sign in sign up
<<
Home , Al Lawson, Continuing resolution, Discharge petition, George Holding, Heidi Heitkamp, Jim Renacci

2018 Midterms Analysis and 116th Congress Overview

CAPITOL COUNSEL, LLC | 700 13th Street NW | Washington, DC 20005 202.861.3200

1

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, , * and Mississippi (MS run off will occur on November 27) Republicans flipped Democratic seats in , Missouri, and Democrats flipped a Republican seat in Nevada * 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 , 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.

2

3

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 (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 (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 (R-AR) currently co-chairs the Joint Select Committee on Budget and Appropriations Process Reform with current House Appropriations Committee 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

5

and 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 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. (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.

6

Outlook: 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.

7

Potential House Leadership

Democrats Republicans

Speaker Nancy Pelosi (D-CA)

Majority/Minority Leader (D-MD) Kevin McCarthy (R-CA) Jim Jordan (R-OH)

Majority/Minority Whip (D-SC) (R-LA) Patrick McHenry (R-NC)*

Caucus/Conference Chair Linda Sanchez (D-CA) Cathy McMorris Rodgers (R-WA) (D-CA) (R-WY)

Caucus/Conference Vice Chair (D-MA) (R-MO)* (D-CA) Doug Collins (R-GA)*

Assistant Leader (D-IL) N/A (D-RI) Ben Ray Lujan (D-NM)

Conference Secretary Jason Smith (R-MO)*

DCCC/NRCC Chair Suzan DelBene (D-WA) (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.

8

Potential House Committee Leadership

Democrats Republicans

Agriculture Collin Peterson (D-MN) Mike Conaway (R-TX)

Appropriations Nita Lowey (D-NY) , (R-TX) (R-AL) (R-OK) (R-GA) (R-ID)

Armed Services (D-WA) Mac Thornberry (R-TX)

Budget (D-KY) Steve Womack (R-AR)

Education and Workforce Bobby Scott (D-VA) (R-NC)

Energy and Commerce (D-NJ) Greg Walden (R-OR)

Ethics (D-FL) Susan Brooks (R-IN)

Financial Services (D-CA) Patrick McHenry (R-NC)* (R-MO) (R-MI) Frank Lucas (R-OK)* (R-WI)

Foreign Affairs Eliot Engel (D-NY) Michael McCaul (R-TX) Joe Wilson (R-SC) (R-FL)

Homeland Security (D-MS) Mike Rogers (R-AL) (R-NY)

House Administration (D-CA) Rodney Davis (R-IL) Mark Walker (R-NC)

Intelligence (D-CA) (R-CA)

Judiciary (D-NY) (R-OH) Doug Collins (R-GA)*

Natural Resources Raul Grijalva (D-AZ) (R-UT)

Oversight and Government Reform (D-MD) Steve Russell (R-OK)

Rules Jim McGovern (D-MA) (R-GA)

Science, Space, and Technology (D-TX) Frank Lucas (R-OK)* (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) (R-MO)

Veterans Affairs (D-CA) (R-TN)

Ways and Means (D-MA) (R-TX)

*This member is up for more than one potential role, the outcome dependent on overarching leadership domino factors.

9

Potential Senate Leadership

Republicans Democrats Majority/Minority Leader Mitch McConnell (R-KY) Chuck Schumer (D-NY)

Majority/Minority Whip John Thune (R-SD) (D-IL)

Republican Conference (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 (R-IA) N/A Vice Chair Deb Fischer (R-NE)

10

Potential Senate Committee Leadership

Democrats Republicans

Agriculture, Nutrition, and Debbie Stabenow (D-MI) Pat Roberts (R-KS) Forestry

Appropriations Patrick Leahy (D-VT) (R-MS)

Armed Services Jack Reed (D-RI) James Inhofe (R-OK)

Banking, Housing, and Urban (D-OH) Michael Crapo (R-ID)* Affairs Patrick Toomey (R-PA)

Budget Bernie Sander (D-VT) Michael Enzi (R-WY)

Commerce, Science, and (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 (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 (D-NM) (R-SD)

Judiciary Dianne Feinstein (D-CA) Chuck Grassley (R-IA)* (R-SC)

Rules and Administration Amy Klobuchar (D-MN) Roy Blunt (R-MO)

Small Business and (D-MD) James Risch (R-ID)* Entrepreneurship (R-FL)

Veterans’ Affairs Jon Tester (D-MT) (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) (R-ME)

*This member is up for more than one potential role, the outcome dependent on overarching leadership domino factors.

