2018 Midterms Analysis and 116th Congress Overview - Politico
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2018 Midterms Analysis and
116th Congress Overview
CAPITOL COUNSEL, LLC | 700 13th Street NW | Washington, DC 20005 202.861.3200
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Well, we survived another election….
Unlike 2016 when all the polls were wrong, the 2018 midterms turned out mostly as predicted—the
House of Representatives flipped to Democratic control, and the Senate remained in Republican hands,
with the Republicans likely expanding their majority.
There are a number of races that are still too close to call but at the time of this publication:
U.S. Senate:
51 Republicans to 45 Democrats
4 Races Outstanding-Montana, Arizona, Florida* and Mississippi (MS run off will occur on
November 27)
Republicans flipped Democratic seats in North Dakota, Missouri, and Indiana
Democrats flipped a Republican seat in Nevada
*Florida Senate race may go to a recount
U.S. House of Representatives:
220 Democrats to 193 Republicans
20 Races Outstanding
Democrats have currently gained 27 seats (they needed 23 to flip the House)
Though it is too soon to tell exactly what the divided Congress will mean on every issue and for every
committee, this document provides Capitol Counsel’s outlook for the lame duck session as well as a few
key issues for next Congress—including Taxes, Health Care and Financial Services.
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Outlook: Lame Duck
Though the House has flipped, the Congress returns next week for its lame duck session under current
control. There is little time between now and January (when factoring in Thanksgiving and leadership
elections), so Congress will likely focus on bills that are must-pass, where there is a statutory deadline.
However, with Democrats having won control of the House, there may be some deals on issues where
both parties see a benefit in “clearing the decks” for the next Congress. In addition, Senate Majority
Leader Mitch McConnell (R-KY) will continue to move as many nominations as possible through the
Senate.
There are rumors that special counsel Robert S. Mueller will release his report on the Russia
investigation in the coming weeks; if this happens, lame duck activity could be impacted depending on
the contents of the report.
Leadership Elections
November will be dominated by party leadership elections and policy negotiations behind closed doors
on outstanding issues. House Republican elections are currently expected to take place on November
14. House Democratic elections are currently expected to take place on November 27 and November 28.
The dates for both sets of those elections are subject to change.
Appropriations
The most pressing order of business for the lame duck is appropriations (discussed in more detail
starting on p. 24). The Continuing Resolution (CR) funding many government functions is set to expire on
December 7. After leadership elections, we expect negotiations on government funding to continue;
however, these negotiations will be contentious since President Trump has said he will not sign an
appropriations bill without funding for “the wall,” and Democrats have adamantly opposed significant
wall funding. Congress may also consider an emergency spending measure to meet needs in hurricane-
ravaged areas, and such a bill could carry other spending priorities if they are complete.
FY2019 Funding Progress
Congress has made significant progress in funding government operations for Fiscal Year 2019 (FY2019).
The five FY2019 funding bills completed so far account for approximately 75% of total discretionary
spending. Though appropriators appear close to agreement on funding and policy for the remaining
25%, the shift in Congress along with President Trump’s wall funding may make agreement difficult.
The seven unfinished FY2019 funding measures are:
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Commerce, Justice, Science, and Related Agencies
Financial Services and General Government
Homeland Security
Interior, Environment, and Related Agencies
State, Foreign Operations, and Related Programs
Transportation, Housing and Urban Development, and Related Agencies
Prior to the conclusion of business for September 2018, legislation was enacted that appropriated full
year FY2019 funding for:
Defense
Energy and Water Development, and Related Agencies
4 Labor, Health and Human Services, Education, and Related Agencies
Legislative Branch
Military Construction, Veterans Affairs, and Related Agencies
FY19 Negotiations/Shutdown Prospects
Congress has been negotiating the remaining seven appropriations bills; however, it is unclear if, with
new House leadership, they will be able to pass full funding bills or will be forced to pass another
Continuing Resolution. It is possible that Congress could pass a CR through early 2019.
However, it is also possible that Congress passes regular appropriations bills during the lame duck
session - Democrats will have new leverage in the House, but may want to clear the decks for next
Congress so they can focus on non-funding related priorities. We understand that negotiations are
almost complete on four bills that could potentially be combined into a minibus:
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies;
Financial Services and General Government;
Interior, Environment, and Related Agencies; and
Transportation, Housing and Urban Development, and Related Agencies.
There are indications that some legislative riders will be included and that a deal was within reach on
the discretionary escrow account built into the Financial Services bill known as the “Fund for America’s
Kids and Grandkids.” This fund was established in the House-passed Financial Services and General
Government Appropriations bill to set aside $585 million as a spending reduction mechanism. Some
have speculated that this bill was left unfinished as a vehicle to carry other provisions including a CR or
other needed authorizations in an end of year deal.
There are also indications that staff negotiations are underway for the three previously un-conferenced
bills:
Commerce, Justice, Science, and Related Agencies;
Homeland Security; and
State, Foreign Operations, and Related Programs
Even if all the issues within the appropriations bills can be negotiated, President Trump has threatened
not to sign any funding bill unless it contains funding for a border wall. Given President Trump’s latest
comments on immigration, if Democrats do not agree to even a down payment on border wall funding,
it is likely that a shutdown will occur. However, the length of shutdown or path out of the shutdown is
unclear. While certain congressional leaders have indicated a path to a negotiated agreement involving
wall funding, many Democrats are adamantly opposed to putting any funds into a southern border wall.
Democratic Leader Nancy Pelosi (D-CA) has been notably outspoken in opposition to the wall, and
Democrats, having taken control of the House, may very well insist on postponing any consideration of
Homeland Security funding until the new calendar year. This could prolong the shutdown or give
Democrats new leverage in negotiations. There is discussion of providing some level of funding for the
wall or border security that would allow all sides to claim a win and the government to remain open.
Budget and Appropriations Panel Recommendations
House Budget Committee Chairman Steve Womack (R-AR) currently co-chairs the Joint Select
Committee on Budget and Appropriations Process Reform with current House Appropriations
Committee Ranking Member Nita Lowey (D-NY). The Bipartisan Budget Act of 2018, the law that
established spending cap relief for FY2018 and FY2019, also established this panel. The committee was
tasked with producing recommendations and legislative language to “significantly reform the budget
5and appropriations process.” Further, the Bipartisan Budget Act of 2018 requires that the committee
produce a report no later than November 30, 2018 to be submitted to the President, Speaker of the
House, and leaders in the Senate. There are procedures highlighted in the law that require Senate
consideration before the conclusion of the 115th Congress. Requirements for House consideration are
not spelled out but would likely be considered under regular order.
