Update 812: Who Wants a Government Shutdown?

September 23, 2024 | Miscellaneous, Update | By

Update 812 — Who Wants a Gov’t Shutdown?
Senate Preps Plan B as House Dithers on FY25

With ten days before Fiscal Year 2024 (FY24) and authority for discretionary federal government spending set to expire, Congress remains stuck in a budget standoff for FY25, which begins on October 1. Since members returned from August recess, the House has scheduled two votes on a six-month Continuing Resolution (CR) funding package including legislation to bar non-citizens from voting, which is already the law. The first was pulled due to mounting opposition and the second failed. 

This week, Senate Majority Leader Chuck Schumer filed cloture on a legislative vehicle for a Senate-drafted proposal, likely to be a clean, roughly three-month CR. Both chambers will seek to negotiate a compromise agreement over the next few days, though the Senate will be able to move forward on its own in the event of delays in the House. This week also saw the Justice Department and FDIC announce moves to strengthen the process through which they evaluate bank mergers and a Biden proposal for closing a trade loophole. We also cover the week’s relevant hearings in economic policy, below. 

Good weekends all…

Best.

Dana

Headline

Wheels Spin on Appropriations as Johnson CR Fails 

Congress this week continued its push to pass a Continuing Resolution (CR) that would temporarily fund the government beginning October 1. After canceling a vote last week for his Trump-supported, partisan spending measure – which included a six-month timeline and controversial voting legislation in the SAVE Act – Speaker of the House Mike Johnson continued to seek support for the measure from within his own caucus to no avail, resulting in the bill’s failure on the House floor Wednesday in a 202-220 vote. 

Democrats nearly unanimously opposed the measure and the President had promised to veto it, had it reached his desk. Adding insult to injury for the Speaker, some House Republicans also came out in opposition to the measure, leading many to wonder why Johnson went through with the vote in the first place. Johnson probably needed his proposal to fail before he could switch his approach, after first signaling to Trump and the right flank of the House GOP that he is serious about their priorities. 

The Senate, skeptical of the House strategy after the past few weeks’ antics, set in motion their own proposal on Thursday, filing cloture on a legislative vehicle that could carry a clean, shorter-term CR. The Senate can move on the CR as early as Monday, though both chambers have stated that they will continue with the negotiation process today and over the weekend. Still, Schumer and the Senate have an opportunity to move forward on Monday in case of delays in the House. 

As for the negotiation process itself, it seems a majority of members in both chambers would support the Democratic proposal for a clean CR that extends funding through December 13. Johnson and the Republican-led House will still need to agree to a set of anomalies – adjustments to current spending and policy often negotiated when Continuing Resolutions (CRs) are used to enact temporary government funding at prior-year levels – which will likely be the focus of negotiations for the next few days

Although a CR has been an all-but-certain outcome for months now, it seems Congress may have to scramble once again to avoid a government shutdown that will be triggered at the end of next week without action. Even if the House rolls out a proposal on Monday, Senate action will likely take place right up against Friday’s deadline. 

Other Developments

DOJ, FDIC Strengthen Bank Merger Evaluation Processes 

On Tuesday, the Department of Justice (DOJ) and Federal Deposit Insurance Corporation (FDIC) announced adjustments to strengthen their processes for evaluating proposed bank mergers. 

The 1995 Bank Merger Guidelines – which have long been used by federal banking regulators and the DOJ to evaluate bank mergers – are outdated and insufficient to effectively address today’s complex mergers involving firms that heavily rely on financial technology. These guidelines have led regulators to focus on preventing the physical branches of merging banks from overlapping heavily, an approach that often leads to divestiture requirements as a remedy. With the proliferation of online banking, some large banks do not rely on physical branches, making these guidelines less effective in evaluating mergers these banks may seek to engage in. 

The DOJ announced its withdrawal from the 1995 Bank Merger Guidelines and stated that it will instead assess bank mergers using the 2023 Merger Guidelines which it applies across all industries. The DOJ’s 2023 merger guidelines will allow the agency to assess the overall impact of a proposed bank merger, including the extent to which a merger would increase concentration in the banking sector, eliminate competition among firms, and increase vertical integration. 

