Your Weekly Report on the Discord from Washington, D.C.
In Partnership with the Eris Group
Conference Committee reports tax bill — Late Friday, the conference committee on H.R. 1 released the text of a compromise bill for action by the House and Senate this week. As expected, the bill would cap the corporate tax rate at 21 percent, individual rates at 37 percent, and set a 20 percent deduction for “pass-through” business income. Tax changes for individuals would expire after 2025. The conference report would restore some of the deductibility of the child tax credit, which won the support of Senators Marco Rubio (R-FL) and Mike Lee (R-UT). The House Rules Committee will take up the new bill on Monday night, and votes are expected in both the House and Senate on Tuesday.
Tax bill will force Treasury draw for GSEs — Lowering the corporate tax rate will mean that Fannie Mae and Freddie Mac will have to take fourth-quarter GAAP losses on deferred tax assets, analysts say, which means Treasury will have to transfer cash to the GSEs in January. Federal Housing Finance Agency Director Mel Watt had urged Treasury and the White House to allow the GSEs to retain earnings, but the fourth-quarter loss will wipe those earnings out, making the issue of retained earnings moot.
House Financial Services Committee approves 13 bills — On Tuesday, the House Committee on Financial Services voted out H.R. 435, H.R. 1457, H.R. 2219, H.R. 2948, H.R. 3179, H.R. 3864, H.R. 4464, H.R. 4519, H.R. 4529, H.R. 4537, H.R. 4545, H.R. 4546, and H.R. 4560. The bills would, among other changes, make it easier to bank online; revise anti-money laundering statutes in order to target human trafficking operations; provide temporary licenses for mortgage lenders in transition; and clarify state authority over insurance licensing.
Attention turns to CFIUS reform — Secretary of the Treasury Stephen Mnuchin and Attorney General Jeff Sessions have both endorsed S. 2098, Senator John Cornyn’s (D-TX) legislation to update the Committee on Foreign Investment in the United States (CFIUS). The bill would expand CFIUS’s authority to review transactions that might threaten national security, using a broader list of national security criteria, and would require the disclosure of certain investments by state-owned enterprises. The Foreign Investment Risk Review Modernization Act of 2017 has been introduced on the House side as H.R. 4311, and the House Financial Services Subcommittee on Monetary Policy and Trade heard testimony on the issues on Thursday. Witnesses discussed how best to balance the need for foreign investment with the need to prevent foreign governments from acquiring sensitive technology. Rep. Robert Pittenger (R-NC), sponsor of H.R. 4311, noted that Chinese-owned corporations are major employers in his home state.
Witnesses call IRS taxpayer service “unacceptable” — At a House Ways and Means Committee hearing on Wednesday, witnesses said that the IRS’s taxpayer services are already stretched unacceptably thin, and that the agency may be overwhelmed by changes in the tax code. The IRS needs increased funding for taxpayer services, better electronic access, and better data collection, the committee heard. Volunteer tax preparation services such as the AARP’s Tax-Aide help, but they too need additional funding and support, especially as the IRS’s taxpayer assistance centers are offering less face-to-face help.
Administration calls for faster deregulation — The Unified Regulatory Agenda released by the Office of Management and Budget on Thursday directs agencies to finalize three deregulatory actions for every one new regulation in FY2018. The OMB also identified 1,579 planned regulatory actions that were withdrawn, delayed or made inactive between Fall 2016 and Fall 2017. Agencies must identify each of its proposed regulatory actions as regulatory, deregulatory, or not significant; the Treasury’s consolidated regulatory agenda is here, and the Consumer Financial Protection Bureau’s is here.
SEC names Duhnke to chair PCAOB — The Securities and Exchange Commission announced Tuesday that it has appointed new members to the Public Company Accounting Oversight Board (PCAOB), including William D. Duhnke III as Chairman and J. Robert Brown, Kathleen M. Hamm, James G. Kaiser and Duane M. DesParte as members. Duhnke was most recently Staff Director and General Counsel of the Senate Rules Committee; he had previously served as Staff Director and General Counsel to the Senate Banking Committee. Hamm comes to PCAOB from Promontory Group, where she was Global Leader of Securities and Fintech Solutions and Senior Strategic Advisor on Cyber Solutions. Brown is a professor of law at the University of Denver; Kaiser is a 38-year veteran of PricewaterhouseCoopers; and DesParte is retiring as Senior Vice President and Corporate Controller of Exelon Corporation.
