Capital Thinking Update - November 14, 2011

    View Author 14 November 2011

    General Legislative

    On Monday, November 14, the House returns from a District Work Period and will consider several bills naming U.S. Postal facilities. On Tuesday, the House will complete consideration of H.R. 2838, the “Coast Guard Maritime Transportation Act of 2011.” The Senate will convene at 2:00 p.m. on Monday for a period of morning business. At 3:00 p.m., the Senate will resume consideration of H.R. 2354, the legislative vehicle for the Energy and Water, Financial Services (S. 1573) and State-Foreign Operations (S. 1601) appropriations “minibus.”

    Budget, Appropriations


    • First FY2012 Appropriations Minibus. Conference negotiations continue on the first FY2012 Appropriations Minibus (H.R. 2112) which currently contains the Agriculture, Commerce-Justice-Science, and Transportation-Housing and Urban Development spending bills. Conferees are working to reconcile contentious gun issues and a mortgage loan limit provision. The inclusion of additional bills remains a possibility with the Homeland Security (H.R. 2017) and Legislative Branch (H.R. 2551) the most likely targets. Conferees intend to finalize the bill early this week to enable both chambers to clear it before the expiration of the current FY2012 Continuing Resolution (CR) on November 18. The minibus will include another CR going through mid- to late December to allow time for consideration of the remaining spending bills.
    • Second FY2012 Appropriations Minibus. A November 10 procedural vote cleared the way for Senate consideration of the second FY2012 Appropriations Minibus which contains the Energy and Water (H.R. 2354), Financial Services (S. 1573) and State-Foreign Operations (S. 1601) bills. Debate on the minibus is expected to begin on Monday, and the Senate could hold votes on amendments as early as Tuesday. Senate leaders would like to complete work on this bill prior to adjourning for the Thanksgiving recess, but foreign aid debate and Republican efforts to block health care reform measures and Dodd-Frank financial regulatory actions may prolong floor consideration.
    • Balanced Budget Amendments. The “Budget Control Act of 2011” (P.L. 112-25) mandates that Congress vote by the end of the year on a constitutional balanced-budget amendment. On November 10, the Senate defeated an amendment introduced by Senator John McCain (R-AZ) to tax legislation (H.R. 674) which included a sense of Congress in support of a balanced-budget amendment. The House is expected to take up a balanced-budget amendment measure this week. Two versions have been introduced in the House – the more restrictive H.J. Res. 1 and H.J. Res. 2, which is the traditional version and is co-sponsored by 16 Democrats. H.J. Res. 2, the version that the House is expected to bring to the floor, closely mirrors the balanced-budget amendment that the House approved by a two-thirds margin in 1995 but that the Senate failed to pass. Senate Majority Leader Harry Reid (D-NV) said that the Senate will take up the measure on a balanced-budget amendment after the Thanksgiving recess.




    • ESEA Hearing. On Tuesday, November 8, the Senate Health, Education, Labor, and Pensions (HELP) Committee held a hearing titled, “Beyond NCLB: Views on the Elementary and Secondary Education Reauthorization Act.” Although the Committee reported out the bill favorably (15-7) to the Senate floor on October 20, Senators Tom Harkin (D-IA) and Michael Enzi (R-WI) agreed to convene this additional hearing as part of an agreement with Senator Rand Paul (R-KY).
      During the hearing, Republicans, including Senators Enzi and Lamar Alexander (R-TN), remarked that they plan to offer amendments on the Senate floor, which would lessen the authority the federal government plays in education, as well as look to cut additional programs. They believe that such changes are needed in order to secure Republican votes.  A floor vote has yet to be scheduled in the Senate.

      In his floor speech on Thursday, Senator Harkin acknowledged, for the first time, his concern about sending an ESEA bill to President Obama by the end of this year. Senator Harkin remarked that it would be difficult to move forward without a bipartisan bill in the House. Unlike the Senate HELP Committee, the House Education and the Workforce Committee has taken a piecemeal approach to the reauthorization by marking up individual bills to address specific issues. 