11

Outlook: 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 (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.

12

Tax 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. (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.

13

Other 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. (D-TX) and (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 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 .

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. (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 to

14

combat 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 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

15

amendments 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 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.

16

Outlook: 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. (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 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); ● (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,

17

infrastructure, 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 (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. (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. (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

19

number 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 to the House 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.

20

Outlook: 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 , 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 & 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 .

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

21

hearings – 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 .

 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 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

22

may depend on administration determinations regarding which steps require congressional authorization, as well as any budget impact. These reforms may have Democratic supporters in the Senate and House, depending on the provision; however, Democratic members have raised concerns that sweeping changes could increase costs and harm patients.

 Maternal and Infant Mortality: There has been heightened bipartisan interest in late 2018 to address rising maternal and infant mortality rates, which could present an early opportunity for legislative success in the new Congress.

 Value-Based Care & Provider Reimbursement Reform: Secretary Azar repeatedly stated that HHS intends to use “bold measures” to move providers towards value-based care models. Some approaches, such as eliminating requirements that impede care coordination, have broad support; however, aggressive proposals that force providers to take on more risk may face pushback from Congress. For example, a bipartisan group of members from key House committees expressed opposition to an administration proposal to require ACOs to take on greater risk. Members from both parties may continue to challenge administration actions that affect certain providers or patient populations.

 Health Care Costs: Members on both sides of the aisle have targeted rising health care costs as an area needing reform. The most extensive work to date has occurred in the Senate Health, Education, Labor, and Pensions Committee, where Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) are working together on a series of hearings that may lead to a targeted set of consensus proposals to reduce health costs.

23

Outlook: Budget/Appropriations Committees The House Appropriations Committee will see significant shifts next Congress. However, the Senate committee leadership is likely to remain the same and is expected to operate in a manner very similar to this year with Chairman Richard Shelby (R-AL) and Vice-Chairman Leahy (D-VT) working together.

The special election Senate race in Mississippi has not been resolved leaving Sen. Cindy Hyde-Smith’s position in the Senate and on the Senate Appropriations Committee in question. This runoff will be decided on November 27. Further, depending on the final ratio in the Senate, Democrats may actually lose a seat on the Committee.

In the House, Ranking Member Nita Lowey (D-NY) is expected to become Chair; however, this is not set in stone pending Democratic leadership elections. For example, current House Minority Whip Steny Hoyer has seniority on the Committee. Absent major leadership shakeups at the top of the Appropriations Committee, it is expected that current subcommittee ranking members will assume the role of chairman on their respective subcommittees. Ranking Member Lowey has given some indications of how she will guide the committee next Congress. She will likely seek to reverse recent cuts to social services programs and will continue to fight for parity between defense and non-defense spending. She has also indicated that her goal is to pass individual bills, stating that it is preferable to the bundling of Appropriations legislation prevalent in recent history. Further, like her counterpart Vice-Chairman Leahy, Ranking Member Lowey has indicated an openness to consideration of earmarks or “congressionally directed spending.” Reports indicate that the she does not intend to implement this process if the chambers and President are playing “by different rules.”

The retirement of full Committee Chairman Frelinghuysen (R-NJ) leaves an opening for the top spot on the Republican side. Many expect that Representative Kay Granger (R-TX) will assume the role of full Committee Ranking Member; however, she may have competition from other cardinals including Chairmen Robert Aderholt (R-AL), Tom Cole (R-OK), and Tom Graves (R-MO). Chairman Aderholt is term limited out of his position on the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Subcommittee so this will factor into shifting subcommittees for the top Republicans. Several Republican members of the House Appropriations Committee lost their election including two cardinals: (R-KS), Chairman of Homeland Security Subcommittee and John Culberson (R-TX), Chairman of Commerce Justice and Science. Their loss and the retirement of Thomas J. Rooney (R-FL) means significant gains in seniority for more junior members of the committee. There may be several new Republican faces in the top minority spot at the traditionally junior subcommittees like Legislative Branch and Military Construction, Veterans Affairs, and related agencies next Congress.

Budget/Appropriations Agreement The lynchpin to any meaningful appropriations work for FY2020 and beyond will be whether Congress can come to agreement on a new budget agreement. Establishing a new budget agreement with mixed party control in the legislative chambers, already a difficult task, is further complicated by some legislators’ desire to “bust the caps.” This refers to the breaking the statutory spending limits or “caps” originally established in the Budget Control Act of 2011. In recent history, to gain support from various constituencies in Congress, budget deals have been reached that push spending restrictions higher, usually in a two-year agreement. This most recently happened in the Bipartisan Budget Act of 2018.