Rep. Steve Womack has indicated a mid-November timeline for consideration of the panel’s proposals.
These proposals, if adopted during lame duck, could give us foresight into the process for FY2020 and
the impending budget debate. Types of proposals expected from the panel include regular two-year
budgeting and other procedural changes. The legislative language has not yet been released to
accompany the panel report.
Other Potential Lame Duck Measures
Several authorizations are set to expire during the lame duck session and require action from Congress.
These include the National Flood Insurance Program (NFIP), which expires on November 30, the Farm
Bill, and the Violence Against Women Act (VAWA) reauthorization. Given the flip of House control,
clean, short-term extensions may be the most likely path as the new House Democratic majority may
choose to fight on more favorable ground next year.
Negotiations continue on the Farm Bill, which officially expired at the end of September, but the
programs continue to function on existing funding until the end of the calendar year. Despite positive
statements from members, the parties remain at odds over farm program funding, work requirements
for SNAP recipients, and changes to conservation programs. NFIP is also stuck in deadlocked
negotiations, and both programs will likely be extended sometime into 2019. In addition, VAWA was
extended in the Continuing Resolution until December 7; and while a further extension is likely, the
funding for the grant programs within the bill are subject to annual appropriations, and will continue
without a formal reauthorization.
There are also some limited opportunities for proactive legislating on bipartisan priorities. These include
a health care package encompassing Part D Drug Discount, Part D Donut Hole Fix, and the CREATES Act,
which did not advance prior to Congress recessing for the elections, but was the focus of an intense
lobbying push that could set it in motion during the lame duck session. Congress could also act on
various tax matters including retirement saving incentives, possible tax administration proposals,
extenders, and possible modifications to the new tax reform law. (These items are discussed in more
detail starting on p. 12.) Congress may also work on a bill to permanently extend and fund the Land and
Water Conservation Fund, a priority of Sen. Richard Burr (R-NC), which may include legislation to fund
the Deferred Maintenance Backlog at the National Park Service. Also, the Senate will consider the Coast
Guard Reauthorization bill that had been delayed because of unrelated concerns.
6Outlook: Leadership and Leadership Priorities
While leadership elections will take place throughout November, we do know there are positions where
more than one Senator or Representative has indicated interest, which we note below. In the House,
there has been a great deal of speculation about whether Democratic Leader Nancy Pelosi (D-CA) can
retain her position given opposition from a number of new members and calls within the Democratic
party for “new blood.” However, to date, there have been no viable alternatives proposed for Speaker.
One dynamic to note is a recent letter authored by the Congressional Black Caucus (CBC) endorsing a
plan for a CBC member to occupy one of the top two leadership positions. This could dramatically alter
the existing Democratic leadership structure. It is still far from certain who will be in leadership
positions, and we will get a clearer sense in the coming weeks.
We do know that the Democratic majority plans to hit the ground running on a number of priorities.
Democratic leadership in the House has indicated that their first priorities are:
1. Healthcare Stabilization
2. Infrastructure spending
3. Reforming “Pay-Go”
4. Gun-safety legislation
5. Protect Mueller Bill
6. Permanent Dream Act Bill/Immigration Reform
7. Lobbying Reform
Only a few of these efforts will get bipartisan support at the start; however, there could be eventual
bipartisan efforts on a number of these issues, even controversial ones, like immigration and
background checks, as well as areas of bipartisan agreement such as infrastructure.
Democrats are likely to look at rolling back tax cuts for corporations and wealthy individuals as a way to
pay for their priorities. While those pay-fors will be dead on arrival in the Senate, they will set the stage
for messaging for the 2020 races.
The new House leadership will be seeking to show voters and their base that they can pass bills, fulfill
promises, and meet the needs of their constituents. If priorities pass the House but stall in the Senate,
Democrats can use that inaction in their messaging in 2020.
On the Senate side, Majority Leader Mitch McConnell (R-KY) has been clear that his priority remains
nominations, with a specific focus on the courts. However, Leader McConnell and committee chairs may
find that they need to spend a substantial amount of time on filling Cabinet positions since it is rumored
that a number of these positions will be vacant after the election. This could mean a protracted fight
over Attorney General, plus possible turnover at the helms of the Department of Defense, Homeland
Security, Commerce, and Interior. These and other pending nominations will have a significant impact
on the Senate for the foreseeable future.
7Potential House Leadership
Democrats Republicans
Speaker Nancy Pelosi (D-CA)
Majority/Minority Leader Steny Hoyer (D-MD) Kevin McCarthy (R-CA)
Jim Jordan (R-OH)
Majority/Minority Whip Jim Clyburn (D-SC) Steve Scalise (R-LA)
Patrick McHenry (R-NC)*
Caucus/Conference Chair Linda Sanchez (D-CA) Cathy McMorris Rodgers (R-WA)
Barbara Lee (D-CA) Liz Cheney (R-WY)
Caucus/Conference Vice Chair Katherine Clark (D-MA) Jason Smith (R-MO)*
Pete Aguilar (D-CA) Doug Collins (R-GA)*
Assistant Leader Cheri Bustos (D-IL) N/A
David Cicilline (D-RI)
Ben Ray Lujan (D-NM)
Conference Secretary Jason Smith (R-MO)*
DCCC/NRCC Chair Suzan DelBene (D-WA) Steve Stivers (R-OH)
Denny Heck (D-WA) Roger Williams (R-TX)
*This member is up for more than one potential role, the outcome dependent on overarching
leadership domino factors.