    • “Learning Resources” Registry. On Monday, November 7, the Departments of Education and Defense jointly announced a collaborative effort to launch “Learning Registry.” Through the registry, organizations can volunteer innovative learning resources to education stakeholders and the public. The Departments have allocated a total of $2.6 million to fund the project.
    • Head Start. On Wednesday, November 9, President Obama announced that the Department of Health and Human Services (HHS) will implement new rules requiring all low-performing Head Start grantees to meet a newly-established set of benchmarks in order to ensure continued funding. Based on current program performance data, it is projected that one-third of all grantees will have to re-apply for continued funding under this new rule. HHS will notify the first group of grantees in December 2011.

      House Education and the Workforce Committee Chairman John Kline (R-MN), Senate Health, Education, Labor and Pensions Committee Ranking Member Mike Enzi (R-WY) and Senator Lamar Alexander issued statements supporting the new regulations and referenced that such reforms were long overdue. On December 12, 2007, President George W. Bush signed the “Improving Head Start for School Readiness Act of 2007” (P.L. 110-134). This law significantly revised the previous Head Start Act and authorized Head Start through September 30, 2012.
    • Invest in Innovation. On Thursday, November 10, the Department of Education announced that it selected 23 school districts, nonprofit organizations and institutions of higher education for potential funding under the Investing in Innovation (i3) program. Over 600 applicants applied. The Department required applicants to submit proposals focused on one of five priorities, including new priorities aimed at promoting science, technology, engineering and mathematics (STEM) education, and increasing achievement and high school graduation rates in rural schools. Grant awards will be made in the following three categories: (1) “Scale Up,” $25 million per grant; (2) “Validation,” $15 million per grant; and (3) “Development,” $3 million per grant.  In total, the Department will award up to $150 million in i3 funds. The 23 applicants must guarantee a privately funded match of 5 percent, 10 percent and 15 percent, respectively, by December 9.
    • Office of Early Learning. The Department of Education has announced a proposal to create an Office of Early Learning, which will oversee the Race to the Top-Early Learning Challenge (RTT-ELC) grant program and coordinate other early learning grant programs across the Agency. Senior Advisor for Early Learning, Jacqueline Jones, will serve as the head of the new office, which will operate within the Department’s Office of Elementary and Secondary Education (OESE). Ms. Jones currently oversees the existing RTT-ELC grant program, which announced that 35 states and the District of Columbia had submitted applications in late October. 




    • Congressional Hearings. On Wednesday, the House Natural Resources Committee will hold an oversight hearing on “The Future of U.S. Oil and Natural Gas Development on Federal Lands and Waters” with Interior Secretary Ken Salazar as the only scheduled witness. (Last Tuesday, Secretary Salazar announced the Proposed Outer Continental Shelf Oil and Gas Leasing Program for 2012-2017; last Thursday, the Secretary of Energy Advisory Board’s Natural Gas Subcommittee released its Second 90-Day Report on shale gas production.) The Senate Energy and Natural Resources Committee scheduled a field hearing to examine Marcellus Shale gas development and production in West Virginia on Monday. On Tuesday, the Committee will receive testimony on the Department of Energy’s (DOE) Quadrennial Technology Review and two related bills: the “Quadrennial Energy Review Act of 2011” (S. 1703) and the “Energy Research and Development Coordination Act of 2011” (S. 1807). On Thursday, the Committee will hold a full committee hearing to receive testimony on the Secretarial Order No. 3315 to Consolidate and Establish the Office of Surface Mining Reclamation and Enforcement within the Bureau of Land Management.


    • Offshore Wind. DOE is funding a major offshore wind interconnection study to assess the most promising coastal sites. The final report and recommendations are expected in September 2013.
    • Interior’s Proposed 5-Year OCS Oil and Gas Leasing Program. Comments on the Draft Programmatic Environmental Impact Statement are due by January 9, with 13 public hearings scheduled between December 5-16. Comments on the plan itself are due by February 8.
    • Western Gulf of Mexico OCS Lease Sale. On Monday, the Bureau of Ocean Energy Management (BOEM) will formally release the Record of Decision for the Western Planning Area (off Texas and Louisiana) Oil and Gas Lease Sale 218, the final such lease sale scheduled in the current 2007-2012 5-Year OCS Leasing Program. BOEM will open and publicly announce bids received for blocks offered on December 14 beginning at 9:00 a.m.
    • FERC Retrospective Rules Analysis. In compliance with Presidential Executive Order 13579, the Federal Energy Regulatory Commission (FERC) has “determined that a very limited number of the Commission’s rules are ‘major rules’ because they do not have a ‘significant economic impact upon a substantial number of small entities’. FERC’s rules, likewise, are typically not considered a ‘significant regulatory action’.” However, FERC will continue to enhance its retrospective analysis of regulations in the future and, beginning this month, “staff will conduct reviews on a biennial basis to identify existing regulations that have become ineffective, outmoded, or overly burdensome.” 




