The Senate returns from recess today, followed by the House a week later on September 12. We analyze what must pass, what else could pass, and what’s still on the table.
What Must Pass
Appropriations (by Joe Bushong)
With government funding set to lapse in only a few weeks, Congress returns from the August recess with no clear path to agreeing on how to keep the government open past September 30. The House and Senate took very different paths over the course of the summer as each worked to advance its appropriations bills, and they are now on a collision course that could lead to the first government shutdown since 2019.
The Senate Appropriations Committee approved all 12 of its spending bills for the first time in five years, with most of them garnering bipartisan support. While Senate leadership is considering which appropriations bills can be packaged together and earn the 60 votes needed for floor time in the fall, negotiating a short-term continuing resolution to keep the government open will be their immediate focus given the impending deadline. While the White House is pushing Congress to pass a short-term continuing resolution alongside the Administration’s emergency request for $40 billion in funding for disaster relief, border security, and Ukraine, it’s unclear if there will be enough Republican support to pass a stopgap government funding bill or the Administration’s emergency funding request.
The House struggled to advance its appropriations bills over the summer even after the speaker yielded to his conference’s demands to cut tens of billions of dollars more from the agreed-to levels in the Fiscal Responsibility Act (FRA). To date, the House Appropriations Committee reported out — with only Republican support — 10 of its 12 spending bills. Passing the House appropriations bills on the floor is even more of a challenge. Breaking with FRA’s top-line spending levels, coupled with conservative social-political riders inserted in every bill, virtually ensures there will be no Democratic votes to help with passage. That means the speaker needs 218 Republican votes to pass the spending bills while the House Freedom Caucus continues to demand even more cuts and partisan policy riders to garner their support. Before the August recess, the House majority managed to pass only one appropriations bill, and that bill — the Military Construction-Veterans Affairs bill, normally viewed as the easiest appropriations bill to pass — faced significant pushback from some Republicans and passed with one vote to spare. The same pushback forced the speaker to delay floor consideration of the Agriculture appropriations bill, another normally less controversial measure, until after the recess. Despite these challenges, House leadership plans to hold floor votes on its appropriations bills in September beginning with consideration of the Defense appropriations bill, and the Homeland Security appropriations bill is on deck in the Rules Committee with an amendment deadline set for September 6, 2023.
Meanwhile, the push from the House Freedom Caucus to extract more concessions on appropriations continued over the August recess with three dozen Republican members declaring they would oppose a stopgap continuing resolution to keep the government open unless their demands are met. In addition to funding levels billions below the agreement included in FRA, members are demanding that the continuing resolution include the House-passed border security bill, provisions to defund the FBI, and provisions to defund “woke” programs at the Department of Defense.
As Congress returns, congressional leadership is nowhere closer to negotiating an appropriations agreement that will win the support of the House, Senate, and the White House, and the chances of a shutdown are increasing.
National Defense Authorization Act (by Paul Arcangeli and Noah Kowalski)
For the first time since 2020, both the House and Senate completed their versions of the bill prior to the August recess. Unfortunately, this timely progress may encounter some bumps as the two chambers look to resolve the differences between their respective bills.
With Democrats controlling the Senate and President Biden in the White House, many of the controversial provisions in the House-passed bill need to be dropped. However, it is unclear how many concessions House Republican leadership can make and maintain support within its conference.
All of this takes place in the shadow of the looming fight over FY 2024 appropriations, which will slow the National Defense Authorization Act (NDAA) conference negotiations to keep it in step with the appropriators. Slowing negotiations down will help NDAA conferees resolve the differences between the two bills but will likely push a final agreement on the NDAA conference until November or December. Despite these difficulties, this bill has passed every year for 63 years straight, and it would be unwise to bet against its passage this year.
Farm Bill (by Anne MacMillan)
Although House and Senate Agriculture Committee staff spent the August recess preparing text for this year’s Farm Bill reauthorization, there is still too much work to be done. Members and staff recognize what we predicted earlier this year — Congress will not pass a Farm Bill by its September 30 expiration date.
