The action in Washington, DC is in high gear with Congress working on several issues, many of which are bipartisan. So, what can we expect to see accomplished in a pivotal election year?

Build Back Better
The never-ending reconciliation bill still has a pulse and awaits Senate approval. Allegedly, talks between Schumer and Manchin have resumed after a few months of silence. Rumor is they are negotiating a package with $1.4 trillion in revenue gains including a 15% corporate minimum tax and proposal to raise taxes on the ultra-wealthy. Half of the revenue would go to new spending and half to deficit reduction. With only $700 billion to spend, the Democrats must decide what their priorities are: (clean) energy, drug prices, or healthcare? Of particular note, roughly $220 billion in ACA (Affordable Care Act) subsidies are set to expire. If they do, 15% of Americans who rely on ACA would become uninsured, 45% would see a reduction in their subsidies, and 7.5% would lose subsidies altogether.

If Schumer and Manchin are going to salvage the BBB, they need to agree on a deal soon. The Democrats missed their self-imposed Memorial Day deadline. The reconciliation instructions expire on September 30. Once the terms are agreed upon, the bill will take a few weeks to write, members will then need to read the bill, offer up amendments and, finally, debate both the bill and amendments. The entire process will take a lot of Senate floor time. In addition, the Senate is out June 27 – July 8 and August 8 – September 5. Time is marching on…

The China Bills
Last year the Senate passed the U.S. Innovation and Competition Act (USICA) with two-thirds of the Senate supporting. The House passed its version of the bill in February (the America COMPETES Act) on party lines. Both bills aim to boost US competitiveness with China by spending $300 million on research, innovation, and efforts to increase US semiconductor production. Both houses are now in conference to hash out a final bill. Given the popularity of the issue, with both chambers and both parties eager to pass a bill regarding China’s anti-competitive business practices, and the US’s over-reliance on semiconductors, there are over 120 conferees (normally, a conference has 20–30 members of Congress). With so many voices, opinions, and of course opportunities for political posturing, some Senators and staffers fear a deal won’t happen. But let’s remain positive and say they will pass a China bill.

Working on Retirement
In March, the House passed SECURE 2.0 with overwhelming bipartisan support – 414 to 5. The bill will require retirement plans established after 2021 to automatically enroll participants at 3%. However, participants can opt out or change their contribution amount. Other provisions to highlight: The bill increases Required Minimum Distributions and catch-up contributions for persons over 50, provides tax credits for small businesses to set up retirement plans, and authorizes student loan matching plans.

The Senate is now working on their companion bill, the RISE & SHINE Act. The Health and Labor Committee and Senate Finance Committee both voted to advance the bill to the Senate for a full vote. There are notable differences in the two bills, the biggest being that the RISE & SHINE Act does not include the mandatory auto-enrollment. Instead, the Senate wants retirement plans to have an automatic reenrollment every three years. RISE & SHINE also calls for an emergency saving provision up to $2,500 that SECURE does not have.

There will likely be a conference to get to a final bill, which once finalized, could possibly be included in a year-end omnibus bill.

The Administration
President Biden’s polling numbers are as low as (or lower than) President Trump’s during his second year in office. Biden’s numbers started to turn in August 2021 after the withdrawal from Afghanistan, and they’ve only declined from there. He is criticized by the Republicans, and his own party, for many of the same issues but for different reasons. For example: his policies on leasing federal land for drilling (which impacts US oil production), the baby formula shortage, his response to gun violence, lifting of the mask mandate, the possible overturn of Roe v. Wade, and inflation. Note that many of these items are beyond his control.

The administration and the Democrats know that energy prices and inflation alone will impede them in the midterms. President Biden created a three-part plan to address inflation, but notably failed to address energy prices. Instead, Biden has scheduled a visit with Saudi Arabia’s Crown Prince Mohammed bin Salman (MBS). The White House denies that the visit will center on convincing the Saudis to increase oil production, but with gas at an all-time high, how could Biden not use his time with MBS to try to reduce gas prices for Americans?

President Biden has also written to the CEOs of the largest US oil companies, alerting them that he’s considering invoking emergency powers to increase US refinery output. There are two competing sides to Biden’s direct engagement with the oil CEOs. First, he is criticized for not issuing new drilling leases on public lands, which has impacted domestic oil production. Second, he wants the oil companies to help shoulder the blame for high consumer gas bills. Finally, the oil giants have been criticized for taking in outsized profits amid record-high energy prices and not passing them on to the consumer, but rather, announcing new stock buyback programs.

President Biden and the White House are working to fine-tune their responses to issues as they arise and fixing public perception on existing issues to help resurrect Biden’s approval ratings. The midterms depend on it.

The Midterms
Primaries are ongoing. Thus far the center/moderate right incumbent House members have mostly fended off far-right challengers. This bodes well for Republicans, as the center candidate may be more electable over the Democratic candidate.

Republicans are predicted to take over the House. The party out of power typically picks up several House seats in the first midterm of a first-term president. And, given President Biden’s very low polling numbers, with inflation and oil at record levels, it will be very hard for the Democrats to hold on to the House. If the Republicans do take over the House, expect several hearings and a special committee to investigate Biden’s withdrawal from Afghanistan, his son Hunter, and potentially other issues – with an eye on impeachment. To send articles of impeachment to the Senate, the House needs a simple majority, and with a Republican majority in that chamber, this is very likely. However, Biden will not be convicted. The Senate holds the trial and needs a 2/3 supermajority to convict (67 votes). Even if the Republicans control the Senate, they will likely have a thin majority, and no Democrat will vote to impeach President Biden. As far as control of the Senate goes, it will likely be uncertain until after Election Day. With the Senate evenly split, the Republicans defending twice as many seats as the Democrats, and many competitive races, it is almost impossible to predict.

Elections since 2016 have been super-charged due to the high energy and strong emotions around Donald Trump. While a degree of influence still emanates from the former president, it seems less intense than in the prior year’s elections. That’s not to say political pundits aren’t closely watching multiple races and eagerly pontificating about whether the Trump-backed candidate wins or loses. So, why less intensity in this election cycle? Because with the enormous headwinds facing the Democrats – inflation, high energy prices, and Biden’s low approval ratings – it is close to a foregone conclusion that the Republicans will take over the House with a good shot at the Senate. Social issues like guns and an overturn of Roe v. Wade could possibly ignite the left, driving them to the polls and saving the Democrats from a thrashing. Nonetheless, in the end, social issues do not elicit the same visceral, emotional reaction from Americans as issues affecting their pocketbooks and standards of living like record high gas prices and 40-year high inflation.

The Bottom Line
For a midterm year, Congress is trying to get a lot accomplished, and they may actually surprise us by passing several bipartisan bills before year-end. Maybe it will put a dent into the partisan divide permeating our country. Change must start from the top, and Congress needs to set the example for the rest of America.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of June 14, 2022 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates.

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