    • OSM/BLM Merger. On Thursday, November 17, the Senate Committee on Commerce, Science and Transportation will hold a full committee hearing to receive testimony on the Secretary of the Interior’s Order No. 3315 to Consolidate and Establish the Office of Surface Mining Reclamation and Enforcement within the Bureau of Land Management.
    • Forest Service. On Tuesday, November 15, the House Committee on Natural Resources, Subcommittee on National Parks, Forest and Public Lands will hold an oversight hearing titled, “Forest Service Regulatory Roadblocks to Productive Land Use and Recreation: Proposed Planning Rule, Special-use Permits, and Travel Management.”
    • Oceans and Fisheries. On Wednesday, November 16, the Senate Committee on Commerce, Science and Transportation, Subcommittee on Oceans, Atmosphere, Fisheries and Coast Guard will hold a hearing to examine the need for continued innovation in forecasting and prediction.


    • Renewable Energy on Brownfields and Related Sites. The Environmental Protection Agency (EPA) and the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) have announced they are studying developing renewable energy production on existing Superfund, brownfields and former landfill or mining sites. Properties will be analyzed to evaluate the potential development of wind, solar, biomass or geothermal projects. The 26 sites chosen for potential projects are located in Louisiana, Missouri, Mississippi, Vermont, New York, New Jersey, Delaware, Georgia, Illinois, Indiana, New Mexico, Iowa, Kansas, Nebraska, Colorado, Montana, California, Arizona, Oregon and Washington.
    • Haze Forming Pollutants. EPA has announced a court ordered schedule to review and act on more than 40 state pollution reduction plans in an effort to protect public health from the damaging effects of the pollutants that cause regional haze. Pollutants that form haze include fine particle pollution and compounds that contribute to its formation such as nitrogen oxides, sulfur dioxide and certain volatile organic compounds. In many cases, controls have already been or are in the process of being installed to meet other state and federal requirements, including the recently issued Cross-State Air Pollution Rule. The agency expects that the Cross-State Air Pollution rule will cut millions of tons of sulfur dioxide and nitrogen oxides in 27 states by 2014 and, therefore, additional action concerning haze forming pollutants may not be necessary. EPA will accept public comment on this issue.
    • Hydrogen Sulfide. EPA has concluded that reporting requirements for hydrogen sulfide should be reinstated for the Toxic Release Inventory (TRI). Hydrogen sulfide can result from industrial activities such as food processing, coke ovens, kraft paper mills, tanneries and petroleum refineries. It is also is produced by human and animal wastes. Individuals living near a wastewater treatment plant, a gas and oil drilling operation, a farm with manure storage or livestock confinement facilities or a landfill may be exposed to higher levels of hydrogen sulfide. This action will be effective for the 2012 TRI reporting year. The first reports for the 2012 TRI reporting year are due from facilities by July 1, 2013.