Lawmakers are beginning to look at options for both short- and long-term extensions of the 2018 Farm Bill. This would give the House and Senate Agriculture Committees time to mark up and pass their versions of the legislation, secure floor time for initial passage, and, hopefully, negotiate a conference report in 2023. Staff continues to turn over couch cushions in hopes of finding the necessary “spare change” to make the financing of the bill work. With the FRA rescinding most, if not all, of the pockets of money to play with, the committees spent much of August recess sparring with the Congressional Budget Office on how to make necessary improvements to the Farm Bill at little to no cost.
Given a congested congressional calendar in September, we expect committee consideration to begin later in the fall, with the goal of sending the bill to the president before the end of the calendar year to avoid complications with the 2024 campaign cycle. But the politics and pressure of a government shutdown can, and likely will, throw this schedule out the window.
FAA Reauthorization (by Joe Bushong)
Before the August recess, the House completed its work to reauthorize the FAA, passing H.R. 3935 with broad bipartisan support. On the other side of the Capitol, the Senate version (S.1939) remains bogged down by an ongoing dispute over proposed changes to pilot training requirements, which prevented the bill from advancing out of committee. Ahead of the recess, Senate Commerce, Science, and Transportation Committee Chair Maria Cantwell (D-WA) acknowledged that the dispute is likely to delay the Senate’s consideration of its FAA reauthorization bill until after the September 30 reauthorization deadline, which means Congress will need to pass a short-term FAA extension this month. The White House asked Congress to include a short-term FAA extension in the stopgap continuing resolution needed to keep the government funded past September.
Flood Insurance (by Carolyn Coda)
Absent congressional action, the National Flood Insurance Program (NFIP) will expire on September 30. Over the last several years, authorization for NFIP, which provides the overwhelming majority of flood insurance policies to U.S. homeowners, has been packaged up with the larger government funding package. This is once again the path forward for the NFIP. While this can be beneficial for the program, almost ensuring it will not get mired in a debate over reform, it carries the risk of lapsing in the event of a government shutdown. Should Congress fail to agree on a larger funding package, triggering a government shutdown, the NFIP will also likely be shuttered and unable to write new policies or pay claims during the height of storm season.
What Else Could Pass
Permitting Reform (by Logan Hollers and Jared Soncrant)
Congress departed for August recess with uncertainty around the prospect of additional permitting reform. Permitting reform players in the House and Senate continue seeking ways to keep up momentum despite Congress focusing on more pressing matters. There are several permitting and transmission issues left unaddressed in the debt ceiling deal struck earlier this summer.
We expect Rep. Garret Graves (R-LA) — a close ally to Speaker Kevin McCarthy (R-CA) and one of the lead permitting reform negotiators in the House — to continue pushing a bipartisan, bicameral conversation to outline the parameters of a potential deal with Members such as Rep. Scott Peters (D-CA), Senator Kyrsten Sinema (I-AZ), and House Natural Resources Committee Chair Bruce Westerman (R-AR). While these and other ad hoc discussions continue, the leaders of the Senate Energy and Natural Resources Committee and Senate Environment and Public Works Committee will insist on proceeding under regular order. However, committee discussions exposed significant fault lines between competing Republican and Democratic proposals, with little time in the legislative calendar to resolve them.
But substantial bipartisan and industry appetite for permitting 2.0 exists, including a sense of urgency among clean energy advocates on the need for transmission reforms to unlock Inflation Reduction Act (IRA) incentives. If the tent of Members willing to compromise on thorny environmental issues continues to grow and sidelines hardliners in both parties, a permitting reform deal by year-end is possible.
Online Safety (by Kevin Walsh)
House Republicans have yet to agree on a path forward for holding “Big Tech” accountable through various online safety and content moderation proposals. In the Senate, the Judiciary and Commerce Committees advanced several pieces of online safety legislation before the August recess.
The Senate Judiciary Committee favorably reported the Cooper Davis Act (S. 1080), which would require online platforms to report illicit drug sales to the Drug Enforcement Administration (DEA). The committee also reported several bills intended to reduce the proliferation of child sexual abuse material online, including the EARN IT Act (S. 1207) and STOP CSAM Act (S. 1199). In July, the Senate Commerce Committee approved the Kids Online Safety Act (S. 1409), which would impose a duty on social media and other online platforms to protect minors, and the Children and Teens’ Online Privacy Protection Act (S. 1418), which would extend Children’s Online Privacy Protection Act (COPPA) rules to minors age 16 and younger and limit the collection, use, and disclosure of their personal information.
