Gridlock on the Hill

By Steve Kopperud, SLK Strategies

The question on everyone’s mind these days is how many of the goals and promises so loudly touted as part of President Donald Trump’s ambitious “first 100 days” will actually be achieved? In fact, those who have watched the Washington, DC, machine crank away for years wonder out loud how much of the routine “stuff” is going to get done during Trump’s first year in office. The codicil to that query is, “can Congress get done what GOP leadership says must get done?”

Washington insiders most cynical about the success of Congress and the new administration point at what has become almost the perfect storm of seemingly insurmountable barriers to policy success for the two government branches. The business community, which salivated over the return of federal regulatory “certainty” when Trump was elected and the Republicans remained in control of Capitol Hill – translating to tax reform, infrastructure investment, regulatory easing, and so on – continues to scratch its head that what was promised will materialize despite the courts and in spite of Congress.

The gridlock of Washington, DC, is not a GOP phenomenon by any means. Three quarters of the way through Trump’s first year in office and the Democrat minority cannot seem to accept the fact it lost the 2016 general election and that Trump won. Democrat leadership in both chambers, particularly Senate Minority Leader Charles Schumer (D-NY), have systematically slowed down or blocked just about every Republican initiative or even prospective policy move.

Exaggerating this situation is that media attention seems focused only on those things deemed “scandalous” – whether they are or not – with little or no attention paid to policy goals and successes by either party or branch of government.

Trump’s administration is somewhat constrained by the slow pace of Senate executive branch subcabinet nomination approvals, something that can be laid at the feet of Senate Democrats. Subcabinet nominees are those folks who serve as deputy, under, and assistant secretaries, as well as their seconds in command, and Democrats have deftly used procedural dodges to slow some nominations or simply not show up at some committee confirmation hearings so as to deny the panel a quorum to complete its business.

However, Trump is dragging his feet too. There are over 550 executive branch nominations to be forwarded to the Senate for confirmation – the United States Department of Agriculture (USDA) alone has nearly 200 such jobs – and as of mid-July, the president had nominated only about 200 prospective executives and the Senate had confirmed just fewer than 50 of those nominations. At the same point in his first term, President Barack Obama had made over 350 nominations, with the Senate confirming just over 200.

While Steve Censky, chief executive officer of the American Soybean Association, has been nominated for USDA deputy secretary, nominees for most USDA undersecretaries have been chosen but their names are slow to be sent to the Senate. Yet in late July, Trump nominated Indiana Agriculture Director Ted McKinney for undersecretary for Trade and Foreign Agricultural Affairs and Dr. Sam Clovis, former professor of economics at Morningside College in Iowa and a top ag advisor during Trump’s campaign, for undersecretary for Research, Education, and Economics. Publicly, blame is placed on a slow security/ethics review process. However, Trump said early on in his tenure his dearth of subcabinet nominees was in part because he was not sure he would fill all those jobs “because I’m not sure all of them are necessary.” However, he has also not spared congressional Democrats his frustration over the snail’s pace of nomination confirmations.

If the apparent lack of policy progress on Capitol Hill was all Democrat political intransigence – and that intransigence is significant – analysts would write-off the situation as business as usual. However, there is enough blame to go around, including a president who continues to believe he can steer the federal administration just as he steered a New York real estate company, while maintaining an active Twitter account; a White House that needs to decide whether it is the politicos or the policy wonks who should have the president’s ear; congressional Republican leadership who say all the right things and achieve little; and an ultra-conservative GOP Capitol Hill contingent – 75 or so members who maintain their “our-way-or-the-highway” attitude on most major issues – effectively blocking the path forward.

Senate Majority Leader Mitch McConnell (R-KY) is fond of saying, “We need more time to deal with important items.” To that end, the Senate delayed its August recess two weeks to try to catch up with a seriously impeded Republican agenda, including confirmation votes on Trump nominees.

Given that Washington cannot seem to shift out of neutral, the public remains hopeful the policies for which they voted will be the policies that rule the day. Markets, firmly in the grasp of the “Trump rally,” continue to grind higher with little or no regard for the unfulfilled promises of lower taxes, better trade deals, revamped universal healthcare, or federal budget cutting.