NYDFS loses challenge to OCC fintech charter — The U.S. District Court for the Southern District of New York ruled Tuesday to dismiss the New York State Department of Financial Services’ lawsuit against the Office of the Comptroller of the Currency, which had challenged the OCC’s authority to issue limited-purpose charters to fintech companies. The Court apparently agreed with the OCC’s argument that the Court “lacked subject matter jurisdiction.” The Court did, however, suggest that the OCC notify the NYDFS before it issues a fintech charter.
FDIC and European regulators sign cooperative agreement on resolutions — The Federal Deposit Insurance Corporation (FDIC) and the Single Resolution Board (SRB) signed a Cooperation Arrangement on Thursday to create a framework for exchanging information and sharing authority in the resolution of financial institution failures across national borders. The goal is to ensure that Global Systemically Important Banks (GSIBs) can fail without major systemic consequences. The Single Resolution Board is the central authority within the European Banking Union, charged with the orderly resolution of failing banks among the member nations.
Regulators issue joint guidance for examining banks affected by natural disasters — The federal financial regulatory agencies and the Conference of State Bank Supervisors have issued guidance for examinations of institutions that were affected by this year’s hurricanes, floods, and fires. The agencies will work with institutions to adjust examination schedules where needed, and will look specifically at how the institutions responded to the disasters, and how the disasters have affected longer-term strategies. Examiners have been instructed to “give appropriate recognition to the extent to which weaknesses are caused by . . . the major disaster and its aftermath.”
This Week in Washington:
The House and Senate are expected to vote on the conference report on H.R. 1, the Tax Cuts and Jobs Act, sometime on Tuesday. They also need to vote on a continuing resolution to prevent a government shutdown before they leave town for the holidays. They return on January 3, 2018.
House Rules Committee takes up H.R. 3312, The Systemic Risk Designation Improvement Act of 2017, before it moves to the House floor for a vote.
Senate Committee on Banking, Housing, and Urban Affairs meets to vote on nominations to the Board of Directors of the Export-Import Bank, including that of the Honorable Scott Garrett to serve as President and the Honorable Spencer Bachus to serve as a Director. 10:00 a.m., SD-538 Dirksen Senate Office Building.
The Ellis Insight. Jim Ellis reports on political news:
Alabama: Yellowhammer State voters went to the polls this week and chose Democrat Doug Jones as the state’s new Senator. He defeated Republican former state Supreme Court Chief Justice Roy Moore by a 49.9 – 48.4% margin, a spread of 20,715 votes. The result defied most of the polling, though the final pre-election Survey Monkey study that forecasted a 49-47% Democratic split proved most accurate. Judge Moore failed to solidify enough of the Republican vote, unable to attract normal GOP margins in key suburban counties around Alabama’s most populous metropolitan areas.
In comparing this race to last year’s presidential results, Moore could only attract 49.3% of President Trump’s total while Jones garnered 92.0% of Hillary Clinton’s Alabama total vote. Turnout was very high, exceeding 1.34 million voters. To put this special election vote into context, the last statewide vote for Governor (2014) drew 1.18 million participants. The 2016 general election recorded over 2.123 million votes.
Mr. Jones will serve through 2020, and is eligible to run for a full six-year term at that time. The Senate partisan division now drops to 51R-49D. The outcome here serves as a gateway to the 2018 election and gives the Democrats a path to obtaining the Senate majority, something that didn’t exist before Alabamians voted.
Minnesota: Gov. Mark Dayton (D) this week announced that Lt. Gov. Tina Smith (D) will replace resigning Sen. Al Franken (D) when the latter man leaves the Senate sometime in January. When Ms. Smith was first mentioned as the likely appointment, it appeared that she would serve as a caretaker but her acceptance statement quickly refuted this supposition. Not only did Ms. Smith enthusiastically accept the US Senate appointment, she simultaneously declared herself a candidate for the 2018 special election.
A day after accepting Gov. Dayton’s appointment, the five individuals comprising the Minnesota Democratic congressional delegation all endorsed Ms. Smith’s political efforts. Since Minnesota is an unofficial convention state, and few candidates ever challenge the state party nominating results through a primary, the entire partisan congressional delegation already being on board to support the new Senator goes a long way to her easily securing the Democratic nomination in next April’s state convention.
Among Republicans who might be interested in entering the 2018 special election, former Gov. Tim Pawlenty is reportedly not completely ruling out such a move. US Reps. Erik Paulsen (R-Eden Prairie) and Tom Emmer (R-Delano), House Speaker Kurt Daudt (R-Crown), and state Sens. Karin Housley (R-St. Mary’s Point/Lake St. Croix Beach) and Deputy Majority Leader Michelle Benson (R-Ham Lake/Andover) are the more prominent individuals being mentioned as possible special election candidates.
