beat.
Hearings This Week:
- House Financial Services on Debt Management
On Tuesday, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy convened for what Ranking Member Foster (D-IL) referred to in his opening statement as “a gigantic waste of everyone’s time.”
The hearing followed the recently-resolved debt limit fight in which Republicans criticized the Treasury Department for a purported lack of transparency around its determination of the “X-date” and decisions on so-called extraordinary measures to postpone default.
The hearing discussed three bills to require additional information to congress ahead of the next debt-limit showdown. These yet-to-be-named bills would:
- Require FSOC Chairperson to provide information to Congress, including contingency plans for a disruption in the timing of Treasury security payments;
- Require the Treasury Secretary to issue a report to voting members of the FSOC, Office of Financial Research, House Committee on Financial Services, and Senate Committee on Banking, Housing, and Urban Affairs on debt management when initiating extraordinary measures; and
- Require the Treasury Secretary to testify and issue reports in anticipation of the federal government reaching the statutory debt limit.
Three other bills discussed were virtually unrelated to the focus of the hearing. These would deregulate banks by adjusting the threshold under which Consumer Financial Protection Bureau (CFPB) oversight would apply and undermine the Fed’s funding.
- House Ag Sets Sights on Stablecoins
The House Agriculture Committee convened on Tuesday to examine, yet again, the future of digital assets. The hearing featured both current and former CFTC commissioners and industry top-dogs alike and came shortly after Reps. Patrick McHenry (R-NC) and Glenn Thompson (R-PA) released their 162 page discussion draft outlining a statutory framework for digital asset regulation.
The draft, McHenry argued, is the “first step toward delivering on Republicans’ commitment to develop clear rules of the road for the digital asset ecosystem” and is described as a product of “unprecedented joint effort between the House Financial Services and Agricultural Committees” – a move intended to “better strike a balance.”
The bill, in its current form, would effectively:
- Give the CFTC greater jurisdiction over digital assets at large;
- Grant the CFTC explicit spot market authority over crypto commodities under existing law;
- Instill a number of sweeping provisions relative to alternative trading systems and restrict the securities agency from preventing an alternative trading system (ATS) from offering crypto securities; and
- Mandate modification of the SEC’s rules to allow broker-dealers to custody of digital assets, among other provisions.
Many committee members were ultimately supportive of the draft’s wide-ranging provisions, but a number of House Ds offered some concerns they’d like to see addressed. Specifically, many were concerned with its ability to overhaul existing regulatory processes and practices, along with its lack of additional funding and/or resources toward the CFTC.
CFTC Chair Rostin Benham was also generally supportive of the text and said it successfully included “many of the core responsibilities and requirements you’d want from a regulator,” but admitted there was a lot of work to be done, namely through further research and budgetary means.
We expect this bill will be reshaped through public input over the next couple of weeks, but the draft demonstrates the House GOP’s commitment to embracing the digital asset industry and getting something across the finish line and onto the books once and for all.
- Senate Commerce Drills Down on Junk Fees
On Thursday, the Senate Commerce Committee convened to explore various ways to protect consumers from junk fees. Sen. Hickenlooper (D-CO) called the hearing to support legislation requiring disclosure of the total, fee-inclusive, cost of a purchase to facilitate consumer choice. Testifying in support was Sally Greenberg, CEO of the National Consumers League, who noted the large majorities of Americans who disapprove of junk fees. Greenberg cited the Junk Fee Prevention Act, Consumer Protection Remedies Act of 2022, and Forced Arbitration Injustice Repeal Act as bills the National Consumers’ League was proud to support. Vicki Morwize, a Professor at Columbia University’s Business School, testified to the way consumers process additional fees and surcharges, and how partition pricing (hiding fees initially) and drip pricing (adding fees as a consumer goes through the checkout process) – led to unintended spending.
Subcommittee Republicans called Todd Zywicki, a professor at George Mason’s Scalia School of Law. Zywicki emphasized that the term “junk fee” does not have a specific definition, and that there were fees that were anti-consumer and fees that were economically useful. He agreed that mandatory fees should be disclosed but objected to a federal imposition of that practice. He pointed to examples like bag fees with airlines and late fees with banks and credit cards, noting that there was an economic cost to the activities creating the fees and saying the cost would either be borne by all consumers, or by those creating those costs.
The only Republicans to appear at the hearing were subcommittee ranking member Blackburn (R-TN) and Senator Sullivan (R-AK). Blackburn claimed to be surprised by the subject of the hearing, saying that the legislation being considered was a way for federal regulators to micromanage businesses and that consumers should be more willing to walk away when presented with final costs. Sullivan argued that junk fees were not a driver of inflation.
20/20 Vision supports this legislation. Taking the broadly popular action to give consumers a better understanding of the choices they are making is a win for consumers and honest businesses.
- Tax Break Talk: House Small Business on R&E
The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access convened on Tuesday to discuss two tax breaks for businesses that were being phased out as a result of the 2017 Tax Cuts and Jobs Act, the research and experimentation (R&E) tax credit and bonus depreciation. The TCJA required businesses to amortize their R&E expenses over five years beginning in 2022 and phased out 100 percent bonus depreciation beginning in 2023. Committee members on both sides of the aisle called for the renewal of the two tax breaks, the expiration of which they claimed harms US small businesses and prevents them from competing on an international stage.
The unified front that members presented at the hearing highlights how important extending corporate tax breaks is to both Republicans and some Democrats. Republicans are planning to introduce a package including these corporate tax breaks soon – The plan was to release a package this week, though the party’s internal struggles seem to have delayed that for now. Efforts to renew corporate tax breaks failed at the end of last year thanks to efforts by progressive lawmakers and advocates to ensure that no corporate tax breaks passed without support for working families. That fight will kick back up this summer as House Republicans ramp up their efforts to extend the Trump tax cuts.
Next week, we await the announcement from Fed Chair Jerome Powell regarding interest rates and the road ahead for US monetary policy. House Ways and Means Chair Jason Smith (R-MO), is planning to mark up a tax package next week that would extend expired and expiring tax breaks from the Trump tax cuts; no date for the markup has been announced, and given the paralytic condition of the House GOP conference, it’s not yet clear if the markup will go on next week. Here’s what else we’re watching:
- FOMC Meeting and CPI Data: On Tuesday, June 13th, the Federal Open Market Committee will convene for the first day of its two-day meeting in which it will decide the fate of interest rates. Similarly, on Tuesday morning, the latest consumer price index data will be released and no doubt shape Fed officials’ decision.
- House Financial Services: “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System”
- Senate Banking: “Hearings to examine the Consumer Financial Protection Bureau’s Semi-Annual Report to Congress”
- House Financial Services Committee: “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem”
- House Administration: “Oversight of Congressional Ethics”
- House Financial Services: “The Semi-Annual Report of the Bureau of Consumer Financial Protection”
- Senate Environment and Public Works: “Hearings to Examine the Implementation of the IIJA and IRA by the Federal Highway Association”
- Senate Finance: “Anti-Poverty and Family Support Provisions in the Tax Code”
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