The adrenaline rush the economy received immediately after Trump was elected has passed and overall growth continues at the same one to two percent per year seen during the second Obama term. Three percent-plus per annum growth, the pot of gold that is at the end of the Republican business/economic rainbow, continues to rely on comprehensive federal tax reform, analysts contend.

House Speaker Paul Ryan (R-WI) speaks confidently about achieving tax reform in 2017 and, at least to date, the House goal remains comprehensive reform in the sense both corporate and personal income tax rates will be adjusted, loopholes closed, and sweetheart tax breaks eliminated. Ways and Means Committee Chair Kevin Brady (R-TX) echoes Ryan, himself a former Ways and Means Committee chair.

The White House approach to making good on Trump’s pledge to fix the tax code is similar to that touted by Ryan and Brady. Corporate rates would be cut dramatically, with the top rate under the Ryan/Brady plan dropping to 20 to 22 percent – the White House wants a 15 percent rate – depending on how the numbers fall in the full package. There is also a push for significant repatriation of about $2.3 trillion in US corporate profits fenced off from US taxes by holding them in affiliates headquartered in tax-friendly countries. A one-time 10 percent US tax on repatriated profits would generate a conservative $1 trillion.

The good news for most of US business is that the controversial border adjustment tax (BAT) is likely no longer part of the Ryan plan, mainly because the cost of such a tax throws his broader plan out of whack. In theory, a BAT levies a tax depending on where goods are consumed rather than where they are produced. Supporters say a BAT evens out money flow across borders and reduces corporations’ incentive to off-shore profits. This is the camp in which Brady, the biggest BAT booster in Congress, sits and he continues to tell the media the tax reform bill that will pass the House by year’s end will include some form of BAT, also known as the “destination-based cash flow tax.” Brady says almost all other industrial nations have such a tax – generating a lot of money – and the United States needs to get on a level playing field with its competitors. Critics argue a BAT jacks retail prices on imported goods and will hurt US consumers and retailers more than it will help manufacturers by creating jobs.

The Senate remains mum on its plans for fixing the tax code, with Senate Finance Committee Chair Orrin Hatch (R-UT) and Senate Majority Leader McConnell nodding knowingly when Ryan leads another cheer for tax reform.

If the White House and the House unify behind a single tax reform package, a reform bill could be approved by the full chamber by the end of the year. It is assumed once the House does the heavy lifting on the politics of tax reform, the Senate could/would accept the House bill and call it a day.

In another important area, it is mystifying on the policy front why the Republicans continue to repeat the mistakes of the Democrats when it comes to healthcare. The Democrats, when they controlled Congress, were so eager to be the party to deliver “universal healthcare” that they guaranteed themselves major problems by hammering together the Affordable Care Act (ACA) in the backrooms of Capitol Hill. They ignored the Republicans and used simple majority votes to ram through “Obamacare.” The Democrats effectively took a broadly supported policy concept (i.e., healthcare for all) and wrote a technically bad bill. The Republicans are committing the same mistakes by promising to repeal and replace the ACA but coming at it in a very ham-handed fashion, hence the cancelled votes and numerous reinventions.

It is likely the GOP leadership now sees the task of repealing the ACA and replacing it with a new law that does not mess with existing healthcare benefits as too heavy a political lift. The issue is arcane to most members, complicated to the level of nuclear physics, and will touch not just federal government services but also private health insurance providers, broad industry, physicians, hospitals, state governments, and input providers (i.e., drug and medical device makers, etc.).

The House has voted to repeal and replace the ACA; the Senate is mired in indecision but may vote to repeal the law and replace it later with a new universal healthcare package. In any event, both versions of Obamacare action must be reconciled and the agreed-to compromise package re-passed by both chambers before it reaches the president’s desk, an outcome highly unlikely this year.

The modernization/tweaking/renegotiating of the North American Free Trade Agreement (NAFTA) is another candidate for completion by year’s end. In June, a Mexican government official announced he and US Special Trade Representative (USTR) Robert Lighthizer agreed mid-December would be their deadline for completing the updated tripartite trade treaty with Canada. Lighthizer quickly denied that agreement, saying there is no deadline for completion of the discussions.

