FY24 CR Extended; Consumer Sentiment Surges

Update 748 — Weekly Econ. Policy Roundup:
FY24 CR Extended; Consumer Sentiment Surges

The good news: Congress yesterday passed an extension of the current FY24 continuing resolution (CR) to fund the government until early March, without any extreme policy riders or provisions. The President signed the bill today, averting a partial government shutdown. The bad: as we approach the FY24’s halfway mark and enter the 2024 election season, pressure will build to enact a full-year CR, which could entail massive spending cuts provided in last year’s Fiscal Responsibility Act.

More good news: consumer sentiment, per a report out today, saw the biggest two-month leap since 1991, amid optimism about the economy as inflation slows and incomes rise. We cover this report, the FY24 agreement and its road ahead and implications, the progress made on a tax package — including a long-sought restoration of the CTC — as well as cases heard in the Supreme Court on the doctrine of deference to agencies’ interpretation of the statute, below. 

Good weekends, all…




Congress Extends CR, Buying Six Weeks’ Time 

Congress moved expeditiously to pass another clean, short-term continuing resolution (CR) late yesterday and sent it to the President, who signed it this afternoon. Congress has now averted a partial government shutdown for the third time in the grueling Fiscal Year 2024 appropriations process. No new policy was made in the laddered CR, which extends current funding provisions for four appropriations bills until March 1 and the other eight until March 8. 

The Senate passed the stop-gap funding measure in a 77-18 vote, with opposition primarily coming from Republicans demanding extreme border policy provisions. In the House, Speaker Mike Johnson (R-LA) brought the CR to the floor under suspension of the rules, which requires a two-thirds majority vote. The bill passed 314-108, with yea votes from all but two House Democrats.

For the past two weeks, Speaker Johnson has met continual push-back from far-right Republicans upset with the terms of his top-line funding agreement with Senate Majority Leader Chuck Schumer. The Speaker’s assent to passing a CR under suspension and relying on Democratic support while his GOP conference was split — this week’s CR is identical to the one that cost former Speaker Kevin McCarthy his job last fall — leaves him vulnerable to the fate of his predecessor. 

House and Senate appropriators will now continue to work on the funding levels for each of the 12 appropriations bills, otherwise known as 302(b) levels. Once these are decided, Congress will be able to iron out the specifics of each bill in hopes they will be ready by the early March funding deadlines. Failure to meet the next set of funding deadlines could likely necessitate a full-year CR, as Republicans are unlikely to go along with another stop-gap measure. A full-year CR would lead to across-the-board spending cuts particularly harmful to nondefense discretionary funding important for progressive priorities.

Notable Gains on CTC in Bipartisan Tax Package 

Senate negotiators reached an agreement this week for the Tax Relief for American Families and Workers Act, which pairs an expansion of the CTC with three business-friendly tax provisions. The estimated cost of $78 billion is largely offset by $70 billion to strengthen supervision of the COVID-era employee retention tax credit, another step in scaling down pandemic assistance.

The business tax provisions, costing $33 billion, would reinstate the 100% bonus depreciation deduction and delay the R&D amortization requirement and interest expensing limits. An additional $13 billion is provided in an extension of the Low Income Housing Tax Credit (LIHTC), tax relief for disaster victims and a special carve-out agreement with Taiwan.

The restoration and expansion of the CTC provisions represent a significant accomplishment and could set up Democrats to seek further expansions in 2025. The current proposal includes $33 billion for:

  • phasing in the credit on a per-child basis so families with multiple children at the same income level receive the same credit amount
  • an increase in refundability to $1,800 in 2023, $1,900 in 2024 and $2,000 by 2025
  • an adjustment of credit amount to reflect inflation
  • a “lookback” provision that allows recipients to choose which year’s income is used to set the credit’s value 

The legislation will almost certainly need a legislative vehicle to advance; such opportunities will likely be few and far between. Congress will be focused on FY24 appropriations in the coming months, likely not leaving room for a tax package to move as a standalone bill. 

Members in both chambers have expressed confidence that changes can be retroactively implemented for the 2023 tax year despite missing the opportunity to be added to the next CR and the absence of a suitable vehicle. But delays in passing this package mean families may not receive CTC benefits for the 2023 tax year until they file their 2024 returns. 

The House Ways and Means Committee held a markup for the bill today. Amendments were offered by both sides of the aisle, with Democrats pushing to further expand the Child Tax Credit. However, the bill passed out of committee with no major amendments in a 40-3 vote. 

House Budget Okays Bill to Establish Fiscal Commission

Yesterday, the House Budget Committee advanced the Fiscal Commission Act of 2023 in a 22-12 vote without amendment. The legislation would establish a bipartisan, bicameral commission consisting of 12 members of Congress and four outside experts, to be appointed by the four corners of Congressional leadership. The resulting commission would vote on November 8, 2024, and their proposals would be considered for passage by Congress before the end of the 2024 lame-duck session. 