8Potential House Committee Leadership
Democrats Republicans
Agriculture Collin Peterson (D-MN) Mike Conaway (R-TX)
Appropriations Nita Lowey (D-NY) Kay Granger, (R-TX)
Robert Aderholt (R-AL)
Tom Cole (R-OK)
Tom Graves (R-GA)
Mike Simpson (R-ID)
Armed Services Adam Smith (D-WA) Mac Thornberry (R-TX)
Budget John Yarmuth (D-KY) Steve Womack (R-AR)
Education and Workforce Bobby Scott (D-VA) Virginia Foxx (R-NC)
Energy and Commerce Frank Pallone (D-NJ) Greg Walden (R-OR)
Ethics Ted Deutch (D-FL) Susan Brooks (R-IN)
Financial Services Maxine Waters (D-CA) Patrick McHenry (R-NC)*
Blaine Luetkemeyer (R-MO)
Bill Huizenga (R-MI)
Frank Lucas (R-OK)*
Sean Duffy (R-WI)
Foreign Affairs Eliot Engel (D-NY) Michael McCaul (R-TX)
Joe Wilson (R-SC)
Ted Yoho (R-FL)
Homeland Security Bennie Thompson (D-MS) Mike Rogers (R-AL)
John Katko (R-NY)
House Administration Zoe Lofgren (D-CA) Rodney Davis (R-IL)
Mark Walker (R-NC)
Intelligence Adam Schiff (D-CA) Devin Nunes (R-CA)
Judiciary Jerry Nadler (D-NY) Steve Chabot (R-OH)
Doug Collins (R-GA)*
Natural Resources Raul Grijalva (D-AZ) Rob Bishop (R-UT)
Oversight and Government Reform Elijah Cummings (D-MD) Steve Russell (R-OK)
Rules Jim McGovern (D-MA) Rob Woodall (R-GA)
Science, Space, and Technology Eddie Bernice Johnson (D-TX) Frank Lucas (R-OK)*
Randy Weber (R-TX)
Dana Rohrabacher (R-CA)
Small Business Nydia Velazquez (D-NY) Steve Knight (R-CA)
Transportation and Infrastructure Peter DeFazio (D-OR) Jeff Denham (R-CA)
Sam Graves (R-MO)
Veterans Affairs Mark Takano (D-CA) Phil Roe (R-TN)
Ways and Means Richard Neal (D-MA) Kevin Brady (R-TX)
*This member is up for more than one potential role, the outcome dependent on overarching leadership
domino factors.
9Potential Senate Leadership
Republicans Democrats
Majority/Minority Leader Mitch McConnell (R-KY) Chuck Schumer (D-NY)
Majority/Minority Whip John Thune (R-SD) Dick Durbin (D-IL)
Republican Conference John Barrasso (R-WY) N/A
Chair
Assistant Democratic N/A Patty Murray (D-WA)
Leader
Chair Policy Committee Roy Blunt (R-MO) Debbie Stabenow (D-MI)
Republican Conference Joni Ernst (R-IA) N/A
Vice Chair Deb Fischer (R-NE)
10Potential Senate Committee Leadership
Democrats Republicans
Agriculture, Nutrition, and Debbie Stabenow (D-MI) Pat Roberts (R-KS)
Forestry
Appropriations Patrick Leahy (D-VT) Richard Shelby (R-MS)
Armed Services Jack Reed (D-RI) James Inhofe (R-OK)
Banking, Housing, and Urban Sherrod Brown (D-OH) Michael Crapo (R-ID)*
Affairs Patrick Toomey (R-PA)
Budget Bernie Sander (D-VT) Michael Enzi (R-WY)
Commerce, Science, and Bill Nelson (D-FL) Roger Wicker (R-MS)
Transportation
Energy and Natural Resources Maria Cantwell (D-WA) Lisa Murkowski (R-AK)
Environment and Public Works Tom Carper (D-DE) John Barrasso (R-WY)
Finance Ron Wyden (D-OR) Chuck Grassley (R-IA)*
Michael Crapo (R-ID)*
Foreign Relations Bob Menendez (D-NJ) Jim Risch (R-ID)*
Health, Education, Labor, and Patty Murray (D-WA) Lamar Alexander (R-TN)
Pensions
Homeland Security and Claire McCaskill (D-MO) Ron Johnson (R-WI)
Governmental Affairs
Indian Affairs Tom Udall (D-NM) John Hoeven (R-SD)
Judiciary Dianne Feinstein (D-CA) Chuck Grassley (R-IA)*
Lindsey Graham (R-SC)
Rules and Administration Amy Klobuchar (D-MN) Roy Blunt (R-MO)
Small Business and Ben Cardin (D-MD) James Risch (R-ID)*
Entrepreneurship Marco Rubio (R-FL)
Veterans’ Affairs Jon Tester (D-MT) Johnny Isakson (R-GA)*
Select Committee on Ethics Chris Coons (D-DE) Johnny Isakson (R-GA)*
Select Committee on Intelligence Mark Warner (D-VA) Richard Burr (R-NC)
Special Committee on Aging Bob Casey (D-PA) Susan Collins (R-ME)
*This member is up for more than one potential role, the outcome dependent on overarching leadership
domino factors.
11Outlook: Tax
With Democrats having won control of the House of Representatives for the 116th Congress – and with
Senate Republicans likely expanding their slim majority – the tax legislative landscape will look quite
different over the next two years than it would have had the Republicans retained the lower chamber.
Instead of Republican-only efforts to refine and build upon the 2017 tax reform law and to substantially
modify the Affordable Care Act (ACA) and its associated tax provisions through the expedited
reconciliation process, for example, we now expect Democrats to play a much more active role in
defining Washington’s tax legislative agenda. While today’s highly partisan tax environment may well
continue – or even intensify – in the 116th Congress, stymying consensus-building on many tax issues,
there is some real potential for Democrats to find common ground with President Trump and Senate
Republicans in certain areas. Before the 2020 election cycle fully kicks in, there may be a narrow window
for meaningful tax policy-making in 2019, should President Trump and a divided Congress decide to
make law, not war.
Before the new Congress convenes in January, however, the 115th Congress still needs to limp toward
conclusion with its lame duck session starting next week. Several sets of tax issues are expected to be
under discussion over the coming weeks, as members and their respective party leaders seek to
evaluate their new political standing, assess how much “clearing of the decks” they would like to do, and
determine which tax issues they would prefer to punt to the 116th Congress. Putting aside the remote
possibility that Republicans might seriously pursue another last-gasp reconciliation exercise during the
lame duck, the upcoming flip in House control will enhance Democrats’ leverage over these next two
months to press for more favorable deals on tax matters. The more interesting question is whether
House Democrats may prefer to wait to cut such deals until they themselves can shape the House’s
positions on those issues next year.