Separately, the FDIC’s Board of Directors voted three to two to approve a final Statement of Policy on Bank Merger Transactions, stating that it will require more details from banks proposing to merge. It also:

  • confirms that the FDIC’s evaluation of a merger’s competitive effects may take into account concentrations beyond deposits, including small business or residential loan originations
  • clarifies that the proposed merger should result in less financial risk than the risk posed by the institutions on a standalone basis
  • elaborates on the FDIC’s expectation that a merger will enable the resulting institution to better meet the convenience and needs of the community to be served
  • applies additional scrutiny to the evaluation of financial stability for transactions resulting in an institution with $100 billion or more in total assets
  • communicates the FDIC’s expectation to hold public hearings for mergers resulting in an institution with over $50 billion in total assets

Together the changes strengthen far-outdated processes through which the DOJ and FDIC currently evaluate bank mergers and represent a significant step forward.

Biden Administration Proposal on Small Duty Shipments

Late last week, the Biden administration announced new measures to combat the growing use of the de minimis trade duty loophole for currently tariffed goods. This loophole allows individual shipments of goods entering the United States with a value of less than $800 to avoid incurring import duties, taxes, and oversight from Customs and Border Patrol. If implemented, the rulemaking would exclude shipments containing tariffed products imposed under:

  • Section 201 (solar cells and panels),
  • Section 232 (steel and aluminum), and
  • Section 301 (textiles and apparel imports from China, etc).

In its original form, de minimis was intended for Americans returning from international travel with low-value gifts and souvenirs to avoid paying duties. Travelers returning to the United States will not face these tariffs, as this action is meant to target the rise of Chinese-founded e-commerce platforms, such as Shein or Temu, which ship inexpensive products (namely clothing and other textiles) directly to customers, raising concerns over systematic abuse of the loophole for unintended purposes. Section 301 tariffs currently cover 40 percent of all U.S. imports and 70 percent of textile imports from China. Only ten years ago an average of 140 million shipments claiming the exclusion entered the United States annually, but has since skyrocketed to over a billion per year. 

The administration announced these actions to “enforce standing U.S. trade laws, health and safety requirements, intellectual property rights, consumer protection rules and to block illicit synthetic drugs such as fentanyl and synthetic drug raw materials as well as machinery from entering the country.” Strengthening information collection and documentation requirements for these small shipments would further tighten oversight on goods entering the country. 

While President Biden’s proposed rule would be subject to a lengthy comment period and face months until finalization, he called on Congress to take swift action to quickly implement these statutory changes. Addressing the de minimis loophole has bipartisan support and both chambers have introduced bills to curb or fully close the loophole but have yet to see further action. Congress, however, remains squarely focused on the looming government funding deadline and upcoming elections. While trade policy, specifically regarding tariff implementation, is often under the executive branch’s purview, upcoming legislative action is perhaps unlikely. 

Hearings

SBC Economic Policy Subcommittee on TCJA Impact 

On Wednesday, the Senate Banking Subcommittee on Economic Policy held a hearing titled: “The Macroeconomic Impacts of Potential Tax Reform in 2025” as attention on tax policy continues to build ahead of next year’s Tax Cuts and Jobs Act (TCJA) expirations. 

Subcommittee Chair Elizabeth Warren (D-MA) opened the hearing by noting the tax code and resulting federal revenues’ role in financing investments in the American people, allowing us to tackle key issues like housing and healthcare. She added that the TCJA was centered on a $1.3 trillion tax cut for the wealthy and corporations, giving special attention to the consequences of the TCJA’s lowering of the corporate tax rate from 35 to 21 percent (though the corporate tax rate cut was permanent, many Democrats view next year’s expirations as an opportunity to push for greater reform). 