The commission would be tasked with two main directives

  • to “stabilize the debt-to-GDP ratio at or below 100% within 10 years” and
  • “meaningfully improve the long-term fiscal outlook, including changes to address the growth of direct spending and the gap between revenues and expenditures.”

Additionally, proposals that focus on federal programs for which a federal trust fund exists (i.e. Social Security and Medicare Part A) must improve solvency for at least 75 years.

Speaker Johnson has not yet indicted whether or when he might bring this legislation to the House floor, though he has repeatedly supported the creation of a fiscal commission. The Fiscal Commission Act of 2023 has a Senate companion bill in the Fiscal Stability Act and relative bipartisan support from 12 Democratic cosponsors. 

20/20 Vision shares the concern conveyed by many Democrats in Congress that a fiscal commission could be a stalking horse to cut important entitlement benefits provided by the Social Security and Medicare Hospital Trust Funds without seriously considering revenues. Entitlement trust funds have no place in a fiscal commission, as they are largely self-funded and do not contribute to the federal debt. 

Other Developments

Consumer Sentiment Rises to Highest Level in Years 

U.S. consumer sentiment has risen to its highest level since July 2021, up 60 percent from the all-time low measured in June 2022, according to the University of Michigan’s Survey of Consumers Preliminary Results for January 2024 released this morning. 

The index of consumer sentiment rose by 13 percent in January and by 21.4 percent over the past twelve months to 78.8 percent as consumers were confident that inflation has turned a corner and showed strengthening income expectations. 

Source: University of Michigan

Consumers expect overall prices to rise by 2.9 percent in the year ahead and by 2.8 percent over the next five to ten years. 

Consumers were also concerned about rising interest rates as the Federal Reserve brought the federal funds rate from near zero in early 2022 to the 5.25 to 5.5 percent range. Consumers anticipated the interest rate increase over 2022. Concerns have been elevated from a historical standpoint but remained relatively flat over recent months. 

The improvement in consumer sentiment was seen across age, income, education, and geographical classifications, with both Democrats and Republicans showing a more favorable outlook on the economy since summer of 2021. The improved outlook by consumers is a positive sign for Democrats as we head into a general election year after inflation proved to be a central economic issue of the 2022 midterms. 

While improving consumer sentiment parallels improving economic conditions, as much analysis has noted, risks to the economy remain. Growth will likely remain below two percent in 2024 in the face of the Fed’s rate increases, the effects of which continue to ripple across the economy. 

SCOTUS Hears Cases Challenging Chevron Deference

On Wednesday, the Supreme Court heard oral arguments on Loper Bright Enterprises v Raimondo and Relentless, Inc. v. Department of Commerce concurrently, two cases with implications for the so-called Chevron Deference. The Chevron Deference, a legal precedent set in 1984, grants federal agencies the authority to interpret Congressional statutes when the meaning of a statute is ambiguous. While the Chevron Deference has undergone considerable changes over the last 40 years, it has stood as an important legal doctrine granting federal agencies the authority to interpret law and flexibility in defining Congress’ will.

The three liberal justices signaled their opposition to overturning Chevron. Justices Kagan, Sotomayor, and Jackson all expressed concern with federal courts deciding matters of policy if Chevron were overturned. Jackson warned that judges would become “uber-legislators.” Kagan questioned Roman Martinez, the challengers’ attorney in the Relentless case, about how post-Chevron courts would deal with several hypothetical cases — e.g., where Congress attempted to pass legislation on AI — asserting that federal agencies with expertise and experience should be the ones making policy decisions and not the courts.

Four of the six conservative justices seemed intent either on overturning Chevron or significantly narrowing its scope; Chief Justice Roberts and Justice Barrett were less clear in their views. Justices Alito, Kavanaugh, and Gorsuch took turns grilling Solicitor General Elizabeth Prelogar on the merits of the Chevron Deference, with Justices Kavanaugh and Gorsuch in particular taking issue with the doctrine. 

Kavanaugh questioned whether Chevron brings stability and uniformity to the federal regulation system, stating that federal agencies “flip-flop” whenever a new administration takes over. Gorsuch raised his concerns that the Chevron Deference puts individuals with fewer resources — such as immigrants and veterans applying for benefits — at a disadvantage when they have grievances with federal agencies, stating “the government always wins” in such cases. Gorsuch also brought up the lack of consensus as to when a statute is ambiguous enough for the Chevron Deference to apply, pressuring General Prelogar to demonstrate that a consistent standard of ambiguity could be used in cases involving the doctrine.

