Now that the election results are clear, here’s what we can expect at the next Congress:
- The impact of the 2022 midterm elections will be felt primarily on US fiscal policy, as the US House of Representatives – tightly under Republican control – will seek to restrain federal spending through budget negotiations with White House Biden. and a Democratic-controlled Senate.
- A divided government will not result in a complete legislative deadlock over the next two years. It is likely, however, that only legislation on a few limited topics — and with strong bipartisan support — will make it to the president’s desk.
- With few opportunities to push through their legislative priorities — and limited ability to influence the actions of federal agencies — House Republicans will turn to congressional investigations into the Biden administration as well as certain practices of business, such as the role of ESG in investing and the discourse of major tech platforms. moderation policies.
- Despite a divided Congress, the Biden administration’s regulatory agenda will remain largely unchanged, and federal agencies will work to finalize rulemaking initiated during the president’s first two years in office.
In this legal update, Andrew Olmem, Jonathan Becker, and Warren Payne discuss the impacts of the 2022 U.S. midterm elections on U.S. economic policy, congressional investigations, and federal regulatory agencies.
Budget negotiations and debt ceiling
In recent years, both parties have passed significant legislation using the budget reconciliation process, a parliamentary procedure that overrides Senate filibuster rules for certain tax and spending bills. Reconciliation allows legislation to be passed by simple majority vote. Republicans passed the Tax Cut and Jobs Act in 2017 via reconciliation (when they controlled both the House and Senate), and in the current Congress, Democrats relied on reconciliation to pass the US bailout in 2021 and the Inflation Reduction Act earlier this year.
In a divided Congress, reconciliation will be out of the question, which is why we probably won’t see any major tax bills or spending/stimulus. Congress and the White House will still have to negotiate a new budget deal at some point next year. House Republicans are expected to seek federal spending cuts, while congressional Democrats and Biden’s White House work to protect the spending priorities they’ve adopted over the past two years. years. If not addressed in the next lame duck session, Congress will also have to pass legislation to raise the federal debt ceiling, which the Treasury Department expects to reach around the fourth quarter of 2023.
If Congress fails to raise the debt ceiling in the next lame duck session, some Republicans in Congress will likely use the debt ceiling review in 2023 as a way to extract concessions from the President. Biden on federal spending. This approach was taken in 2011 when negotiations between House Republicans and the Obama White House bogged down and the United States narrowly avoided defaulting on some of its debt.
Even if Congress avoids the stalemate of 2011, we can expect House Republicans, Senate Democrats and White House Biden to engage in intense negotiations next year over the federal budget and the debt limit. This could very well disrupt the financial markets and will need to be watched carefully.
It is also important to note that Congress is a very responsive institution. Unexpected economic or national security events can have a significant impact on the legislation that a Congress ultimately passes. With the US economy potentially in recession next year, the legislative priorities of Congress (as well as the White House) may shift to tackling an economic downturn.
It is always difficult for a divided Congress to pass legislation; and the upcoming 118th Congress will be no different. However, a divided government has been the norm and has historically not prevented Congress from proposing bipartisan bills that can secure the votes needed for passage. While the next Congress will likely be less active than the one that preceded it, there will still be a few areas of agreement where we can expect bipartisan consensus and passed legislation.
- Crypto regulation: In light of recent developments in digital asset markets, the next Congress may well consider regulating digital assets. Patrick McHenry, likely the next chairman of the House Financial Services Committee (HFSC), has said he would like to pass legislation establishing a regulatory regime for digital assets. Earlier in 2022, he worked with current HFSC Chair Maxine Waters and Biden’s Treasury Department to produce a bill to that effect. In addition, the Chair and Ranking Member of the Senate Agriculture Committee, Senators Debbie Stabenow and John Boozman, introduced the Digital Products Consumer Protection Act. This legislation would grant the Commodity Futures Trading Commission authority over digital asset spot markets. These bills could serve as the basis for new bipartisan legislation in the 118th Congress.
- China: The 118th Congress could also find an agreement on ways to counter the growing economic and military challenge posed to the United States by China. This question generates a strong bipartisan consensus. The current Congress is already considering legislation to establish an outbound investment review process (called outbound CFIUS) for certain investments in China, or joint venture investments with Chinese companies.
- “Unavoidable” reauthorizations and invoices: Congress will also have to consider reauthorizing several programs that will expire in 2023. The Farm Bill and the Federal Aviation Administration (FAA) Reauthorization Act are among the significant reauthorizations that Congress will have to deal with in 2023. With only a small number of legislative vehicles moving forward in Congress next year, we are likely to see many members use these two bills as a means of advancing legislative goals. For example, we might see the Farm Bill, which reauthorizes certain Commodities Futures Trading Commission (CFTC) programs, include some provisions to regulate crypto markets. Similarly, the FAA’s proposed reauthorization bill may include provisions to limit the use of Chinese-made drones in the United States. Congress will also likely pass a National Defense Authorization Act (NDAA) – still a “must-have” bill – at the end of 2023. And finally, if not addressed in the next lame duck session , Congress will likely devote part of 2023 to a series of tax and trade provisions that expire this year.
- Tax and commercial extensions: There are a number of outdated tax and trade policies, some of which are considered more partisan than others. Efforts will be made to reinstate these outdated provisions during the lame duck session. If this is not accomplished, Congress will face pressure to fix it in early 2023. interest and expenses, and the expired expanded child tax credit. On the trade side, these include the outdated program of miscellaneous tariff bills, the generalized system of preferences and the trade adjustment assistance program.
Since Democrats will retain control of the US Senate, House Republicans will have limited opportunities to advance their agenda through legislation. As a result, they are preparing to use congressional investigations as an alternative way to advance their political goals. These investigations will focus on surveillance of the Biden administration, which could include investigations into alleged Justice Department politicization and spending authorized by the Build Back Better Act and the Cut Inflation Act, among others. House Republicans have also signaled their willingness to investigate certain industries and corporate practices. In particular, they can draw congressional attention to financial services firms that use ESG investing to determine whether these policies unfairly target the US energy sector, violate US antitrust laws, or negatively impact investors and consumers. House Republicans may also seek to investigate major tech platforms over their content moderation policies and alleged viewpoint discrimination. In addition, China-related business activities that raise national security or humanitarian concerns may well be subject to congressional investigation.
With a Democratic-controlled White House and Senate, it will be difficult for House Republicans to influence the action and rule-making of federal agencies through legislation. That’s not to say House Republicans won’t have a role to play in overseeing federal agencies. House Republicans can, of course, use their committee hammers to hold hearings on policies of concern and call agency officials to testify about administrative actions. This interaction may influence regulatory decisions, but it likely won’t interfere with the Biden administration’s efforts to finalize most of its regulatory proposals before the 2024 election, including the SEC’s climate risk disclosure rule, Federal bank agency bank merger guidelines and the FTC and DOJ merger. guidelines, among others.