    Financial Services


    • Senate Covered Bond Legislation Introduced. On Wednesday, Senator Kay Hagan (D-NC) and Bob Corker (R-TN) introduced the United States Covered Bond Act (S. 1835), a bill that would help create a covered bond market in the United States. The bill is co-sponsored by Senators Chuck Schumer (D-NY) and Mike Crapo (R-ID) and mirrors a proposal offered by Financial Services Capital Markets Subcommittee Chairman Scott Garrett (R-NJ) in the House (H.R. 940)
    • House Financial Services Subcommittee to Mark-up OTC Derivatives Proposals. On Tuesday, November 15, the House Financial Services Capital Markets Subcommittee will mark-up several legislative proposals to amend Title VII of the Dodd-Frank Act. These proposals were discussed in detail at an October 14 hearing. The Subcommittee will consider H.R. 2586, the Swap Execution Facility Clarification Act; H.R. 2779, a proposal to exempt inter-affiliate swaps from certain regulatory requirements put in place by the Dodd-Frank Act; H.R. 3045, the Retirement Income Protection Act of 2011; H.R. 1838, a proposal to repeal a provision of the Dodd-Frank Act prohibiting any Federal bailout of swap dealers or participants; and H.R. 2308, the SEC Regulatory Accountability Act.
    • Senate Banking Committee to Hear from Federal Housing Finance Agency. On Tuesday, November 15, the Senate Banking Committee will hold a hearing titled, “Oversight of the Federal Housing Finance Agency.”  Edward DeMarco, the Acting Director of the FHFA, is expected to testify.
    • Treasury Deputy Secretary to Testify on Small Business Matters. On Wednesday, November 16, Neal Wolin, Deputy Secretary of the Treasury, will testify before the House Small Business Committee at a hearing titled, “Protecting Small Business Contracting: Leadership Challenges at the Department of the Treasury.” 
    • House Financial Services to Address Insurance Legislative Proposals. On Wednesday, November 16, the House Financial Services Committee will hold a hearing titled, “Insurance Oversight and Legislative Proposals.” Witnesses: Mr. Joseph Torti, III, Deputy Director and Superintendent, Insurance and Banking, Division of Insurance, Department of Business Regulation, State of Rhode Island, on behalf of the National Association of Insurance Commissioners; Mr. Michael H. Lanza, EVP & General Counsel, Selective Insurance Group, Inc., on behalf of the Property Casualty Insurers Association of America; Mr. Daniel Schwarcz, Associate Professor, University of Minnesota Law School.
    • Senate Banking Subcommittee to Discuss SEC Reform. On Wednesday, November 16, the Senate Banking Subcommittee on Securities, Insurance and Investment will hold a hearing titled, “Management and Structural Reforms at the SEC: A Progress Report.” The witnesses will include Robert Khuzami, Director, Division of Enforcement; Meredith Cross, Director, Division of Corporation Finance; Robert Cook, Director, Division of Trading and Markets; Eileen Rominger, Director, Division of Investment Management; Craig Lewis, Director, Division of Risk, Strategy and Financial Innovation; and Carlo di Florio, Director, Office of Compliance Inspections and Examination.


    • SEC to Hold Small Business Capital Formation Forum. On Thursday, November 17, the Securities and Exchange Commission will hold a Government-Business Forum on Small Business Capital Formation. Panel topics will include current capital formation issues for private companies and initial public offerings and securities regulation involving smaller public companies.


    Health Care


    • Super Committee Health Cuts. The latest proposal to reduce the deficit comes from Super Committee Democrats and includes $350 billion in cuts to Medicare and another $50 billion from Medicaid. The reductions in Medicare would be comprised of $250 billion from provider payments and $100 billion from beneficiaries. Specific cuts offered include $13 billion in provider taxes, $4 billion from payments to disproportionate share hospitals, $5 billion from durable medical equipment, an $8 billion reduction to the prevention and public health trust fund and $20 billion from increasing the inflationary rebate for Medicaid drugs. The proposal stipulates that the entitlement cuts would only go into effect after tax reform proposals are enacted.
    • House Ways and Means Hearing. The House Committee on Ways and Means Oversight Subcommittee will hold a hearing on Tuesday, November 15, at 10:30 a.m. on the Small Business Health Insurance Tax Credit. The hearing will focus on whether small business employers are currently benefitting from the Small Business Tax Credit, problems they may be encountering when calculating the credit, and whether the IRS is administering it in a way that ensures tax compliance.
    • Senate HELP Hearing. The Senate Committee on Health, Education, Labor and Pensions has scheduled a hearing on Tuesday, November 15, at 2:30 p.m. on “Medical Devices: Protecting Patients and Promoting Innovation.” Witnesses Include Jeffrey Shuren with the Food and Drug Administration, Ralph Hall with the University of Minnesota, David Challoner from the Institutes of Medicine, and Gregory Curfman with the New England Journal of Medicine.
      The Committee will also meet on Thursday, November 17, at 10:00 a.m. for a hearing on “The Americans with Disabilities Act and Accessible Transportation: Challenges and Opportunities.”
    • Senate VA Hearing. The Senate Committee on Veterans Affairs will hold a hearing on Wednesday, November 30, at 10:00 a.m. titled, “VA Mental Health Care: Addressing Wait Times and Access to Care.”