If SCOTUS overturns Chevron, the ruling would considerably scale back the power of federal agencies and limit their flexibility to deal with emerging or unforeseen issues not explicitly addressed by statute. Members of Congress would have to be more scrupulous in eliminating ambiguities from bills, lest parts of their legislation are struck down or twisted by court rulings in ways Congress had not intended. A ruling is expected by the current SCOTUS term’s end on June 30.

CFPB Proposed Rule to Limit Overdraft Fees 

On Wednesday, the Consumer Financial Protection Bureau (CFPB) proposed a rule to limit excessive overdraft fees charged by the nation’s largest banks to a just few dollars by closing a long-standing loophole. 

The CFPB’s proposed “Overdraft Lending: Very Large Financial Institutions” rule would close the Truth in Lending loophole, an exemption to the Truth in Lending Act (TILA) written into the Federal Reserve’s rules implementing the Act. TILA requires that lenders clearly disclose the cost of borrowing to consumers. The proposed rule would subject overdraft fees to TILA requirements if those fees exceed the cost to banks and apply to insured financial institutions with over $10 billion in assets, approximately the 175 largest depository institutions in the country. 

While overdraft fees were used infrequently in 1969 when the Fed wrote its rules implementing TILA, overdraft fees have become a major profit driver for banks which brought in an estimated $12.6 billion from overdraft fees in 2019. President Biden referred to predatory overdraft fees that can reach $30 or even higher as “exploitation” in his statement supporting the proposal. 

The CFPB estimates the rule may save consumers $3.5 billion or more in fees per year. 20/20 Vision supports the finalization of a strong rule on overdraft fees. Comments on the proposal are due on April 1.

Biden Fast Tracks More Student Loan Forgiveness 

Last Friday, the Biden administration announced that it would move forward with a plan to forgive student loans for borrowers who enrolled in the administration’s Saving on a Valuable Education (SAVE) plan and have been in repayment for a decade or more for an original loan amount of $12,000 or less. As of earlier this month, 6.9 million borrowers were enrolled in the SAVE plan, according to the Department of Education. 

Despite having canceled $132 billion in student debt for 3.6 million borrowers so far, many remain unsatisfied with the progress that the Biden administration has made on student loan forgiveness, and groups such as the NAACP, AFL-CIO, and the American Federation of Teachers have pressured the Biden administration to expand its efforts to provide forgiveness for more borrowers.


Senate Budget Hearing On Corporate Tax Loopholes

On Wednesday, the Senate Committee on the Budget held a hearing to examine how corporate tax loopholes allow multinational corporations to benefit from offshoring jobs and profits. 

For years, companies have stashed profits in overseas tax havens with low rates to avoid paying U.S. taxes. Trump-era tax legislation has made this problem worse by rewarding multinational companies with export subsidies for shifting investments like factories out of the U.S. Multinational corporations all too often take advantage of corporate tax loopholes, allowing them to pay lower tax rates than average Americans and domestic businesses that they compete with. 

Members and witnesses of varying political ideologies agreed that the offshoring of profits leads to a loss in federal revenue. Sen. Sheldon Whitehouse (D-RI) and other progressives highlighted solutions, such as a global minimum tax that would force companies that do business in the U.S. to pay their fair share of taxes and level the playing field for domestic businesses of all sizes. Conservatives voiced their opposition to any measure that would make it more costly to do business in the U.S. 

20/20 Vision supports serious consideration of Chairman Whitehouse’s proposal, the No Tax Breaks for Outsourcing Act, which would close loopholes created by the TCJA, boosting federal revenue, creating jobs, and increasing domestic investment. 

Joint Economic Committee on Affordable Housing Supply

On Wednesday, the Joint Economic Committee held a hearing on America’s housing supply shortage. Despite the diverse ideological makeup of both the Committee and the attending witnesses, all participants agreed that one of the biggest issues hindering the construction of more affordable housing in America was zoning and regulatory restrictions, especially at the state and local levels. Zoning restrictions such as single-family zoning hinder attempts by developers to build affordable multi-family units in many communities, and the committee largely agreed that if the federal government is to play any role in improving the housing supply, it is to provide guidance and incentives to local and state governments for reforming and dismantling restrictive zoning.

The Committee disagreed on the role of the federal government in alleviating the housing shortage beyond zoning reform. On the one hand, Representative Jodey Arrington (R-TX) insisted that the federal government was part of the problem and that rather than spend money on subsidizing housing aid Congress should focus on reigning in federal spending and, by extension, reducing inflation in housing costs, and allowing the Fed to lower interest rates. But Committee member Representative Katie Porter (D-CA) called on Congress to do more about the housing shortage, pointing to expanding the Low-Income Housing Tax Credit (LIHTC). 

Look Ahead

Thursday, January 25

  • Gross Domestic Product, 4th Quarter and Year 2023 (Advance Estimate)

Friday, January 26

  • December 2023 PCE