Since the start of the 118th Congress, Majority Leader Chuck Schumer (D-NY) has pledged to move legislation to enhance online protections for children, but the path forward remains unclear. The absence of a parallel House effort makes enactment of the Senate bills challenging, but with the president and Senate majority leader continuing to call for their enactment, they remain bills to watch this year.
Pandemic and All-Hazards Preparedness Act (by Chloe Grill)
House Democrats and Republicans remain at odds over how to tackle drug shortages in the reauthorization of the Pandemic and All-Hazards Preparedness Act (PAHPA), which is set to expire on September 30. PAHPA, which must be reauthorized every five years, plays a critical role in establishing and funding the nation’s emergency preparedness infrastructure. Lawmakers see the traditionally bipartisan package as an opportunity to bolster the country’s pandemic response capacity and ensure public health agencies are better prepared for future emergencies.
With House Republicans looking to address drug shortages outside of PAHPA reauthorization and Democrats staunchly committed to reauthorizing the Act, the chambers have a long way to go before reaching an agreement on a PAHPA package. Republicans recently released draft drug shortage legislation that differs significantly from the Democrats’ approach, stating they are focused on the underlying economic reasons for shortages, including financial burdens on manufacturers of low-cost and generic medicines and issues within the FDA. With limited legislative days remaining until PAHPA expires and partisan differences in the approach to addressing national drug shortages, there is uncertainty if an agreement will be reached by the end of the year, let alone by the end of this month.
Drug Pricing and Pharmacy Benefit Managers (by Chloe Grill and Evan Smith)
This year, Senators and Members have introduced more than 40 bills and held close to 50 hearings related to drug price reform and investigations into the practices of pharmacy benefit managers (PBMs). The House Energy and Commerce and Senate HELP Committees both passed bipartisan legislation to reform PBM business practices and enhance transparency measures. Several other pieces of legislation remain pending, including the Patient Right to Shop Act, which prohibits “gag clauses” in PBM contracts; the Pharmacy Benefit Manager Reform Act, which takes aim at the PBM practice of spread pricing and improves transparency requirements; and the Patients Before Middlemen Act, which prohibits PBM compensation from being based on the price of a drug.
The House and Senate still have several drug pricing provisions left to consider as the Energy and Commerce and HELP Committee bills head to the chamber floors and other committees introduce drug pricing legislation of their own. With broad consensus on the need for increased transparency, it is likely the chambers will reach an agreement around regulatory changes to the 340B program and PBMs. It is less likely, however, that lawmakers will pass other provisions included in the Senate drug pricing legislation, including a ban on spread pricing practices outright or requirements that PBMs pass through 100 percent of the rebates they collect from drug companies to plan sponsors. Additionally, with ongoing lawsuits and congressional debate around the implementation of the IRA, moderate leaders will need to come together to reach a bipartisan drug pricing agreement beyond transparency reforms. An omnibus spending package remains the most likely vehicle for final passage of drug pricing legislation.
Foreign Intelligence Surveillance Act Reauthorization (by Adin Mengel and Joel Richard)
Absent extension by Congress, Title VII of the Foreign Intelligence Surveillance Act (FISA) will expire at the end of the calendar year, a step the White House recently called potentially “one of the worst intelligence failures of our time.” While most of that FISA title is noncontroversial, Section 702, which lets law enforcement gather foreign intelligence information from non-U.S. persons without a finding of probable cause, is proving politically difficult to extend. FBI Director Christopher Wray got a chilly reception from House Judiciary Committee Republicans and Democrats when he testified in support of the title’s reauthorization in July. During Wray’s appearance, Rep. Zoe Lofgren (D-CA) criticized the FBI’s 3.4 million FISA queries as warrantless “back-door searches,” and Rep. Ben Cline (R-VA) decried the law as a “domestic surveillance tool.” House Judiciary Committee Chairman Jordan (R-OH) opposes its extension absent “fundamental” reforms, and Senate Judiciary Committee Chairman Dick Durbin (D-IL) declared earlier this year: “[s]ection 702 does not sufficiently protect the privacy and civil liberties of Americans.”
The Administration will continue to press Members on the issue. The Department of Justice sent Congress a letter urging Section 702 reauthorization, describing it as a critical tool that is more important today due to evolving threats. Given warnings from the Administration and national security leaders about potential consequences of a failure to reauthorize Section 702, expect Congress to work up until the December 31 deadline as they seek a compromise.
