Washington Updates

Just In: The House approved legislation promoting hydropower development and limiting the National Labor Relations Board from taking certain actions. the Senate debated gun control legislation, President Obama’s nominee for EPA Administrator, Gina McCarthy, received a hearing, and Sally Jewell was confirmed to serve as Interior Department Secretary

Coming Up: The House plans to consider cyber-security legislation, and IAPMO testifies before House Committee, while the Senate will continue its work on gun control measures. 

Call it what you want, but the obsession in Washington over the size of the nation’s biggest banks continues at a torrid pace. Every week, more House and Senate members say something or introduce legislation aimed at the concern they have that some banks are too large to operate efficiently, and it is increasingly becoming a bipartisan clamor. Senator Bernie Sanders (I-VT) recently introduced the most extreme of these measures — a bill to require the Treasury to identify “too-big-too-fail” banks and then break them up in one year. This legislation is not going anywhere in either the House or Senate for now, but pressure is building to address the concern that many in Congress have with the size of the biggest banks. A hearing in a House subcommittee next week on the authority of the Federal Reserve Board to wind down large failing banks will add to this momentum. 

Payday Lending Cap. Senator Dick Durbin (D-IL) introduced a bill this week to cap interest rates and/or fees for “payday” lending at 36% annual percentage rate (APR). The measure would apply to all consumer credit transactions, including mortgages, car loans, credit cards, overdraft loans, car title loans, refund anticipation loans and payday loans. As a practical matter, however, it would mostly impact car title, refund anticipation and payday loans. Earlier this year, Senators Durbin, Richard Blumenthal (D-CT) and Jeff Merkley (D-OR) introduced a bill to ban certain online payday lending practices. The Credit Union National Association supports both measures, touting the fact that their loans are generally limited to an APR of no more than 18%. 

Corporate “Political” Activity. Various interest groups are urging new Securities and Exchange Commission (SEC) Chairman Mary Jo White to advance a rule for the agency’s approval that would require public companies to publicly disclose their “political activities.” Many business groups worry that “political activities” may be broadly defined and include memberships with trade associations and other professional groups. Lobbying for such a rule will intensify in the months ahead, Proponents for this measure are appealing their case to the SEC since their efforts to have Congress enact such a law have not been successful. 

Debt Limit. On May 19, the nation’s debt limit will automatically increase by the amount which has been borrowed over the past few months (about $400 billion). This is the result of a bill Congress passed in January to postpone a fight over the debt limit so soon after the fiscal cliff battle. On May 19, the Treasury Department will begin taking certain measures to forestall an actual breach in the debt limit which is currently projected for sometime in August. This is the next fiscal showdown facing Washington, and the stakes are always high when the credit of the U.S. is in question. Regarding those stakes, a House subcommittee this week held a hearing on different proposals to prioritize federal payments in the event of a breach in the ceiling and a limit on borrowing. Many Republicans support legislation that would require Treasury to make principal and interest payments first; others would also prioritize Social Security, Medicare and military pay as well. Look for the House to consider and pass legislation that prioritizes federal payments in the event that the debt ceiling is not raised. In reality, however, the Senate will not approve a prioritization and the debt limit will likely not be breached. However, negotiations in July and August over the debt ceiling could be as disruptive as they were in 2011, the last time there was a showdown on the debt limit. 

The President’s Budget. The Administration presented its fiscal year 2014 budget to Congress this week. While it will have no direct impact on the Congressional budget process, it lays out the President’s priorities and highlights issues that will be in play during negotiations on reducing the deficit. Most notably, the President’s budget offers to limit the future growth of Social Security benefits in exchange for further tax increases on higher-income taxpayers. The offer on entitlement spending has piqued the interest of some Republicans and could be the basis for a larger deficit reduction deal and debt ceiling increase. As for the tax proposals targeted toward higher-income earners, some are simply being reoffered from previous years, such as limiting the tax value of deductions and exemptions (including on municipal bond interest), a reduction in estate and gift tax exemptions, and a minimum effective tax rate of 30% phased-in for those earning over $1 million. Some notable proposals that are new in this year’s budget are listed below. 

New Retirement Plan Cap. The White House is proposing to prohibit tax-free contributions to retirement accounts once the balance of those accounts reaches a certain level. The level would be based on the amount needed to provide for the maximum annuity permitted for qualified defined benefit plans (currently $205,000) and works out to $3.4 million but could change each year. 

Derivatives. Taking a cue from a House Republican effort on tax reform, the budget contains a requirement that all derivative contracts be marked-to-market with the gain or loss being treated as ordinary income each year.

Inherited IRAs. A new proposal for the President, but one that first surfaced last year in the Senate, would require non-spouse beneficiaries of inherited IRAs to take distributions within five years, rather than over their expected lifetime. 

New Bonds and Incentives to Invest. The budget proposes new taxable America Fast Forward Bonds similar to Build America Bonds but with a 28% direct payment to State and local issuers. To further incentivize investment in the U.S., the budget also proposes to exempt foreign pension funds from U.S. tax on the sale of real property. 

Water Moving. A Senate committee this week approved the “Water Resources Development Act” (WRDA), which addresses the nation’s aging navigational system of inland waterways, coastal harbors and ports, locks and dams, and flood control protections. To use the Mississippi River basin as an example, 60 percent of all grain exported from the U.S. is shipped on the Mississippi River through the Port of New Orleans and the Port of South Louisiana. This large industry uses locks and dams still made of wood and also suffered during the recent drought. President Obama and a majority in Congress support upgraded infrastructure, and while disagreement over its cost and how to pay for it is preventing a more comprehensive agreement on infrastructure improvements, WRDA is an issue that both sides may eventually reach a compromise on. WRDA is scheduled to come to the Senate floor soon and will likely pass. 

Cutting Congressional Pay. As federal workforce furloughs loom, some lawmakers are feeling the heat to possibly reduce their own pay in response. One senator has urged his colleagues to reduce their salaries by 20% as long as furloughs are in effect. Nearly half of the House and Senate membership (535 total members) are millionaires, so the reduction may not be a big deal to some. A few members are indeed cutting their salaries, but most are pledging instead to cut their office budgets or continue their charitable giving in this time of belt tightening. One Senator — Tennessee’s Bob Corker — has never taken a salary at all since being elected in 2006 and donates it to a local charity.