Midterm Elections Roundup: Political Theater

In the 2022 midterm elections, Republicans picked up nine seats to take a 222-212 majority in the House. (Due to the post-election death of a Democratic incumbent, there is a vacancy in a Virginia district that is considered safe for Democrats, pending a special election on Feb. 21.) In the Senate, Democrats picked up one seat to take a 51-49 majority. (Although Kyrsten Sinema of Arizona declared herself an independent after the election, she will continue to caucus with the Democrats, as do independents Bernie Sanders of Vermont and Angus King of Maine.)

These results leave the government in an effective stalemate: bills passed by the Republicans in the House will hit a wall in the Democratic-led Senate (and vice versa in the GOP House), while any legislation passed by Congress will be subject to potential presidential veto should the White House disagree. Plus, the potential 60 votes needed to pass any legislation in the Senate, let alone a veto override, would be difficult to achieve.

As the Cook Political Report points out, “… there’s little incentive for either side to work with the other next year. Democrats have a good opportunity to win back control of the House in 2024, while Republicans will be eager to put the Biden administration on defense.”

So, with 2022 voting done … welcome to 2024!

Yes, though your calendar may say it’s 2023, the divided 118th Congress taking up residence in the Capitol is unlikely to get much actual legislation done and is instead likely to focus on scoring political points with an eye on the next big election. (There will be voting in 2023, but mostly for mayor and other municipal offices.  Unless you live in Kentucky, Louisiana, or Mississippi, you are unlikely to vote in a statewide election this year.)

The next two years are assured of providing enough drama through combative committee hearings, messaging bills meant to embarrass the other party, and edge-of-doom budget battles to thrill any cable-news network executive. Whether that drama will please any viewers or voters will depend on just how much they enjoy the current tribal politics and political performance art.

Republicans in the House wasted no time in getting the show on the road with a four-day, 15-round battle over the Speakership—the first time the voting had gone beyond a single ballot since 1923 and the first time it had gone into double digits since before the Civil War. While this offered plentiful opportunities for speechifying on the House floor, face time on TV, and even near fisticuffs, it certainly indicates that we will be seeing gridlock rather than governing for the next two years. That the squabble took place between factions of Republicans may not bode well for any chance at bipartisanship.

Low Expectations

In the Senate, Democrats will prioritize confirmation of judges, which can be done with 51 votes. Otherwise, Majority Leader Chuck Schumer (D., N.Y.) will need to find at least nine Republican votes to pass anything, giving Minority Leader Mitch McConnell (R., Ky.) an effective veto over any legislation moving through the chamber.

Though McConnell has shown a willingness to work across the aisle on occasion, the uncompromising stance of Speaker Kevin McCarthy (R., Calif.) and the newly empowered dissident wing of his party make it unlikely that any bills moving over from the House will be greeted with any enthusiasm by Senate Democrats.

The House is more likely to be engaged in a series of oversight hearings designed to influence the 2024 election. Judiciary Committee Chair Jim Jordan (R., Ohio) said as much at a Conservative Political Action Committee conference in Texas in August, describing Republicans’ planned probes into the president’s son Hunter Biden as helping to “frame up the 2024 race, when I hope, and I think, President Trump is going to run again. And we need to make sure that he wins.”  House Oversight Committee chair James Comer (R., Ky.), stated on November 17: “I want to be clear: this is an investigation of Joe Biden, and that’s where this committee will focus in this next Congress.”

Republicans also plan hearings into the origins of COVID-19 and the government response to the pandemic, the Department of Justice, border security, and the U.S. withdrawal from Afghanistan, among other probes.

Democrats in the Senate will use the advantage they now enjoy in that body’s committees to pursue hearings of their own to counterprogram the House efforts.

Debt Ceiling Cliffhanger: The Sequel

Beyond the drama of hearings and messaging bills looms a more consequential perennial event: brinkmanship over raising the debt ceiling, with the cliff to be reached sometime in late summer or early fall. We’ve seen this movie many times: as the clock ticks down to government shutdown and U.S. default (and the prospect of a global financial catastrophe), politicians maneuver to wring concessions from the negotiations.

