June 14, 2024

Thought of the Week:

Have you received your new Social Security Statement yet? I got mine. Among other things, it provides personalized monthly retirement benefit estimates, which display how much one can expect to receive depending on the age one retires, between 62 and 70. Although I’m not quite eligible to receive benefits yet, based on the figures alone, I’ll be working a while longer. Although Social Security, and other entitlement spending, isn’t something every government relations professional considers on a day-to-day basis, it is quick becoming a concern for any lobbyist with an interest in appropriations, and that means all of us. Consider that in FY 2023 the federal government spent an estimated $6.13 trillion, approximately 24% of GDP. Of that, $1.4 trillion was spent on Social Security, more than 21% of the entire federal budget. Social Security is indeed a vital and popular program that supports approximately 67 million Americans; it is also a ticking financial time bomb. Recent projections for the financial sustainability of Social Security highlight both short- and long-term challenges, primarily tied to demographic trends. Current projections from the Social Security Trustees show that the Trust Fund for retirement benefits is scheduled to be depleted in 2033, meaning that scheduled benefits will be reduced 21% absent legislative changes. Long-term projections also show that total program costs will exceed total program revenues over the 75-year forecast period. The long-term demographic trends of increased life expectancy and declining birth rates and immigration have contributed to the fiscal imbalance, as retirees collect benefits longer and there are fewer covered workers per beneficiary paying payroll taxes. Prospects for reform before the November 2024 election fall somewhere between slim and none. However, the next Congress will need to summon the political courage to negotiate solutions and phase them in if they want the program placed on sound financial footing. What’s more, as an important component of the Federal budget and GDP, the program’s finances have significant impacts on the national debt and the overall American economy. The longer the delay, the greater the chances that the necessary legislative changes to save Social Security will be disruptive not just to beneficiaries but the broader economy as a whole. Given the impending depletion of the Trust Fund, it will be crucial for Congress to address the issue quickly. Among the options often discussed for saving Social Security include: (1) benefit adjustments, including raising the retirement age, removing work disincentives, and implementing modest means testing for high-income beneficiaries; (2) raising revenue, including gradually increasing payroll taxes; and (3) diversifying Trust Fund investments. Members of Congress and candidates for President ignore the issue at their own peril. Retirees and soon to be retirees are among the most consistent voting blocks.

Thought Leadership from our Consultants, Think Tanks, and Trade Associations

Bloomberg Government Reports that Both Canada and Mexico are Maneuvering for Trade Talks with either a Trump or Biden Administration. Concern is building in Ottawa and Mexico City that the next US administration may move to limit trade among the three countries that totaled some $1.5 trillion in goods last year. The United States-Mexico-Canada Agreement (USMCA) is scheduled for a joint review in 2026, and there is growing speculation the US will push to renegotiate parts of it, especially rules for auto manufacturing and dairy. Canadian Prime Minister Trudeau has launched a strategy geared toward recruiting US allies, sending senior Canadian politicians, diplomats, and business leaders to meet with US executives, lawmakers, and governors on the importance of trade for the automobile and energy industries. Chinese investment in Mexico looms heavily over its relationship with the US, and since December, Mexico has been working on a framework for investment screening around national security to help alleviate American concerns. In both countries, the angst goes beyond the potential for a second Donald Trump term — it’s under Biden that the US has been clashing with Canada and Mexico on auto-parts rules. But Canadian and Mexican officials say trade negotiations would be vastly more volatile and unpredictable if Trump were at the helm.

Eurasia Group Sees Attorney General Garland’s Contempt Vote as a New Blow to Political Norms. House Republicans are set to vote on holding Attorney General Garland in contempt of Congress for refusing to comply with subpoenas demanding he turn over audio recordings of President Biden’s interviews with the special counsel in the classified documents case. Holding Garland in contempt is largely a symbolic move meant to advance a Republican narrative that the Biden administration is covering up evidence that Biden’s age is a significant impediment to his fulfilling his duties as president. More broadly, congressional moves against Cabinet officials of the opposite party have become normalized in the U.S.’s hyper-partisan political environment: Obama AG Holder and Trump AG Barr were also held in contempt of Congress, and earlier this year the House impeached Homeland Security Secretary Mayorkas. In keeping with previously identified risks, heightened partisanship is leading to a continued breakdown of perceptions of institutional legitimacy in the U.S.—a breakdown that will continue regardless of which party ultimately wins the White House in November.  