24

In that legislation, both defense and non-defense discretionary spending were increased substantially over previously established spending targets. Currently, FY2019 Appropriations measures fund the latter year of a two-year budget agreement. A new agreement would be needed next year to avert sequester which would cause a $71 billion cut in defense discretionary spending and a $55 billion cut in non- defense discretionary spending below the FY2019 levels.

Legislative consideration in establishing this new budget agreement will be the 2018 deficit, which has climbed to $779 billion. The Trump administration has already suggested it will put forth a budget that includes a “nickel plan” cutting 5% from each agency funded with discretionary spending. However, a $71 billion cut to defense programs is likely not palatable to the Trump administration, and Ranking Member Lowey and House Democrats will not agree to significant cuts to domestic programs. A rallying cry for the new majority has been parity for non-defense discretionary spending.

The spending levels decided upon by any budget agreement will set the stage for the appropriations process. With the recommendations for biennial budgeting expected, it is likely that a caps deal will be approved for FY2020 and FY2021. Democratic leadership in the House is likely to capitalize on their new position of power by pushing to end sequester once and for all. This would enable a process by which 302(b) allocations are revealed at the beginning of the Appropriations process and not altered going forward, rather than the current process, which has seen revised allocations approved throughout the funding cycle.

25

Outlook: Other Issues As Congress returns under divided leadership for the first time since 2014, the constructive legislative outlook looks light; however, there are a number of other issues beyond those discussed above that will likely see movement and could even pass both House with bipartisan support.

The Department of Defense Authorization The Department of Defense Authorization is usually considered and passed each year, but with possible impediments. The prospects for a timely consideration of the annual Defense bill could depend solely on the outcome of negotiations on a new budget deal. Absent that, and under the final two years of sequestration, resources will be scarce for the Armed Services Committees, which relied on substantial additional funding to garner swift passage in 2018.

Criminal Justice Reform Likewise, Criminal Justice Reform remains as an outside possibility to be finalized in the lame duck session, but will face an easier path in a new Democratic-controlled House of Representatives. With White House involvement from Jared Kushner, and the potential retirement or firing of Attorney General , Senate negotiators are centering on a package that would include sentencing provisions from S.1917 – the Sentencing Reform and Corrections Act, modified language from the FIRST STEP Act as passed the House earlier this year, with the possible inclusion of legislation from Sen. Tom Cotton (R-AR) to restore mandatory minimum sentences for armed crimes, provisions to increase penalties for Fentanyl trafficking, and prison reform legislation.

Trade Congress may be forced to vote on the new U.S.-Mexico-Canada Agreement early next spring, a fraught political vote for both House and Senate Democrats and a difficult political test for the Trump White House. Heading into election night, critical Senate Finance and Ways and Means Committee Democrats were still keeping their options open. In prior significant trade votes, Democrats have been called upon to round up votes to offset renegade Republican opposition, but no leading Democrat currently relishes the role and it is not clear that a leading Democrat will emerge. Further, Democrats are also extremely reluctant to hand President Trump an oversized victory as he heads into his reelection campaign. At a minimum, Democrats will certainly raise the stakes with their demands in the accompanying implementing legislation.

Consumer Privacy Inspired by actions at state legislatures and internationally, the 116th Congress may very well take on privacy where there could be bipartisan agreement. Senate Commerce Committee Chairman John Thune (R-SD) is expected to put forth legislation related to consumer data and privacy. Also, in the Senate Commerce Committee, Sens. Jerry Moran (R-KS), Roger Wicker (R-MS), Richard Blumenthal (D- CT) and Brian Schatz (D-HI) are discussing a potential privacy bill, possibly as a competing effort. The House is working on efforts expected to be referred to the House Energy and Commerce Committee. Rep. Frank Pallone (D-NJ), the top ranking Energy and Commerce Democrat, has indicated a broad interest from the Democratic Caucus. Further, Rep. (D-CA) has produced an internet user “bill of rights” proposal. Energy and Commerce Chairman Greg Walden (R-OR) has also expressed interest in addressing consumer privacy in the House. Expect several competing proposals. Additionally, the Trump administration, via the National Economic Council and Commerce Department, is assembling their own proposal. Legislative proposals are expected to address some of the same provisions as the European Union’s (EU) General Data Protection Regulation (GDPR) and the California Consumer Privacy Act of 2018. Legislative proposals are expected to subject a broad group of businesses to restrictions

26

and requirements surrounding use of consumer data. While legislation of this sort is typically very slow to move, the timeline for implementation of the California Law (January 1, 2020) and standards already imposed on American companies operating in the EU by GDPR may create a scenario which brings about legislative action in the next Congress.