Senator Warren also noted the Biden/Harris administration’s progress towards addressing tax advantages for large corporations, namely the 15 percent Corporate Alternative Minimum Tax (CAMT) and funding for the IRS included in the Inflation Reduction Act (IRA). Still, as Senator Van Hollen (D-MD) noted, corporations continue to earn record profits without passing down their tax savings through lower prices or higher wages. 

Witnesses Kitty Richards (Groundwork Collaborative) and Ai-Jen Poo (National Domestic Workers Alliance) reiterated Warren’s points about the distribution of the TCJA’s benefits, with Poo noting that the wealthiest one percent can expect a $60,000 giveaway in 2025 while the majority of working- and middle-class Americans will receive less than $500. According to these experts, extensions of expiring TCJA provisions paired with new GOP proposals for tax reform will continue to benefit high-earners and large corporations disproportionately while risking massive economic consequences, as they mentioned has been outlined in a recent report from Moody’s. 

Those present at the hearing also highlighted contrasts between Trump’s and Harris’s economic plans as they relate to tax policy. Senator Warren summed up the contrast by stating: 

“Donald Trump wants to make an economy that works even better for those at the top. Kamala Harris and Congressional Democrats want to tax the rich so that we can build a stronger, fairer America.” 

Notably, no Republican Senators made an appearance at the hearing, including Subcommittee Ranking Member John Kennedy (R-LA). 

Senate Banking Debates Risks of Private Student Lending

On Tuesday, the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection held a hearing on private lending in the student loan market. Led by Subcommittee Chair Raphael Warnock (D-GA), Democrats stressed the dangers of private lending. They highlighted that even though private student lending is only a small fraction of the larger student lending market, about 1 in 4 complaints filed to the Consumer Financial Protection Bureau (CFPB) on student loan issues concerned private student loans. 

Senator Elizabeth Warren (D-MA) stressed her previous efforts to combat predatory lending in the private student lending sector and praised the Biden-Harris Administration’s efforts to combat it. In particular, Democrats praised the CFPB’s recent settlement with Navient that banned the company from servicing federal student loans and required it to pay over $100 million in damages.

Subcommittee Republicans, including Senator Cynthia Lummis (R-WY), pushed back on Democrats’ claims, insisting that private student loans are a small and unproblematic part of the student lending industry and that any problem lies with the federal student lending system that constitutes the vast majority of outstanding student loans. They insisted that, despite widespread complaints by student borrowers, private student loans are well-regulated and can provide a valuable service to students who otherwise cannot receive a federal student loan. They also took the opportunity once again to criticize the Biden-Harris Administration’s student loan relief efforts and to say that the current federal student loan system is unsustainable and in need of reform.

HFSC Hearing on SEC’s “Politicized” Digital Assets Policy

On Wednesday, the House Financial Services Committee Digital Assets, Financial Technology and Inclusion Subcommittee held a hearing to discuss the SEC’s actions regarding the regulation of digital assets such as cryptocurrency. Led by Subcommittee Chair French Hill (R-AR), Subcommittee Republicans criticized the SEC and its Chair Gary Gensler for pursuing an enforcement-focused approach to regulating digital assets as opposed to a rules-based approach. They insisted that the SEC has proposed rules and guidelines that are overly broad and difficult to implement, provide little in the way of clarity, and put unfair burdens on the digital asset industry. They argued that the SEC’s approach stifles innovation and hinders the growth of an increasingly prominent industry.

Democrats, led by Subcommittee Ranking Member Stephen Lynch (D-MA) pointed out that the GOP was attacking the SEC for essentially doing its job. They argued that:

  • The SEC is simply pursuing bad actors that are prevalent in the digital asset industry, including scammers and criminal actors.
  • Digital assets should follow the same rules as any other financial asset and it is indeed the SEC’s job to enforce those rules.
  • It was the cryptocurrency industry itself that was “playing politics,” pumping money into lobbying and campaign donations in order to stifle any attempt to properly regulate it.

Look Ahead

Wednesday, September 25

Thursday, September 26

  • GDP Q2 Third Estimate (Bureau of Economic Analysis)

Friday, September 27

  • August Personal Consumption Expenditures report (Bureau of Economic Analysis)

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