Secretary of Commerce Wilbur Ross, Trump’s trade czar, has told a number of agriculture exporter audiences the administration enters the NAFTA reboot with a single overriding goal to “do no harm.” Ross’ acknowledgement of this endpoint indicates he has listened to US agriculture interests who have pleaded with USTR and Commerce to do nothing to NAFTA in pursuit of US heavy manufacturing jobs creation that will undo any of the significant successes and benefits the 23-year-old agreement has brought US ag exporters, particularly tariff-free movement of goods across borders.

In late June, more than 130 witnesses (including the National Renderers Association) appeared at a three-day Commerce/USTR public hearing held at the International Trade Commission to hear what the private sector – associations, companies, and individuals – sees as NAFTA renegotiating priorities. While nearly all witnesses echoed the “do no harm” mantra, there was a general consensus that sanitary/phytosanitary standards should reflect those modernized standards included in the Trans-Pacific Partnership (TPP) agreement. There is also consensus on the application of new technologies to expedite shipments and remove cross-border delays as well as a need to update both job protections and environmental safeguards.

USTR’s Lighthizer is also preaching the value of bilateral trade deals for the United States – Trump made it clear during his White House run he is no fan of multilateral trade treaties – and says his office is eagerly pursuing such arrangements wherever it finds opportunities.

According to the USTR’s “2017 Trade Policy Agenda and 2016 Annual Report,” the following is the heart of Trump trade thinking:

“The overarching purpose of our [US] trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans. Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and services industry exports. As a general matter, we believe that these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade agreements when our goals are not being met. Finally, we reject the notion that the United States should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.”

In a section entitled “Top Priorities and Reasons Therefor,” USTR lays out the following priorities: defense of national sovereignty over trade policy; strict enforcement of US trade laws; using “leverage” to open foreign markets; and negotiating new and better trade deals. Other priorities include open competition; elimination of unfair trade barriers “including exports of agricultural goods”; protection of US intellectual property; antidumping trade law enforcement; a ban on import of goods made with forced labor; and pushback against World Trade Organization complaints by trade competitors “that would weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the US is a party.”

Trump has made clear all existing bilateral trade deals are up for review to ensure they meet this national trade policy. Preliminary discussions have been held with Japan, but that nation’s government says the kind of access US agriculture would have enjoyed under TPP is not in the cards in a Japan-US bilateral. Now that Japan and the European Union have inked their monster bilateral trade pact, Japan’s interest in another major negotiation and treaty may be waning. USTR has also begun discussions with Australia, Chile, all parties to the Central American bilateral treaty, and to update the US-Korea bilateral.

All government initiatives, whether administrative or congressional, come down to a very basic element: budget. The last formal budget resolution – a non-binding outline of spending priorities and amounts not requiring the president’s signature – on which Congress agreed was in 2015 for fiscal year 2016. Prior to that, Congress failed to agree to a budget number for six straight years.

There is still no basic budget agreement between the House and Senate, and Representative Diane Black (R-TN), chair of the House Budget Committee, appears to be moving more quickly than her Senate counterpart, Senator Mike Enzi (R-WY). The two are looking to cut overall federal discretionary spending by $200 billion or so for fiscal year 2018, leaving $549 billion for defense spending and $516 billion for non-defense discretionary spending. Black appears less concerned about producing an initial House budget bill that mirrors Senate thinking because it will all get sorted out in a bicameral conference committee, she says.

House and Senate budget chairs have tough jobs. Not only do they need to try to come to an agreement on a top-line budget number, they must also decide which program areas take the biggest cuts to reach that number, specifically “reconciling” real world spending with those budget numbers. Then they must fashion a bill to get over that goal line as well as take separate action to shoehorn room for tax reform initiatives and an increase in the federal debt ceiling, always an ugly fight.

The 12 appropriations bills for fiscal year 2018 will likely see individual committee action and are all but guaranteed to be rolled once again into an omnibus spending package. While all 12 of those spending bills are supposed to be enacted by October 1, the start of the federal government’s new fiscal year, the last time all appropriations bills were enacted by that deadline was over 20 years ago, in 1996.

August 2017 RENDER | back