The House on December 7 advanced new plans to enact the final “must-pass” vehicles of 2021: a debt ceiling increase to avert a potential financial and economic crisis; a deal to avert automatic cuts to farm aid and Medicare; as well as the annual National Defense Authorization Act (NDAA) setting defense policy. If all goes smoothly, Congress could adjourn for the holidays by next week. However, many of these agreements rely on bipartisan cooperation, which only one or two Members of Congress could upset.
Debt ceiling: The U.S. Treasury Department warns that Congress must act immediately to raise or suspend the debt ceiling, or risk economic catastrophe in the form of a global financial crisis or a prolonged recession. For months, Democrats have pushed for a bipartisan solution to raise the ceiling, while Republicans have held out while painting the debt ceiling crisis as a result of Democrats’ overspending. Democrats, in response, considered permanently changing Senate rules to allow single-party increases to the debt ceiling. Finally, Senate Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-KY) struck a one-time deal under which Senate Republicans, who still control 50 Senate votes, agree not to filibuster or delay a debt ceiling increase. This compromise will avoid a devastating default, allow Republicans to keep criticizing Democrats for raising the debt ceiling ahead of next year’s midterms, but also preserve the Senate’s balance of procedural power and filibuster for future battles.
Next steps: In a 222-212 vote a one-time rule that would allow the Senate to pass a debt-ceiling increase with just 51 Democratic votes. Assuming the Senate advances a debt ceiling increase, the House will then hold their own vote on the increase. Still to come: Senate Democrats must set the new debt limit at a certain dollar figure, rather than a date. Democrats could choose a higher figure that will push future debt ceiling confrontations until after the next elections, but they are likely to endure Republican criticisms. Another obstacle: Leader McConnell must convince at least 10 Republicans to approve the agreement, which may be difficult as conservative GOP senators push back. Further, any one Senate Democrat could object and derail the plan: so far fiscal conservatives like Sen. Joe Manchin (D-WV) and Sen. Kyrsten Sinema (D-AZ) haven’t said if they plan to break ranks. However, any Senator who derails a fix at this late date could draw blame for crashing the U.S. economy.
NDAA: The House approved the latest draft NDAA this evening in a 363-70 vote, sending it to the Senate. Congress has passed the NDAA, which sets national defense policy and funding priorities like servicemember pay, each year for more than 50 years. Leaders are determined not to break that streak. Leaders of the HASC and SASC wrote and released a new draft of the FY 2022 NDAA this week after debate over the Senate’s draft bogged down, running out of time for the traditional bicameral conference process to merge the House and Senate drafts. The new bill authorizes $768 billion for national defense: $740 billion for the Pentagon, and $27.8 for nuclear programs at the Department of Energy, incorporating a bipartisan $25 billion increase to the Pentagon’s defense budget request. Notable provisions in the updated NDAA:
- A 2.7% pay increase, a new basic needs allowance for low-income servicemembers, and expanded parental leave for servicemembers
- Five more Navy warships beyond the Pentagon’s request: two Virginia-class submarines, three Arleigh Burke-class destroyers, one guided-missile frigate, two John Lewis-class fleet oilers, one surveillance ship, two Expeditionary Fast Transport ships, among others, plus $800 million for shipbuilding;
- Purchase of 432 aircraft including several not requested by the Pentagon: 12 Super Hornets not requested by the Navy, Five F-15EX beyond the Pentagon’s requested 12, five more than request CH-47F Block II Chinook helicopters, and nine UH-60 Black Hawk helicopters for the National Guard. Elsewhere the bill meets the Pentagon’s request for 85 F-35 fighter planes.
- Creating a new commission to review wartime actions in Afghanistan and the recent withdrawal.
- $300 million for the Ukraine Security Assistance Initiative as concerns rise regarding a potential Russian invasion; and
- $7.1 billion for the Pacific Deterrence Initiative to counter China’s military rise.
Next steps: While the new draft is not an official conference report and can theoretically be amended, leaders are warning members of Congress not to attempt any changes. The top-down drafting process has already angered many members of Congress: gone from the updated draft are proposals to add women to the draft despite bicameral support, a provision designed to measure and address extremism among servicemembers, a plan to finally repeal the Iraq War-era Authorization of Use of Military Force (AUMF), a plan to open the banking system to marijuana-based businesses, and a proposal to allow the District of Columbia greater control of its National Guard, among many other provisions. Despite these gripes, neither party wants to take the political hit of blocking a bill focused on national security and servicemembers.
SPAYGO: Another must-pass bill this week would prevent automatic spending cuts (“sequestration”) in January 2021 under the Statutory Pay As You Go Act of 2010 (SPAYGO) on key programs such as Medicare payments, farm aid, Trade Adjustment Assistance, the National Crime Victims Fund, and Social Services Block Grants. This fix is not controversial. Congressional Democrats packaged a SPAYGO fix with their proposed debt ceiling deal.
Next steps: Because the SPAYGO fix is included in the debt ceiling fix discussed above, this bill will pass or fail in the coming debt debate. However, Congress will need to deal with SPAYGO fixes again soon: this fix only delays a cut to Medicare payments, for example, until March 2022. Extra: Don’t forget the BBB: The Senate still tentatively plans to consider the House-passed Build Back Better Act (H.R. 5376) next week. While we have yet to see updated text, Michael Best Strategies is watching for potential changes in the Senate to the bill’s tax section, particularly dealing with the proposed alternative minimum tax (AMT) for corporations as well as the bill’s proposed fee on methane emissions. Senate leaders may also have to cut a draft plan for national paid family leave, as well as provisions to offer immigration relief for undocumented immigrants as well as immigrants waiting decades for green cards. Stay tuned to your Michael Best Strategies client team for the latest.