Lame Duck Session
While the main focus of the lame duck session is likely to center around the December 7 appropriations
deadline and a potential fight over funding for the border wall, a number of tax issues – ranging from
retirement savings incentives and tax administration provisions, to “tax extenders” and various tax
reform fixes – could be on the agenda. One new tax item that the President had recently sought to inject
into lame duck discussions – the additional, unspecified 10% middle-class tax cut he proposed last
month – has now officially been set aside, at least until next year.
Retirement Savings Incentives
The tax policy area that seems to have the brightest prospects in the lame duck is retirement savings.
The substantial similarities between the Senate Finance Committee’s unanimously-approved
“Retirement Enhancement and Savings Act” (RESA) proposal and the House’s “Tax Reform 2.0” savings
incentives package, which passed with some Democratic support, make this issue a top candidate for
successful lame duck negotiations. A separate, retirement-related topic – the looming insolvency of
various multi-employer pension plans and the underfunding of the Pension Benefit Guarantee
Corporation (PBGC) – seems far less likely to be tackled during the lame duck, notwithstanding the
ongoing work of the Joint Select Committee appointed this year to address those issues. Though there
remains some possibility that a failure to reach consensus on such multi-employer pension/PBGC
funding matters could push the entire retirement discussion into the next Congress, we believe there
remains a highly viable path forward on the narrower set of RESA-related retirement issues during the
remainder of this Congress.
12Tax Administration Proposals
In April, the House passed a series of bipartisan tax administration proposals, and key Finance
Committee members – including Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR),
and Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), respectively – have subsequently introduced a
pair of related measures. This is another area where compromise appears quite possible during the lame
duck, and some behind-the-scenes discussions have already occurred to see whether a bipartisan,
bicameral package of tax administration items can be developed. This could be paired with the package
of retirement-related provisions discussed above.
Extenders
More than two dozen tax provisions affecting individuals and businesses – including a large number of
energy-related provisions – expired at the end of 2017, and a handful of additional provisions, several
involving various Trust Fund-related excise taxes, are scheduled to expire at the end of this year. Senate
Republicans and Democrats appear united in their interest in enacting a further extension of all of the
“tax extenders” that expired at the end of 2017, at least, during the lame duck. House Ways and Means
Committee Chairman Kevin Brady (R-TX), however, has consistently said that he would like to cull the list
of these extenders, rather than simply rubber-stamping a further extension of them all. To this end, the
Ways and Means Tax Policy Subcommittee held a hearing on these provisions in March, with a heavy
emphasis on trying to determine which extenders may be appropriate to retain as part of the newly
reformed tax system and which may no longer be needed. To the extent that Republicans and
Democrats in the Senate remain fully aligned in pushing for a straight extension of the entire set,
however, Chairman Brady may well face an uphill battle in trying to “thin the herd.”
Modifications to the New Tax Reform Law
The centerpiece of House Republicans’ “Tax Reform 2.0” agenda advanced in September – making
permanent the individual-side provisions enacted under tax reform that are currently scheduled to
expire after 2025 – remains a complete non-starter for Democrats during any lame duck negotiation.
However, any number of other substantive or technical modifications to the new tax reform law could
be discussed more seriously, including entirely new items that may only emerge once anticipated
regulatory guidance on the Base Erosion and Anti-Abuse Tax (BEAT), for example, is released, potentially
over the next few weeks. With respect to potential “technical corrections,” the partisan process used to
enact the new law has made bipartisan cooperation on these typically minor, yet often highly important,
technical fixes challenging thus far. Democrats do not yet appear prepared to engage in what has
traditionally been a bipartisan, consensus-driven process to fix a partisan product. With House
Republicans about to cede their majority, however, Chairman Brady may push to enact at least a
handful of higher-profile technical changes for which there seems to be at least some bipartisan
sympathy (such as those involving the proper depreciation period for qualified improvement property
and the proper effective date for the law’s changes to the net operating loss rules). As we saw this
spring, however, when Democrats won various expansions of the low-income housing tax credit in
exchange for a Republican-sought fix regarding the treatment of agriculture co-ops under the new pass-
through business deduction, Democrats are sure to exact a steep price for their cooperation on any
further changes to the new law. On a separate track, Chairman Brady may also consider unveiling for
public review over the coming weeks a more comprehensive package of what he believes to be
necessary technical corrections. Doing so unilaterally, however, without the participation of Ways and
Means Committee Ranking Member Richard Neal (D-MA) (and perhaps even without that of Finance
Committee Chairman Hatch), would represent a major departure from the traditional technical
corrections process.
13Other Tax Matters
As with any set of year-end negotiations where horse-trading, arm-twisting, and unexpected events may
be involved, any number of other “sleeper” tax issues could always emerge at the eleventh hour. To
name just two, House Republicans could always renew their push for delays in the implementation of
various ACA-related taxes, and tax relief for the victims of recent hurricanes and other disasters could
certainly come into the mix as well.
The 116th Congress
The Senate Finance Committee will have new leadership with the retirement of Chairman Hatch, and
there remains some uncertainty as to whether Sens. Chuck Grassley (R-IA) or Mike Crapo (R-ID) will
succeed him. On the House side, Ranking Member Neal is expected to hold the gavel at the Ways and
Means Committee in January. A whole host of new tax-writers will also be added to those two panels an
entirely new, infrastructure-themed subcommittee may be created at the Ways and Means Committee;
and new party leadership, at least among House Republicans, will be elected. With all of these changes
and fresh faces – and an unconventional President, who could always put additional, unexpected tax
issues in play as part of upcoming budget proposals, offhand remarks to reporters, or early-morning
tweets – the precise contours of the tax agenda over the next two years may not become clear for some
time. We identify below five general sets of issues – in addition to the lame duck items discussed above,
many of which may demand early re-visitation next year if they are not definitively resolved in the
coming weeks – that could feature prominently on the tax legislative landscape in the next Congress.