27

Conclusion

As Congress comes back to town next week, it is clear that there will be significant action in both the lame duck and in the next Congress on many areas of importance to businesses, non-profits, associations, consumers, and families. Even with divided government, there are issues that must be addressed such as government funding and expiring authorizations, and there are areas where there could be bipartisan agreement, including infrastructure, privacy, and retirement. So, while much has changed as a result of the election, the work of Congress and the administration will continue. And while this document is a guide to some of the issues we will see in the next two years, as we have learned over the past two years, Washington, D.C. is full of surprises. There will likely be issues that arise that we could not predict, and how President Trump positions himself and the administration in the next two years will be important. If the President chooses to work with House Democrats on areas of interest, following the populist tone he has sometimes taken, we could see more compromise and agreement than expected. Capitol Counsel and our bipartisan team looks forward to working with our clients and the new Congress as we seek to navigate in this changing environment.

28

Appendix: Select Committee Rosters Senate Agriculture Committee

Republicans Democrats Chairman Pat Roberts (R-KS) Ranking Member Debbie Stabenow (D-MI) Mitch McConnell (R-KY) Patrick Leahy (D-VT) John Boozman (R-AR) Sherrod Brown (D-OH) John Hoeven (R-ND) Amy Klobuchar (D-MN) Joni Ernst (R-IA) Michael Bennet (D-CO) Charles Grassley (R-IA) Kirsten Gillibrand (D-NY) John Thune (R-SD) Joe Donnelly (D-IN) Steve Daines (R-MT) Heidi Heitkamp (D-ND) (R-GA) Robert P. Casey, Jr. (D-PA) Deb Fischer (R-NE) Tina Smith (D-MN) Cindy Hyde-Smith (R-MS)

Red= Loss Yellow= Ongoing

29

House Agriculture Committee

Republicans Democrats Chairman K. Michael Conaway (R-TX) Ranking Member Collin Peterson (D-MN) Glenn Thompson (R-PA) David Scott (D-GA) (R-VA) (D-CA) Frank D. Lucas (R-OK) Timothy Walz (D-MN) (R-IA) (D-OH) Mike Rogers (R-AL) Jim McGovern (D-MA) (R-OH) Filemon Vela (D-TX) Austin Scott (R-GA) Michelle Lujan Grisham (D-NM) Rick Crawford (R-AR) Ann Kuster (D-NH) Scott Desjarlais (R-TN) Rick Nolan (D-MN) (R-MO) Cheri Bustos (D-IL) Jeff Denham (R-CA) (D-NY) Doug Lamalfa (R-CA) Stacy Plaskett (D-VI) Rodney Davis (R-IL) (D-NC) Ted Yoho (R-FL) Dwight Evans (D-PA) Rick Allen (R-GA) Jr. (D-FL) (R-IL) (D-CA) (R-NC) Tom O’Halleran (D-AZ) Ralph Abraham (R-LA) (D-FL) (R-MS) (D-DE) (R-KY) Roger Marshall (R-KS) (R-NE) John Faso (R-NY) (R-FL) (R-TX)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

30

Senate Appropriations Committee

Republicans Democrats Chairman Richard Shelby (R-AL) Vice Chairman Patrick Leahy (D-VT) Mitch McConnell (R-KY) Patty Murray (D-WA) Lamar Alexander (R-TN) Dianne Feinstein (D-CA) Susan Collins (R-ME) Richard Durbin (D-IL) Lisa Murkowski (R-AK) Jack Reed (D-RI) Lindsey Graham (R-SC) Jon Tester (D-MT) Roy Blunt (R-MO) Tom Udall (D-NM) Jerry Moran (R-KS) Jeanne Shaheen (D-NH) John Hoeven (R-ND) Jeff Merkley (D-OR) John Boozman (R-AR) Christopher Coons (D-DE) Shelley Moore Capito (R-WV) Brian Schatz (D-HI) James Lankford (R-OK) (D-WI) Steve Daines (R-MT) Chris Murphy (D-CT) John Kennedy (R-LA) (D-WV) Marco Rubio (R-FL) Chris Van Hollen (D-MD) Cindy Hyde-Smith (R-MS)