AZ-2: Republican Lea Marquez Peterson, the President and chief executive officer of the Tucson Hispanic Chamber of Commerce, says she will announce her congressional candidacy shortly in anticipation of incumbent Rep. Martha McSally (R-Tucson) departing to run for the Senate. Ms. Marquez Peterson says she has no intention of running against Rep. McSally, however, an office holder whom she supports.
In an open seat configuration, this seat will be highly competitive. Eight Democrats, including former 1st District US Representative and 2016 US Senate nominee Ann Kirkpatrick, are in the race. Former state Rep. Matt Heinz, the 2016 congressional nominee who fell to Rep. McSally, 43-57%, and ex-state Rep. Bruce Wheeler are also among the candidates vying for the party nomination.
AZ-8: Gov. Doug Ducey (R) just scheduled the special election to replace resigned Rep. Trent Franks (R-Peoria). The special primary is scheduled for February 27th with the associated general on for April 24th.
Candidates are beginning to announce their intentions for the upcoming congressional race. State Sen. Steve Montenegro (R-Avondale), though from a legislative district that only partially overlaps the congressional seat, is in the race. He is a former staff member to Rep. Franks and claims to have Mr. Franks’ endorsement. State Senate President Pro Tempore Debbie Lesko (R-Peoria) is expected to soon announce her candidacy. Former state Corporation Commissioner Bob Stump (R), who is not related to the late 13-term US Rep. Bob Stump (R-AZ), is also an announced candidate.
MI-13: Michigan Gov. Rick Snyder (R) has issued the special election calendar to fill resigned Rep. John Conyers’ (D-Detroit) seat. The 13th District special election will run concurrently with the regular election schedule, meaning the primary will be August 7th, with the special and regular general elections occurring on the same date, November 6, 2018. Hence, the Governor’s decision means the seat will be vacant for almost the entire year. State Sens. Ian Conyers (D-Detroit), the former Congressman’s nephew, and Coleman Young II (D-Detroit), son of former Mayor Coleman Young, are both announced candidates. The latter man is fresh from being destroyed in the 2017 Detroit Mayor’s race, losing to incumbent Mike Duggan, 72-27%.
NY-22: One of the most vulnerable Republican freshmen seeking re-election in 2018 is Upstate New York’s Claudia Tenney (R-New Hartford). With a win percentage of just 44% in a three-way race, Rep. Tenney has already drawn a substantial opponent in state Assemblyman Anthony Brindisi (D-Utica). Yesterday, however, Ms. Tenney caught a break when Republican primary opponent Nicholas Wan, who hails from the Trump wing of the NY GOP, announced he is withdrawing from the race due to fundraising problems. Having a unified Republican base is critical for Rep. Tenney to defend herself against what will prove to be a difficult Democratic challenge.
Texas: In a state with a large delegation that normally sees little in the way of congressional competition, candidates have come out in droves to run next year. With seven open seats (5R-2D) in the 36-member delegation, Monday’s filing deadline produced a record number of 213 federal political contenders (100 major party candidates in the open seat category alone).
Of the 28 incumbents seeking re-election to the House, 26 have opposition. Only two House members, Reps. Joaquin Castro (D-San Antonio) and Henry Cuellar (D-Laredo), have no opponent in either the primary or general election. Just eight incumbents are unopposed in their respective nomination election (5R-3D), meaning 21 have at least nominal primary opposition (15R-6D). It remains to be seen how many of these many candidates develop strong campaigns, but it is a sure bet that 2018 will be a more active political year in the Lone Star State.
TX-27: Texas Rep. Blake Farenthold (R-Corpus Christi) announced on Thursday that he will end his re-election campaign amid continuing sexual harassment claims. Mr. Farenthold had previously filed for a fifth term, but will instead retire from the House at the end of the current term. The 27th District that stretches from Corpus Christi all the way to the outskirts of Austin is safely Republican. President Trump won the district in a 60-36% margin. Four years earlier, Mitt Romney carried the seat, 60-38%. Mr. Farenthold’s retirement means that 42 seats are now either open or vacant.
WI-1: The Politico publication ran a story on Thursday that quoted unnamed aides and confidants as saying that Speaker Paul Ryan (R-Janesville) would very likely leave his leadership position after the 2018 election, and speculated that he would also leave the House. It is important to note that Speaker Ryan, himself, has made no such public claim.
Therefore, it is unclear at this time whether he will seek re-election to the House. If he does not, Wisconsin’s 1st District could become the site of a highly competitive open seat. Though President Trump carried the district by ten percentage points, the 2012 Republican ticket, with Mr. Ryan as the Vice Presidential nominee, scored only a four-point victory margin. Already, Democratic candidate Randy Bryce has amassed more than $1 million in his effort to oppose Speaker Ryan in his home district.