President Trump Tax Returns/General Oversight
Over the past two years, Ways and Means Democrats including Reps. Lloyd Doggett (D-TX) and Bill
Pascrell (D-NJ) have spearheaded unsuccessful attempts to force a release of President Trump’s tax
returns, efforts that have recently received strong backing from current Minority Leader Nancy Pelosi
(D-CA) and a long list of left-leaning groups. With Democrats in control of the House next year, perhaps
the first tax-related activity we see may involve an early push to have those returns released, at
minimum, to the Chairman of Ways and Means and/or the Chief of Staff of the Joint Committee of
Taxation (JCT), potentially with an eye toward ultimately making those returns public. Whether the
administration would, in fact, willingly comply with such a demand – and whether a protracted legal
battle might be in store instead – will be a fascinating set of developments to watch as the new
Congress gets underway. More broadly, Ways and Means Democrats are expected to engage in vigorous
oversight of the administration’s tax-related activities, including the efforts of the Treasury Department
and the Internal Revenue Service to implement various aspects of the new tax reform law and to
administer tax-related provisions of the ACA. The Finance Committee will likely hold further hearings on
the administration’s progress in implementing tax reform as well, though such hearings would
presumably be framed through a more flattering lens. Should Sen. Grassley reclaim the chairmanship,
however, it is worth remembering that he has shown a particular affinity for highly aggressive oversight
of executive branch activities regardless of which party occupies the White House.
Infrastructure
Both President Trump and House Democrats have called for dramatically increased investments in
infrastructure. Ways and Means would presumably play a key role in developing any tax policy and
financing components of a House Democratic infrastructure plan, perhaps to be spearheaded by a new
infrastructure-focused subcommittee advocated by Rep. Earl Blumenauer (D-OR). Tax issues that could
be considered in this policy area include expansions of tax-preferred bonds, establishment of an
“infrastructure bank,” modifications to the current excise taxes that fund the Highway Trust Fund (HTF),
and examination of alternative HTF financing mechanisms such as a vehicle-miles traveled tax or a
carbon tax (a topic that could also be discussed in the context of any House Democratic initiative to
14combat climate change). Democrats could also seek to return the top individual tax rate to its pre-tax
reform level of 39.6%, raise the corporate rate from its new level of 21%, or unwind other aspects of the
new law to help fund additional infrastructure spending, as Senate Democrats proposed in March.
Achieving consensus on the general need to expand infrastructure investment would be far easier than
finding common ground on how to pay for it. Lawmakers, however, may be forced to confront that
fundamental financing question next Congress even without a major infrastructure bill, as the current
HTF authorization is scheduled to expire on September 30, 2020, just weeks before the next Presidential
election (though the current set of HTF-related excise taxes generally will not expire until September 30,
2022). Even if Congress ultimately embraces a short-term extension to get past the election,
policymakers may well advance significant revenue-related proposals during the lead-up to that
deadline that could frame the longer-term debate.
Retirement/Pensions
As noted above, the lame duck Congress could come to an agreement on an initial set of retirement-
related tax provisions based on the Senate’s RESA package. However, Ranking Member Neal – who has
had a strong, long-standing interest in retirement policy throughout his career – has advocated for more
far-reaching reforms, and he recently previewed some of the issues he may seek to address as Chairman
of Ways and Means. At September’s Ways and Means markup of House Republicans’ “Tax Reform 2.0”
retirement bill, he noted: “I have introduced legislation that generally would require all but the smallest
employers to maintain a 401(k) plan for their employees. This bill would provide an opportunity to save
at work for millions of American workers. We should consider ideas like this one to address our
coverage gap. I would also be remiss if I didn’t mention that we also need to address the multiemployer
pension crisis… To address the retirement crisis, it is critical that we work together on a bipartisan basis
to develop solutions to help Americans prepare for a financially secure retirement.” It should also be
noted that Sens. Portman and Cardin – Finance members with a long history of partnership on
significant retirement policy measures – have recently unveiled a bipartisan proposal that would build
further on RESA, suggesting that there may well be bicameral interest in serious policymaking in this
area next year.
Reviewing, Refining, and Refocusing Tax Reform
Both tax-writing panels will likely spend significant time holding hearings on the new tax reform law,
both on the administration’s implementation efforts and on the law’s impact on taxpayers and the
broader economy. While the Republican-led Finance Committee and the Democratic-controlled Ways
and Means Committee may each cast the law in very different light, these hearings could also help set
the stage for future rounds of legislative battles over various aspects of the law. Under divided
government and with an effective 60-vote requirement for action in the Senate, Democrats will have
considerably more leverage in shaping any modifications to the law than they had during its original
enactment. The 116th Congress could revisit proposed policy changes and technical fixes that do not
make it over the finish line during this year’s lame duck session, and any number of “new starters” may
find their way onto the legislative agenda as well, including some that may emerge as responses to new
regulatory guidance.
While some proposed statutory refinements to the new law may be fairly modest and narrowly
targeted, Democrats could also initiate more far-reaching efforts to refocus the tax law at its core. Some
of the amendments offered by Ways and Means Democrats at September’s “Tax Reform 2.0” markup
may provide useful clues about their key priorities and potential areas of emphasis in the 116th
Congress. Ranking Member Neal, for example, offered an amendment to restore the top individual rate
to its pre-tax reform level of 39.6%, while expanding the earned income tax credit, making the adoption
credit refundable, and enhancing the child and dependent care credit. Other Democrats offered various
15amendments to repeal or substantially modify various tax reform provisions – including unwinding the
new limitations on the deductibility of state and local taxes – using increases in the corporate rate to
make those proposals revenue-neutral. Senate Democrats took a similar tack in the trillion-dollar
infrastructure investment plan they unveiled in March, offsetting it by proposing to return the top
individual rate to 39.6%, raise the corporate rate to 25%, restore the individual alternative minimum tax
and the estate and gift tax to their 2017 parameters, and address carried interest. While any similar
Democratic efforts to restructure the tax reform law in fundamental ways – especially through rate
increases – would almost certainly die in the Senate, they would, at the very least, help frame the
broader debate leading up to the 2020 Presidential election. President Trump and Senate Republicans
could, of course, do much the same thing from the other direction, proposing significant additional tax
relief to try to motivate Republican voters, even if such ideas would be unlikely to generate much
enthusiasm among House Democrats.