Yellow= Ongoing

31

House Appropriations Committee

Republicans Democrats Chairman Rodney P. Frelinghuysen (R-NJ) Ranking Member Nita M. Lowey (D-NY) Harold Rogers (R-KY) (D-OH) Robert B. Aderholt (R-AL) Peter J. Visclosky (D-IN) Kay Granger (R-TX) José E. Serrano (D-NY) Michael K. Simpson (R-ID) Rosa L. DeLauro (D-CT) John Abney Culberson (R-TX) David E. Price (D-NC) John R. Carter (R-TX) Lucille Roybal-Allard (D-CA) (R-CA) Sanford D. Bishop, Jr. (D-GA) Tom Cole (R-OK) Barbara Lee (D-CA) Mario Diaz-Balart (R-FL) Betty McCollum (D-MN) Tom Graves (R-GA) Tim Ryan (D-OH) Kevin Yoder (R-KS) C.A. (D-MD) Steve Womack (R-AR) (D-FL) (R-NE) (D-TX) Thomas J. Rooney (R-FL) (D-ME) Charles J. Fleischmann (R-TN) Mike Quigley (D-IL) (R-WA) (D-WA) David P. Joyce (R-OH) (D-PA) David G. Valadao (R-CA) (D-NY) , MD (R-MD) (D-WI) Martha Roby (R-AL) Katherine M. Clark (D-MA) Mark E. Amodei (R-NV) Pete Aguilar (D-CA) Chris Stewart (R-UT) David Young (R-IA) Evan H. Jenkins (R-WV) (R-MS) (R-WA) John R. Moolenaar (R-MI) Scott Taylor (R-VA) John Rutherford (R-FL)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

32

Senate Banking Committee Republicans Democrats Chairman Michael Crapo (R-ID) Ranking Member Sherrod Brown (D-OH) Richard Shelby (R-AL) Jack Reed (D-RI) Bob Corker (R-TN) Robert Menendez (D-NJ) Patrick J. Toomey (R-PA) Jon Tester (D-MT) Dean Heller (R-NV) Mark Warner (D-VA) Tim Scott (R-SC) Elizabeth Warren (D-MA) Ben Sasse (R-NE) Heidi Heitkamp (D-ND) Tom Cotton (R-AR) Mike Rounds (R-SD) Joe Donnelly (D-IN) David Perdue (R-GA) Brian Schatz (D-HI) (R-NC) Chris Van Hollen (D-MD) John Kennedy (R-LA) Catherine Cortez Masto (D-NV) Jerry Moran (R-KS) (D-AL)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

33

House Financial Services Committee

Republicans Democrats Chairman Jeb Hensarling (R-TX) Ranking Member Maxine Waters (D-CA) Peter T. King (R-NY) Carolyn B. Maloney (D-NY) Edward R. Royce (R-CA) Nydia M. Velázquez (D-NY) Frank D. Lucas (R-OK) (D-CA) Patrick T. McHenry (R-NC) Gregory W. Meeks (D-NY) Stevan Pearce (R-NM) Michael E. Capuano (D-MA) (R-FL) Wm. Lacy Clay (D-MO) Blaine Luetkemeyer (R-MO) Stephen F. Lynch (D-MA) Bill Huizenga (R-MI) David Scott (D-GA) Sean P. Duffy (R-WI) (D-TX) Steve Stivers (R-OH) (D-MO) Randy Hultgren (R-IL) (D-WI) Dennis A. Ross (R-FL) Keith Ellison (D-MN) (R-NC) (D-CO) (R-MO) James A. Himes (D-CT) Andy Barr (R-KY) (D-IL) Keith J. Rothfus (R-PA) Daniel T. Kildee (D-MI) Luke Messer (R-IN) John K. Delaney (D-MD) Scott Tipton (R-CO) Kyrsten Sinema (D-AZ) Roger Williams (R-TX) (D-OH) Bruce Poliquin (R-ME) Denny Heck (D-WA) Mia Love (R-UT) (D-CA) (R-AR) (D-NJ) (R-MN) Vicente Gonzalez (D-TX) Lee M. Zeldin (R-NY) (D-FL) Dave A. Trott (R-MI) Ruben J. Kihuen (D-NV) (R-GA) Alexander X. Mooney (R-WV) Thomas MacArthur (R-NJ) (R-OH) (R-NC) (R-TN) (R-NY) (R-IN)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