Digital Assets (by Quincy Enoch)
Leading up to the August recess, three digital assets proposals saw legislative action:
- In July, the House Financial Services Committee (HFSC) passed out of committee stablecoin legislation, H.R. 4766, the Clarity for Payment Stablecoins Act of 2023.
- H.R. 4763, the Financial Innovation and Technology for the 21st Century Act — a proposal to provide a regulatory framework for digital assets markets — was favorably reported by the two House committees (Financial Services and Agriculture) to which it was referred.
- Senators approved an amendment to the NDAA introduced by Senators Kirsten Gillibrand(D-NY), Cynthia Lummis (R-WY), Elizabeth Warren (D-MA), and Roger Marshall (R-KS) designed to prevent the use of crypto assets in illicit financial transactions.
All three proposals face significant obstacles to enactment. The Clarity for Payment Stablecoins Act of 2023 stands the best chance of becoming law. While the markup was contentious, Chairman Patrick McHenry (R-NC) and Ranking Member Maxine Waters (D-CA) both want to pass stablecoin legislation and continue to try to reach consensus on the measure. Given the complexity of the debate around the Financial Innovation and Technology for the 21st Century Act, we expect discussions to continue for some time before consensus on a regulatory structure can be reached, especially given conflicting court opinions concerning the sector.
If not for process issues, the anti-money laundering amendment to the Senate NDAA would be the most likely of the three to be signed into law. But it too faces challenges to enactment: it is not directly related to defense policy, the House NDAA does not include a companion provision, and neither of the committees of jurisdiction have formally approved it.
What’s Still on the Table
Tax (by Carolyn Coda)
While a bipartisan tax package continues to elude lawmakers, 2023 may be the year that Congress gets legislation across the finish line. On the table are a set of expired tax extenders, including the Research and Development (R&D) tax credit (Sec. 174), business interest deductibility (Sec. 163(j)), and bonus depreciation. Republican lawmakers are pushing for these Tax Cuts and Jobs Act (TCJA) provisions to be extended retroactively so as to cover the previous lapsed years. While Democratic lawmakers agree that some of these provisions should be addressed, particularly R&D, many of them want to balance any tax package with provisions benefitting families. This includes restoration of some form of the Child Tax Credit, although it is unlikely that the robust COVID-19-era credit would be politically feasible. Senate Finance Committee Chairman Ron Wyden (D-OR) is also calling for Congress to strengthen the Low-Income Housing Tax Credit, which is a long-standing priority for him.
Whether a tax package comes together at the end of the year will be largely dictated by lawmakers’ ability to balance their priorities while keeping the cost of the bill down. House Republicans want to limit spending and depending on how the tax provisions are crafted, each provision can be expensive to implement. But tax reform proponents have the political calendar on their side in 2023. If Members fail to act this year, lawmakers may have to wait until the end of 2024 or 2025 to move anything in the tax space, given the challenges legislating during an election year can present. However, 2025 is likely to be a “Taxmaggedon” of a year, with all of the individual provisions of the TCJA set to expire and international tax issues continuing to complicate the global tax framework. This may be a more advantageous year to get something done.
Artificial Intelligence (by Sam Love and Jonny Montano)
Artificial intelligence (AI) continues to engross policymakers. This month, Senate Majority Leader Schumer is kicking off a series of “insight forums” designed to continue to educate Senators and their staffs on the promise and perils of this nascent technology. In the House, bipartisan lawmakers recently introduced legislation to bolster AI research initiatives. At the same time, the Administration is expected to release an executive order in the fall to protect consumers from AI risks and issue guidance related to federal agencies’ use of AI technology.
The House and Senate both included several AI provisions in their respective NDAA bills. With a government shutdown possible and limited prospects for other moving vehicles this year, stakeholders should watch the NDAA debate closely for any movement on AI policy. In addition to the AI provisions already included, we expect Senate Homeland Security and Governmental Affairs Committee Chair Gary Peters (D-MI) and Government Operations Subcommittee Ranking Member James Lankford (R-OK) to advocate for their Transparent Automated Governance Act (S. 1865) to be part of the final defense package. The bill directs the White House Office of Management and Budget to issue specific guidance related to AI transparency.
