Washington Wonderland - Spoiler Alert!

January 12, 2017

Anyone who thought dumping and replacing the Affordable Care Act (ACA) was going to be easy is about to be disappointed, including our new president. And the assortment of conflicting messages that have dropped over just the last 72 hours – from Republican senators and House members pleading to slow things down; from Senate Majority Leader Mitch McConnell (R. Kentucky) and House Speaker Paul Ryan (R., Wisconsin) reiterating that their plans for votes on the budget process that will initiate the legislative time frame are still on schedule for this week; and from President-elect Donald Trump demanding that “repeal and replace” take only a “few weeks” at most – suggests that messaging is going to be a huge problem post-January 20th.

It’s beginning to dawn on the GOP rank and file in the House that there is no set, widely agreed upon formula for a replacement. Further, and perhaps most troubling to long-time Congressional observers, is that the new administration appears to be heading straight into a big game of “chicken” with Senate Democrats on day one. While ACA repeal is relatively easy – if the party can hold its troops in line – Republicans are going to need at least eight Democratic senators to go along with a replacement vehicle. No one with their finger on the pulse of the Senate thinks that will ever happen. The president-elect insists that Democrats must be part of the “fix” and is already threatening the ten Democratic senators up for reelection in 2018 in states that he won last November.  But November 2018 is still several political lifetimes away and in the meantime Democrats will be freshening up Colin Powell’s classic “You broke it, you bought it” line.

Fault Lines

Even Democrats were taken by surprise this week when members of the House Freedom Caucus appeared to express hesitancy about chucking the ACA and requested lots more details from their leadership about just what the plan to replace it looked like. The fact that these conservatives are still fixated on federal spending and the deficit should surprise no one. In fact, they are a reminder that beneath the newly minted GOP power axis run several deep fault lines.

Deficit concerns could easily temper conservative excitement over more than the ACA repeal. There’s also their aversion to the thought of the proposed trillion-dollar infrastructure spending spree as well as concerns that they now might be asked to fund the multi-billion-dollar wall on the Southern border. Both would be nonstarters to many Freedom Caucus members. And don’t get them started on the next “debt limit” fight. Estimates are that sometime in March the debt limit will once again need to be raised. Yes, the Treasury Department would most likely use “extraordinary measures” to put it all off until sometime in mid-summer. But these folk have been forced to walk that plank by their own leadership too many times over the last eight years and they’ve been waiting for a Republican president to make it all stop. Which means this will be a heavy lift for the new administration.

And there’s also big intra-GOP disconnects brewing about trade (specifically taxing imports), Russia (friend or foe) and immigration reform. This may all come as a surprise to many but the lessons about the pitfalls of big majorities and unified government always have to be relearned in Washington.  

As the Financial Regulatory World Turns

While it’s been overshadowed by so much else going on in Washington, there is a small army of corporate lobbyists, conservative policy think tanks and congressional staff hard at work planning the initial steps the next administration will take in Congress to remake the financial regulatory world.

First, opponents of the Consumer Financial Protection Bureau are pressing the incoming president to simply fire the agency’s director, Richard Cordray. His term runs until July 2018 but they claim that a recent court ruling that found the bureau’s single director leadership structure unconstitutional gives the White House all the authority it needs to get the job done on day one. The thinking is that this will be an easy score for the new administration.

Second, efforts to repeal and replace the Dodd/Frank reform law seem to be coalescing around House Financial Services Committee Chair Jeb Hensarling (R., Texas) and his CHOICE Act, which already passed the last Congress. Hensarling touts it as the final answer to “too big to fail” and says that it will “replace bailouts with bankruptcy.” All signs are that the Trump administration will consider this their blueprint going forward.
Also, there are growing signs that the Volcker Act will be altered in the coming months. 

The latest evidence comes from the Federal Reserve staff themselves. They issued a working paper just before Christmas that suggested the rule was not working as planned and needed significant tweaking.
Finally, the newest face in the financial regulatory mix is Wall Street attorney Jay Clayton, the Trump administration’s pick for chairman of the Securities and Exchange Commission. Besides being the first man back in that chair after two consecutive female chiefs, he’s also being positioned as a regulator who will seek to facilitate the business/government interface and someone who will move the agency away from enforcement.

The Tax Man

This week’s dinner meeting between House Speaker Paul Ryan (R., Wisconsin) and the top echelon of the incoming Trump White House team suggests just how this year’s massive tax reform effort will unfold. First, Speaker Ryan is being looked upon as the point person for the endeavor, with his “A Better Way” document, which he spent most of the last two years cobbling together, being relied upon by the new administration as the starting point in negotiations. As with the cases of financial regulatory reform and the ACA overhaul, the Trump team is deferring to existing GOP-developed legislative proposals upon which they intend to make their own imprint.

Ryan in turn will look to the Ways & Means Committee to put together the final legislative vehicle. The current chatter suggests that some sort of skeletal plan will assembled by late March or early April. From there the thinking is to use the coming July 28th summer recess date as the deadline by which to get a House vote. That’s the plan as it stands right now.

There are numerous discrepancies between Ryan’s vision and various scenarios that came out of the Trump camp during last year’s campaign but most are about finding agreement on rates and deductions. And there’s a lot of buzz that Ryan’s “border adjustment tax” may offer Trump a way to politely deal with the issue of taxing imports – i.e. without starting trade wars.

As the details no doubt leak over the coming weeks and months, one big sticking point will undoubtedly be just how the plan is received by the Senate and its tax staff. Given that the legislative strategy for final passage is to again rely on the reconciliation process, the final details will have to ensure GOP Senate unity to succeed.

Washington Wisdom

“There’s only one thing we know for sure with the coming of this unique presidency and its peripatetic Oval Office occupant. There will be almost no quiet days.”
Larry Sabato, political analyst.

“Trump is further behind on taking control of the bureaucracy than any president in recent history ... They didn’t name a director of personnel until this [last] week. Most campaigns have one by July or August. He’s got something like 3,300 appointments to make. That’s going to take a lot of time.”
Paul Light, New York University public management scholar.

“Donald Trump’s Twitter account is the greatest bully pulpit that has ever existed. In 140 characters, he can manage the direction of a Fortune 100 company, he can notify world leaders and he can also notify government agencies that business as usual is over.”
Corey Lewandowski, former campaign manager for the Trump campaign.

“I don’t see any way we can intelligently have a replacement plan by January 27.”
Sen. Bob Corker (R., Tennessee) on repeal of Obamacare.

“That’s an oxymoron.”
Rep. Chris Collins (R., New York), on the phrase “repeal and replace.”

“It’s important for a president to get unfettered input from several different people at least, as long as – and this is a big asterisk – the culture is a colloquial one, when people are working on his behalf and not competing against each other.” 
Karen Hughes, former counselor to President George W. Bush.

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