34

Senate Finance Committee

Republicans Democrats Chairman Orrin G. Hatch (R-UT) Ranking Member Ron Wyden (D-OR) Chuck Grassley (R-IA) Debbie Stabenow (D-MI) Mike Crapo (R-ID) Maria Cantwell (D-WA) Pat Roberts (R-KS) Bill Nelson (D-FL) Michael B. Enzi (R-WY) Robert Menendez (D-NJ) John Cornyn (R-TX) Thomas R. Carper (D-DE) John Thune (R-SD) Benjamin L. Cardin (D-MD) Richard Burr (R-NC) Sherrod Brown (D-OH) Johnny Isakson (R-GA) Michael F. Bennet (D-CO) Rob Portman (R-OH) Robert P. Casey, Jr. (D-PA) Patrick J. Toomey (R-PA) Mark R. Warner (D-VA) Dean Heller (R-NV) Claire McCaskill (D-MO) Tim Scott (R-SC) Sheldon Whitehouse (D-RI) Bill Cassidy (R-LA)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

35

House Committee on Ways and Means Republicans Democrats Chairman Kevin Brady (R-TX) Ranking Member Richard Neal (D-MA) Sam Johnson (R-TX) Sander Levin (D-MI) Devin Nunes (R-CA) (D-GA) Dave Reichert (R-WA) Lloyd Doggett (D-TX) (R-IL) Mike Thompson (D-CA) (R-FL) John Larson (D-CT) Adrian Smith (R-NE) Earl Blumenauer (D-OR) Lynn Jenkins (R-KS) (D-WI) Erik Paulsen (R-MN) Bill Pascrell (D-NJ) Kenny Marchant (R-TX) Joseph Crowley (D-NY) Diane Black (R-TN) Danny Davis (D-IL) (R-NY) Linda Sanchez (D-CA) Mike Kelly (R-PA) (D-NY) Jim Renacci (R-OH) (D-AL) (R-SD) Suzan DelBene (D-WA) (R-NC) (D-CA) Jason Smith (R-MO) (R-SC) (R-AZ) (R-IN) (R-FL) Mike Bishop (R-MI) Darin LaHood (R-IL) (R-OH)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

36

Senate HELP Committee

Republicans Democrats Chairman Lamar Alexander (R-TN) Ranking Member Patty Murray (D-WA) Michael B. Enzi (R-WY) Bernie Sanders (I-VT) Richard Burr (R-NC) Robert P. Casey, Jr. (D-PA) Johnny Isakson (R-GA) Michael F. Bennet (D-CO) (R-KY) Tammy Baldwin (D-WI) Susan Collins (R-ME) Christopher S. Murphy (D-CT) Bill Cassidy, M.D. (R-LA) Elizabeth Warren (D-MA) Todd Young (R-IN) Tim Kaine (D-VA) Orrin G. Hatch (R-UT) Maggie Hassan (D-NH) Pat Roberts (R-KS) Tina Smith (D-MN) Lisa Murkowski (R-AK) Doug Jones (D-AL) Tim Scott (R-SC)

Strike out= Retired/Ran for another office

37

House Committee on Energy & Commerce

Republicans Democrats Chairman Greg Walden (R-OR) Ranking Member Frank Pallone (D-NJ) Vice Chairman Joe Barton (R-TX) (D-IL) (R-MI) (D-CA) John Shimkus (R-IL) Eliot Engel (D-NY) Michael Burgess (R-TX) Gene Green (D-TX) Marsha Blackburn (R-TN) Diana DeGette (D-CO) Steve Scalise (R-LA) Michael Doyle (D-PA) Robert Latta (R-OH) Janice Schakowsky (D-IL) Cathy McMorris Rodgers (R-WA) G.K. Butterfield (D-NC) Gregg Harper (R-MS) (D-CA) Leonard Lance (R-NJ) (D-FL) (R-KY) (D-MD) Pete Olson (R-TX) Jerry McNerney (D-CA) David McKinley (R-WV) (D-VT) (R-IL) Ben Lujan (D-NM) (R-VA) (D-NY) (R-FL) (D-NY) Bill Johnson (R-OH) David Loebsack (D-IA) (R-MO) (D-OR) (R-IN) Joseph Kennedy (D-MA) Bill Flores (R-TX) Tony Cardenas (D-CA) Susan Brooks (R-IN) (D-CA) (R-OK) Scott Peters (D-CA) Richard Hudson (R-NC) (D-MI) (R-ND) (R-MI) Mimi Walters (R-CA) Ryan Costello (R-PA) (R-GA) (R-SC)

Strike out= Retired/Ran for another office Red= Loss Yellow= Ongoing

38