In this sequel of the endless series, McCarthy has already signed off on a refusal to raise the ceiling, while McConnell and the Democratic leadership in Congress have indicated that they see the risks. House Republicans seek to use the threat of shutdown and default to force cuts in Social Security and Medicare along with a repeal of Biden’s legislative gains during the 117th Congress. The White House, meanwhile, has rejected the idea of negotiating over the debt ceiling.

Economist Michael R. Strain of the conservative American Enterprise Institute noted the risks of default in a January blog item: “While it is unthinkable that the US would find itself in a period of prolonged default, it is entirely conceivable that Republicans and Democrats will fail to reach a deal before the deadline. Were that to happen, we would be in the early stage of a global financial crisis. The Dow would plunge by thousands of points per day, and the credibility of the U.S.—its trustworthiness as a country that pays its debts on time—would be substantially eroded.”

Since 1960, according to the Treasury Department, the debt ceiling has been raised 78 times: 49 times under Republicans and 29 times under Democrats. So, there’s some reason to be optimistic. However, evading the catastrophe this time may be a bit more complicated, perhaps requiring some arcane parliamentary procedures to advance, such as a “discharge petition,” which would force a debt-ceiling vote without Speaker McCarthy’s approval.

The House Republicans have floated a plan to avoid global financial meltdown by having the Treasury Department use “debt prioritization,” in which the federal government could, once the ceiling is reached, simply pick and choose which bills to pay. White House chief of staff Ron Klain has already blasted the idea, characterizing it as putting payments to foreign lenders above the needs of American taxpayers.

What Can Be Done?

Following the contentious Speakership battle, the House voted in a controversial rules package on a party-line vote, with Rep. Tony Gonzales of Texas the only Republican joining the Democrats in opposing it.

However, this was followed a day later by the passage of a resolution establishing a new panel aimed at countering economic and security threats posed by China, with 146 Democrats joining the Republicans voting yes. It’s a slight indication that there are areas where bipartisan agreement is possible.

Besides national security concerns such as China, Congress may also be able to take on infrastructure permitting reform, antitrust, and regulation of Big Tech and cryptocurrency.

President Biden, a veteran legislator first elected to the Senate at age 29, may reach out to Republicans to move bills. McConnell has already signaled that he is receptive.

Among the legislation that may have a chance of movement:

The American Innovation and Choice Online Act would forbid a digital platform from giving its own products an advantage over others on the platform. Backed by Sen. Amy Klobuchar (D., Minn.), it passed out of committee on a bipartisan vote but did not get a full Senate vote in the 117th Congress.

The Open App Markets Act would require platforms to allow third-party app stores on its devices. This also made it to the floor of the Senate in the 117th Congress in a bipartisan committee vote but failed to get a full Senate vote.

The Pandemic and All-Hazards Preparedness Act (PAHPA), provisions of which are set to expire at the end of the current fiscal year (September 30), will need to be reauthorized. Originally signed into law in 2006, PAHPA covers the Biomedical Advanced Research and Development Authority and the government’s ability to develop and acquire medical countermeasures. Two key questions that PAHPA, and subsequent reauthorizations of that law, sought to answer are who oversees public health preparedness and how can the government best optimize the response framework.

Also requiring reauthorization is the omnibus Farm Bill, which expires on September 30. This legislation has been reauthorized roughly every five years since the original bill was passed in 1933 to get farmers through the Great Depression. The 19th Farm Bill, costing more than $600 billion (according to numbers from the Congressional Research Service), is likely to feature a variety of programs aimed at both rural and urban America. Among these are crop insurance and commodity support, food stamps, nutrition programs, conservation efforts, research on climate change, farmland preservation, and a safety net to help farmers through natural disasters and market downturns.

Given the confluence of the reauthorizations with the debt limit and budget debates, autumn 2023 promises to ramp up the drama as a curtain-raiser to the 2024 campaign.

If you like reading our “Bowen Reports Blogs”, Bowen Asset does have a Facebook page: https://www.facebook.com/BowenAsset Please check it out as we frequently make comments on the page about not just finance and economic events that happen in between our blogs.