Calendar-Driven Items
The two tax-writing committees will also have to grapple with a number of statutory deadlines. The
current suspension of the Federal debt limit expires on March 1, 2019, and budgetary caps on defense
and domestic discretionary spending – or the painful alternative of sequestration – are scheduled to
take effect as of October 1, 2019, absent Congressional action. Each of these issues could lead to serious
discussions involving significant revenue-raising proposals. Moreover, even if the tax extenders that
expired after 2017 and those that are scheduled to expire after 2018 are addressed in the upcoming
lame duck session, those extensions may only be for an additional year or two, meaning that those same
provisions may demand further attention as soon as next year. A separate set of popular tax provisions –
including Democratic priorities such as the Sec. 45 wind production tax credit, the Sec. 48 energy
investment tax credit, and the work opportunity tax credit, along with Republican priorities such as the
look-through rule for controlled foreign corporations and ACA-related tax relief – is also currently
scheduled to expire after 2019. And as referenced above, the policy provisions of the current HTF
authorization law are set to expire on September 30, 2020, potentially giving rise to serious discussions
of additional HTF financing mechanisms over these next two years.
16Outlook: Financial Services
The election results mean changes in how Congress will likely address financial services issues, in both
the House and the Senate. While committee leadership may only be shifting in the House, that shift will
be significant, and there will be many new members on the financial services committees on both sides
of the Capitol.
Senate Banking Committee
In the Senate, though the Republicans retain the majority, there will be new members on the Senate
Banking Committee as well as potentially new leadership on the Republican side. Sen. Mike Crapo (R-ID)
may remain Chair of the Banking Committee or he may become Chairman of the Senate Finance
Committee; the next most senior Republican on the Banking Committee who can be Chairman is Sen.
Pat Toomey (R-PA). While Sens. Toomey and Crapo are both conservatives, Sen. Toomey may prove
more willing to move forward with legislation that he cannot get agreement on with the Ranking
Member, Sen. Sherrod Brown (D-OH).
Sen. Toomey has shown a keen interest in legislation that helps community banks, increases access to
the capital markets, and imposes sanctions on foreign governments. Sen. Toomey has also co-sponsored
a number of resolutions of disapproval of Consumer Financial Protection Bureau (CFPB) rules on payday
lending, auto lending, and mandatory arbitration.
Under the leadership of either Sen. Toomey or Sen. Crapo, the Senate Banking Committee is expected to
continue to work on sanctions issues, flood insurance reform, and potentially housing finance reform;
Sen. Crapo held a series of briefings and hearings on housing finance, so he may continue that work if he
has two more years as Chairman. Regardless of leadership, the committee has a number of nominees to
consider.
The following nominees are still pending in the Senate Banking Committee:
● Jean Nellie Liang to be a Member of the Board of Governors of the Federal Reserve
System
● Bimal Patel to be an Assistant Secretary of Treasury for financial institutions
● Rodney Hood to be a member of the National Credit Union Administration Board
In addition to these nominees, there are also other vacant positions within Federal financial regulatory
agencies including:
● Two vacancies on the Board of Governors of the Federal Reserve System and
● The Vice Chair of the Federal Deposit Insurance Corporation.
Upcoming term limits include:
● Kara Stein (D) Commissioner of the Securities and Exchange Commission (term ends
12/5/18);
● Mel Watt (D) Director of the Federal Housing Finance Agency (term ends 1/6/19).
The committee will also likely continue to do oversight of implementation of S. 2155, which provided
regulatory relief to certain banks and financial institutions. If an infrastructure package moves, the
Senate Banking Committee will be involved since it oversees federal transit funds and will have some
piece of any efforts to create an infrastructure bank or other financing mechanism. On transit,
17infrastructure, sanctions, community banking, and some aspects of housing, there could be significant
bipartisan support.
Shifts in the Committee, however, could make work on some of these issues more contentious. A
number of moderate committee members lost their races last night including Sens. Heidi Heitkamp (D-
ND) and Joe Donnelly (D-IN); these moderates were willing to work with the Republicans last Congress
on bank regulatory relief. Their losses, and the potential loss of Sen. Jon Tester (D-MT), could make
those types of compromises less likely. In addition, the retirement of Sen. Bob Corker (R-TN) and the loss
of Sen. Dean Heller (R-NV) will also impact how the committee addresses certain issues. Sen. Heller has
been a leader on insurance issues, including international insurance capital standards and private sector
flood insurance competition and Sen. Corker has been a leader on housing finance reform.
Ranking Member Brown will remain atop the Democratic side of the committee and will likely continue
to be outspoken about consumer issues and the need to hold banks and other financial institutions
accountable for any consumer protection abuses. Ranking Member Brown is also an advocate for a
strong, independent CFPB, for enforcement from banking regulators, and for targeting tax breaks and
resources to employees and those who are low-income. In addition to Ranking Member Brown, Sen.
Elizabeth Warren (D-MA) will likely remain on the committee and will remain a voice on the left on all
issues financial services. She will likely continue to push for greater regulation on large banks, for
potentially breaking up large banks, and both Ranking Member Brown and Sen. Warren have criticized
regulators for reducing capital standards and other regulations on large institutions. Though they may
not be able to pass any bills on these issues in a Republican controlled House, we expect their messages
to be echoed by future-Chair of the Financial Services Committee Rep. Maxine Waters (D-CA) in the
House, meaning a continued spotlight on these issues.
House Financial Services Committee
On the other side of the Capitol, Democratic control of the House means that current Ranking Member
Waters (D-CA) will become Chairman of the House Financial Services Committee. She is the polar
opposite of the current Chairman, Rep. Jeb Hensarling (R-TX). She is active on financial consumer issues
and has been highly critical of the CFPB under the Trump administration for rolling back consumer
protection. She is an outspoken critic of President Trump. While Rep. Waters is a liberal member, she is
also seen as a dealmaker, and so it is unclear if she will govern the committee to the left, or if she will
moderate and move to the center as Chairman. How the committee operates will depend in large part
on the members of the committee on the Democratic side. We do not know what the committee ratios
will be, but there will be at least 5 new members on the Democratic side, as a result of retirement.