Despite bipartisan interest and constant activity in Congress, sweeping AI legislation in the short term remains unlikely. In its absence, the Administration and regulatory enforcers will continue to look to existing laws to combat AI risks and harms.
China Competition (by Kevin Walsh)
Earlier this year, Senate Majority Leader Schumer directed committee chairs to consider a “China Competition Bill 2.0” to include proposals to limit the flow of advanced technology to China and increase domestic economic investment. Despite the initial fanfare around this announcement, a larger package of proposals has yet to be released, and no corresponding effort is underway in the House. Trade, tax, economic diplomacy, and other national security-related efforts are all on the table for discussion. A trade package is being discussed for possible consideration later this year as Members push for customs modernization legislation and the renewal of such programs as the Generalized System of Preferences, Trade Adjustment Assistance, and passage of miscellaneous tariff bills. Despite the relevance of trade in a debate over competition with China, previous packages have failed to materialize over partisan differences and procedural hurdles.
The NDAA is also likely to include China policy provisions. This could include a version of the Outbound Investment Transparency Act, introduced by Senators Bob Casey (D-PA) and John Cornyn (R-TX). The bill was included in the Senate version of the NDAA and would require U.S. companies to notify the federal government if they invest in foreign countries of concern, including the People’s Republic of China (PRC). Although the Senate version was easily adopted on the floor, Chairman McHenry opposes the measure, and its prospects remain uncertain in the House.
The House Select Committee on the Chinese Communist Party (CCP), while not a legislative committee, has driven much of the China policy debate in the lower chamber with a focus on the economic and national security risks posed by the CCP. For example, the committee issued policy recommendations intended to help end the ongoing Uyghur genocide and to promote peace and stability in the Taiwan Strait; held numerous hearings focused on countering China’s economic tactics and how to ensure U.S. leadership in emerging technologies; and conducted oversight of the Administration’s China policies, the U.S. export control regime, and U.S. companies’ investment practices in the PRC. During the August recess, the committee held field hearings focused on Chinese influence in the U.S. agricultural and manufacturing sectors in Iowa and Wisconsin, respectively. Given the momentum in Congress behind countering Chinese influence in the United States and the Indo-Pacific, some of the committee’s recommendations, specifically related to bolstering U.S. military support for Taiwan, could make their way into law via the NDAA.
The committee has plans for an active agenda in the fall, including convening stakeholders in New York City the week of September 11 to discuss the U.S. financial sector’s links to China. Other potential committee activity is likely to include a focus on Chinese propaganda and censorship practices, the CCP’s use of foreign influence activities overseas, and continued oversight of the Administration’s engagement with China.
Comprehensive Privacy Reform (by Drew Griffin)
While the timeline for reintroducing comprehensive privacy legislation in the House has slipped to the fall, it remains one of the top priorities for House Energy and Commerce Chair Cathy McMorris Rodgers (R-WA) and Ranking Member Frank Pallone (D-NJ). Disagreement over federal preemption of state data privacy laws and the scope of a private right of action remain the thorniest issues and biggest barriers to the American Data Privacy and Protection Act’s (ADPPA) reintroduction and passage. Even if McMorris Rodgers and Pallone find a way forward at the committee, convincing House leadership that it is worth political capital to put it on the floor and getting buy-in from the Senate gives the ADPPA long odds to get to President Biden’s desk.
Ultimately, the dim prospects for privacy legislation this year may embolden regulatory agencies like the Federal Trade Commission to pursue their own privacy agendas.
Impeachment (by Drew Griffin)
As the business dealings of Hunter Biden continue to dominate the news, pressure is mounting from parts of the House Republican Conference to begin an impeachment inquiry of President Biden when Congress returns this month. Recent House Oversight Committee testimony by former Hunter Biden associate Devon Archer makes it more difficult for Speaker Kevin McCarthy (R-CA) to hold off these efforts. Mr. Archer described times when President Biden spoke on the phone to Hunter Biden’s business associates, which some House Republicans have billed as a smoking gun. Some in the Republican conference remain uncertain that an impeachment inquiry is the best path forward. In order to hold on to his gavel, the speaker finds himself delicately balancing the wants of the more conservative members of the conference with endangered frontline members in districts that President Biden won.