Eurasia Group Recognizes Trump’s Capitol Hill Swing as a More Organized Approach to Transition. Former president Trump traveled to Capitol Hill this week to meet with Republican congressional leaders as the party formulates a gameplan to enact its legislative agenda if it wins a trifecta in November (35% odds). To avoid the same chaotic transition to the Trump administration in 2016—when few Republicans expected to win the White House—Republicans have already started discussions on policy priorities and their potential means of enactment. Tax cuts, energy permitting, and immigration are at the top of the agenda, and House Speaker Johnson (R-LA) is working with Senate colleagues to prepare reconciliation efforts that would allow Republicans to bypass the Senate’s 60-vote filibuster threshold to pass key priorities. Although getting certain issues such as immigration reform, which are not immediately related to fiscal matters, to clear the Byrd Rule that guides the reconciliation process is no sure thing, the GOP is  confident that precedents set by Democrats for the Inflation Reduction Act and Bipartisan Infrastructure Bill will clear the way for the Senate parliamentarian to allow significant changes to immigration law to advance through the expedited process in 2025. The enthusiastic reception Trump enjoyed from congressional Republicans during his visit also speaks to the extent to which his Manhattan conviction has had zero impact on his near-unanimous support among Republicans on the Hill.  

“Inside Baseball”

Run-Up to the 2025 Debate Over Expiring Tax Cuts is Beginning to Take Shape on Capitol Hill. K Street is springing into action to target the “tax teams” that House Republicans have launched and working groups that the Senate GOP is assembling. Although there’s been heavy turnover, particularly in the House, since Republicans passed the Tax Cuts and Jobs Act in 2017, tax writers in both chambers are building out plans for the groups. And the efforts are drawing lobbyists’ interest. The policy groups forming in each chamber should be helpful in getting lawmakers up to speed on what the law did and why, and the groups will serve as a critical meeting list for those looking to influence the tax debate on specific issue areas. Beyond turnover, businesses are responding to shifts within the GOP. Some companies are trying to find smaller businesses or suppliers they work with to help push for their tax priorities in an effort to present a more populist-friendly image. Democrats have been quieter on the prep front. In fact, it’s easier for Republicans to lay down markers on extending a law that they generally want to keep on the books. For K Street, the tax bills that Democrats worked through—from Build Back Better to the Inflation Reduction Act—offer a starting point for engaging with lawmakers, and some lobbyists are looking at what got left on the cutting room floor as an entry point for weighing in with Democrats. Meanwhile, Senate Finance Committee Republicans are keeping their cards close to the vest when it comes to exactly what their tax working groups for 2025 will look like. While the working groups are expected to examine the full range of possibilities, Finance Republicans’ focus will be on the Trump tax cuts, which the GOP generally wants to preserve. House Republicans’ tax policy groups have also been meeting.

The Congressional Baseball Game was held this week. And as some of you may know, my daughter works for the Washington Nationals. Her department is responsible for non-Nationals game events, which this game falls under. Her biggest concern going into the game, just as it has been for the last few years, was security. Security parameters include coordinating Nationals security with DC Metro Police and U.S. Capitol Police. From a security standpoint, one plus this year was that President Biden would not attend, which meant separate Secret Service accommodations did not need to be made. As expected, there was some disruption when climate protesters interrupted the game by running into foul territory. U.S. Capitol Police officers quickly tackled the demonstrators, and for the remainder of the game law enforcement encircled the outfield to protect members. Republicans dealt their Democratic counterparts a drubbing in a lopsided 31-11 win. Although Democrats led 5-4 in the second inning, their advantage didn’t last and the GOP ran away with the game. Adding insult to injury, Republicans ran up the score in the top of the seventh inning, putting up a whopping 10 runs, with a three-run inside-the-park home run by Rep. August Pfluger (R-TX). This year’s game raised more than $2 million for local charities.

In Other Words

“We have lost some really great members over this. To me, we ought to do what we did with the courts and others and hold the talent that we have,” House Appropriations Chair Cole (R-OK) arguing that a salary bump after years of inflation is crucial to retaining and attracting economically diverse candidates.

Did You Know

The 12th Amendment to the Constitution prevents the selection of a president and vice president from the same state. This would become an issue if former President Trump were to choose Florida Sen. Rubio (R-FL) as a running mate. To be eligible, Sen. Rubio would have to change his residence to another state.

Graph of the Week

The World Bank has raised its forecast for global growth on strong U.S. expansion, while warning that climate change, war, and high debt will hurt poorer countries where most of the world’s population lives. The bank boosted its projection to 2.6% from a 2.4% forecast in January, and the Washington-based anti-poverty lender kept its 2025 forecast unchanged at 2.7%. Most of the improvement stems from an upgraded U.S. growth outlook to 2.5% from a previous estimate of 1.6%; however, countries in Sub-Saharan Africa, the Middle East, and North Africa saw their estimates cut. The global inflation rate is expected to drop to 3.5% this year and 2.9% in 2025, but to fall more slowly than projected in January, which means that many central banks are likely to remain cautious about cutting interest rates. Rates will probably remain high by pre-pandemic standards, averaging about 4% in 2025 to 2026. The bank also highlighted the risks that countries face from weak global trade. While trade growth will pick up this year from a standstill last year, the World Bank forecasts that 2024 will cap the worst half decade of growth for trade since the 1990s.

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