We expect the full committee and subcommittees to hold a good number of hearings, and hold a
significant amount of oversight of banking regulators as well as agencies under their jurisdiction,
including the Department of Housing and Urban Development (HUD), and the Federal Housing Finance
Agency (FHFA) which oversees Fannie Mae and Freddie Mac. Regulators and institutions should expect
oversight on any rules that have been promulgated that appear to lessen requirements on financial
institutions or to put consumers at a disadvantage. Given Waters’ record on financial services issues, we
expect the committee to focus on a number of issues, including:
● oversight of HUD, fair housing, homelessness and housing assistance programs;
● oversight of the CFPB and its rulemaking and enforcement;
● investigations and oversight on issues related to banking and data security (Wells Fargo and
Equifax);
● fintech;
● flood insurance reform and affordability;
● issues related to executive and employee compensation;
18● Community Reinvestment Act and fair lending issues;
● oversight of banking regulators and banks.
The Republican side of the Financial Services Committee will also experience significant changes. Rep.
Hensarling’s retirement along with the uncertainty at the House Republican leadership level means an
unknown lineup for the Republicans on the committee. Rep. Patrick McHenry (R-NC), who is currently
the Republican Chief Deputy Whip, is also Vice Chairman of the Financial Services Committee. While he
could choose to succeed Rep. Hensarling, he may want to continue in the Republican leadership queue.
If that is the case, current Financial Institutions Subcommittee Chairman Blaine Luetkemeyer (R-MO) will
likely be the Ranking Member. A former banker and bank examiner, Rep. Luetkemeyer has focused his
efforts on Data Breach legislation, Anti-Money Laundering bills, Operation Choke Point, fintech charter
issues, flood insurance, and CFPB reform including legislation to create a CFPB commission. Rep.
McHenry would likely also focus on fintech, and additional Jobs Act/capital raising bills.
Both members would likely seek to work with the majority on flood insurance reform, extension of the
Terrorism Risk Insurance Act (TRIA), reauthorization of the Export-Import bank, which they support, and
a number of Jobs Act bills 3.0 or 4.0 that are currently pending in the U.S. Senate.
Major Issues in 2019
In addition to nominees in the Senate and oversight in the House, there are a number of financial
services issues that may see action next Congress.
National Flood Insurance Program (NFIP) Reauthorization and Reform. NFIP expires on November 30
and needs to be extended. Congress has passed a series of short-term extensions to the program, and
will likely pass another short-term extension before November 30. However, there has been some
movement on a reform bill; the House already passed a comprehensive reform bill that includes updates
to flood mapping, mitigation, affordability and private sector competition. The Senate has yet to move a
bill through committee, and there has been some opposition to leveling the playing field to allow
consumers to choose private insurance if it is more affordable. Though Senators and Representatives
are working on a compromise to move reform, it is likely that there will be an extension into 2019,
meaning the next Congress will have to work to come to agreement on a longer-term reform bill. Under
incoming Chairman Rep. Waters, a House bill could look substantially different from the effort this
Congress; Rep. Waters will likely seek to cap rates and rate increases, seek to continue additional
subsidies, and may be less friendly to private sector alternatives.
Terrorism Risk Insurance Act (TRIA). TRIA—the federal program designed to ensure that there is
insurance for acts of terrorism passed after 9/11- expires at the end of 2020. This means that Congress
will have to begin work on an extension/reform bill sometime next Congress. Though TRIA was created
in 2002 as a temporary program to share terrorism losses between the private and public sectors, the
program has been extended three times, and will likely be extended again. Each reauthorization has
made some changes, and there may be a push to have more risk assumed in the private sector by
private insurers and reinsurers. Unlike Chairman Hensarling, new Chairman Rep. Waters is supportive of
an extension of TRIA, which could pass the House more easily in the 116th Congress.
Housing Finance Reform. The Government Sponsored Enterprises (GSEs)—Fannie Mae and Freddie
Mac—have been in government conservatorship for a decade with no end in sight. Though there have
been a number of bipartisan bills and efforts to restructure the housing finance system on both the sides
of the Capitol, none of these bills or proposals have moved past introduction this Congress. However,
Treasury Secretary Mnuchin recently said that housing finance reform will be a top priority for the
administration next Congress. While this may be true, past efforts have been difficult because of a
19number of contentious issues including current GSE shareholders, affordable housing goals and
requirements, functions and roles of the private sector in the new system, and funding of affordable
housing through a fee. Rep. Waters will be an advocate for strong affordable housing requirements and
funding, so any bill out of the House next Congress will look very different from past efforts.
Community Reinvestment Act (CRA). Though Congress does not need to act on the CRA next Congress,
current efforts by banking regulators, led by the Office of the Comptroller of the Currency (OCC), to alter
the CRA may mean significant oversight of the process and product, especially by the House Financial
Services Committee. CRA is an important tool to drive investment in communities. Civil rights and
community development groups will be closely watching and analyzing any changes to the 40-year old
law. While there are some areas where banks and community groups may agree that updates would be
beneficial, the politics of CRA reforms will mean any changes will be met with a critical eye and
significant oversight of the regulators’ efforts.
Fiduciary/Regulation Best Interest. The Fifth Circuit Court of Appeals’ override of the Department of
Labor (DoL) Fiduciary Rule put the brakes on multiple Congressional efforts to hamstring the rule. The
DoL has since been quiet and the Securities and Exchange Commission (SEC) proposed a Regulation Best
Interest (Reg BI) to update the standards for financial professionals. The rule is not expected to be
finalized until next year, but Rep. Waters and Sen. Warren continue to be some of the most vocal critics
of the SEC’s proposed Reg BI, namely that it does not go far enough in their view. Under Rep. Waters,
we can expect intense scrutiny and oversight of Reg BI. We may also see renewed political pressure
from the House Education and the Workforce Committee for the DoL to issue a new proposed rule that
goes further than the proposed standard of care.
Export Import Bank. The Export-Import Bank (Bank) expires on September 30, 2019. The last
reauthorization was contentious with current Financial Services Chairman Hensarling and a number of
conservatives in the Senate opposing the Bank. The Bank, which guarantees loans to foreign companies
that purchase U.S. goods, faces opposition from a contingent of Republicans in Congress who view the
use of government dollars to backstop deals for U.S. companies as corporate welfare. To overcome that
opposition, moderate Republican members and Democrats worked together last Congress to bring a
discharge petition to the House floor against the wishes of the key conservatives. While there are still
conservatives who oppose reauthorization of the Bank, both Reps. Waters and Leutkemeyer support the
extension, and could work together to extend the Bank before next September. The Bank has been
operating with just two board members for nearly 18 months, one board member shy of the three
needed to approve transactions greater than $10 million. Further, opponents have effectively blocked
new nominations to the Bank’s board, severely limiting the agency's ability to carry out its mission.
20Outlook: Health
Health Agenda in a Divided Government Driven by Leadership and the President
With split party control of the House and Senate for the 116th Congress, we expect a continuation of the
highly partisan health care debate. The healthcare impact of the Democratic take-over of the House of
Representatives will turn on the agenda of the House leadership. With the Senate expanding its
Republican majority, the Senate is positioned to defeat House-passed partisan health measures.
Initial indications point to a Senate focused on reducing federal spending and continuing to act on
specific Affordable Care Act (ACA) changes, with a House poised to emphasize oversight and protecting
the ACA in light of the central role that preexisting conditions played in the election. Opportunities for
bipartisan compromise on targeted, consensus-based reforms will depend on decisions by President
Trump, the congressional leadership, and the level of independence of key committee chairs.
President Trump and the administration will continue to exert a strong leadership role, rolling out new
policies consistent with the priorities set by the President and Health and Human Services (HHS)
Secretary Alex Azar, including drug pricing and health reform. Without control of both chambers of
Congress, the administration will seek policy victories at the regulatory level, such as through aggressive
rulemaking – particularly on drug pricing – and Center for Medicare & Medicaid Innovation (CMMI)
demonstrations.
The following outlines selected health-related areas of focus for the 116th Congress. Drug pricing and
ACA policies represent the most likely partisan battlegrounds. Agreements may emerge on a limited set
of other issues, such as value-based care, fraud and abuse law changes, health care costs, or maternal
and infant mortality. Drug pricing and Medicare offer opportunities for both partisanship and
compromise.
Issues Dominated by Partisan Disagreement
Drug Pricing – The drug pricing agenda has been led largely by the administration, with release of the
drug pricing blueprint and a series of reforms on Medicare, drug advertising and the 340B Drug
Pricing Program. In contrast, the Congress focused on more narrow provisions, such as pharmacy gag
clauses. We expect the pace of administration action to accelerate in 2019 on a wide-ranging drug
pricing agenda that challenges the status quo, including changes to Medicare Parts B and D. The
administration proposed using CMMI aggressively to test drug pricing models and value-based care,
with the Secretary emphasizing his willingness to advance mandatory models if necessary. These
efforts could prompt congressional oversight.
In the Senate, a main factor to watch will be how the Senate Finance Committee addresses drug
pricing. With the departure of Chairman Orrin Hatch (R-UT), a primary architect of the existing
pharmaceutical industry structure, the committee’s agenda will shift to the priorities of the next
Chair. Should Sen. Grassley assume the chairmanship, efforts to address drug pricing will likely be
more robust as evidenced by his past actions on the issue.
In the House, Democrats have pledged an aggressive drug pricing agenda focused on transparency,
government negotiation in Medicare Part D and enforcement against “excessive” price increases, as
outlined in the Democrats’ “Better Deal” proposals. The Energy and Commerce Committee may
continue examining the 340B program. Expected Energy and Commerce Committee Chairman Rep.
Frank Pallone, Jr. (D-NJ) has been a strong supporter of the 340B program. A key issue will be
whether the committee focuses on bipartisan, non-controversial measures raised during recent
21hearings – such as enhancing HRSA’s regulatory authority – or pursues more aggressive measures,
such as expanding the program or reversing cuts to 340B hospital reimbursement.
Areas for bipartisan work on drug pricing potentially include reimportation, orphan drug incentives,
patent challenges, and enhanced access to generic drugs and biosimilars – one related Senate bill has
support from both Democratic and Republican co-sponsors. Bipartisan action may also take the form
of mitigating or challenging actions by the administration, such as changes to Medicare Part B drug
reimbursement and expansion of step therapy.
Affordable Care Act – Without control of both chambers, it is unlikely that Senate Majority Leader
Mitch McConnell (R-KY) rejuvenates ACA repeal efforts. Nonetheless, having held on to the Senate
despite the Democratic focus on pre-existing conditions, Senate Republicans will likely resume work
on selected efforts to roll back parts of the ACA, which remains highly unpopular among Republican
constituents. Areas to watch include ACA taxes, provisions affecting employment and employers,
state flexibility in Medicaid and health insurance, access to short-term plans, or consumer-directed
insurance coverage.
In contrast, House Democratic Members owe their ascension to House control in part to the election
focus on pre-existing conditions and will likely pursue a broad oversight agenda, exploring the
consequences for patients and consumers of administration policies such as reduced funding for
outreach, expansion of short-term policies, and work requirements for Medicaid expansion
populations. Action on the ACA’s Medicaid expansion in either body may turn on the results of
Medicaid expansion ballot measures in four conservative states– Idaho, Montana, Nebraska and
Utah.
Medicare, Entitlements and Spending –Leader McConnell emphasized that Medicare and
entitlement reform requires bipartisan agreement, which is unlikely in the current environment. At
the same time, Leader McConnell called for tackling the deficit and government spending, initially
focusing on reducing spending on domestic programs. With the President’s call for agencies to
identify 5% spending reductions, the Republican Senate and administration may seek to reverse
spending increases agreed to as part of the Bipartisan Budget Act. A key issue will be whether the
Republican Senate also decides to advance spending reductions in Medicare or Medicaid and if there
would be sufficient bipartisan support to do so.
If the Democratic-controlled House begins to lay the groundwork for a Medicare for All proposal, the
administration and Senate Republicans will focus their public opinion campaign against the policy.
These battles could occur side-by-side with cooperation on other Medicare and entitlement issues.
The statutory suspension of the debt ceiling expires March 1, 2019. With a divided Congress,
bipartisan support will be necessary to extend the debt limit, which could create a legislative vehicle
for other Medicare and entitlement reforms. In addition, several Medicare and health policies
extended in 2018 will expire at the end of 2019. Legislation on these programs typically garners
bipartisan support.
Opportunities for Potential Compromise
Members on both sides of the aisle also have an incentive to demonstrate effectiveness to address
constituent concerns on health issues. Bipartisan work on the opioid epidemic offers a model for
cooperation in several health-related areas:
Fraud & Abuse Law Reforms: There may be sufficient bipartisan support to reduce impediments to
value-based care, such as via changes to the Stark Law and Anti-Kickback Statute. Specific reforms
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