    • ACA Challenges. The United States Court of Appeals for the District of Columbia Circuit upheld the validity of the individual mandate established by the Affordable Care Act. This adds to the growing list of federal appeals court rulings on the Affordable Care Act, increasing pressure for the Supreme Court to take up the issue this session, potentially during the summer next year.
    • NAMD Innovations Paper. The National Association of Medicaid Directors (NAMD) released a white paper outlining a pathway for creating a climate for innovation in Medicaid. The report outlines three main focus areas for discussion with the federal government in order to accomplish this goal, including focusing on improved health care outcomes over bureaucratic process measures, streamlining business practices to ensure state flexibility and spur greater innovation in the program, and supporting a system for rapid dissemination of best practices so that all states can benefit from identified advancements. Of particular note, the NAMD calls for significant streamlining of the current process for consideration and oversight of SPA’s and waivers.
    • IOM Meetings. The Institutes of Medicine’s Committee on Geographic Adjustment in Medicare Payment, which is tasked with evaluating the accuracy of the geographic adjustment factors used for Medicare payment, will hold meetings on November 17 and November 18. The meetings will be closed to the public.
    • MACPAC Meeting. The Medicaid and CHIP Payment Advisory Commission has scheduled public meetings on November 17 and November 18.


    International, Defense, Homeland Security

    • Iran-Related Developments. Last week’s International Atomic Energy Agency (IAEA) report on Iran, which suggested that the Islamic Republic’s nuclear program maintains both military and civilian components, has spurred divergent reactions in official Washington. In contrast to French President Nicolas Sarkozy and some hawks in Congress, the Obama Administration has remained relatively muted on the IAEA report for several reasons. First, President Obama’s national security team has no desire to add fuel to Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak’s apparent arguments for a near-term military attack on Iran’s nuclear facilities. Most White House, Pentagon, State Department and intelligence community officials have concluded that such an attack would delay Iran’s nuclear program by three years in the best case scenario and would be diplomatically devastating in the interim. Second, the Administration is concerned that additional U.S. sanctions targeting Iran’s central bank could produce unintended consequences, namely near-term oil supply constraints and correspondingly sharp price increases. Senator Mark Kirk (R-IL), Senator Kirsten Gillibrand (D-NY), House Foreign Affairs Committee Chairwoman Ileana Ros-Lehtinen (R-FL) and others on Capitol Hill take a different approach. They argue that the central bank has the potential to be the make-or-break target for defunding Iran’s nuclear ambitions. Meanwhile, Dennis Ross, the White House’s point man for Iran and Israeli-Palestinian policy, resigned last week. Ross’s decision suggests a lack of optimism in the Administration for a breakthrough on negotiations on either front. Finally, as part of its approach to bolster the defense capabilities of the Gulf Cooperation Council states across the Persian Gulf from Iran, the Administration is considering selling 4,900 Joint Direct Attack Munitions (JDAM), precision-guided “bunker buster” bombs, to the United Arab Emirates (UAE). The UAE already owns several hundred JDAMs, as well as a modern F-16 fleet to deliver them, if necessary.
    • APEC Developments. As President Obama and Secretary of State Clinton arrived in Honolulu, HI for the Asia-Pacific Economic Cooperation (APEC) summit, they found a relatively welcoming audience among fellow attendees. From South Korea to Japan to Southeast Asia to Australia, U.S. allies are focused on how best to encourage the United States to maintain and even bolster, not reduce, its military presence in the region. Meanwhile, Trans-Pacific Partnership (TPP) trade talks will continue along the margins of the APEC summit. In a major breakthrough for the Obama Administration’s international economic policy and Pacific Rim trade relations more generally, Japanese Prime Minister Yoshihiko Noda reversed course to announce Friday that Japan will participate in the TPP discussions. The multilateral talks inevitably will prove more complicated now, but the White House believes including the world’s third-largest economy is well worth the trade-off of any possible delays.
    • Homeland Security Developments. On Wednesday, Transportation Security Administration (TSA) head John Pistole updated the Senate Commerce Committee on TSA’s transportation security efforts, which Committee Chairman Jay Rockefeller (D-WV) and Surface Transportation Security Subcommittee Chairman Frank Lautenberg (D-NJ), among others, generally supported. Responding to mild criticism on privacy grounds from Committee Ranking Member Kay Bailey Hutchison (R-TX), Administrator Pistole continued to defend the use of Advanced Imaging Technology (AIT) “body-scanners” at airport checkpoints, but promised TSA only would purchase AIT units with Automatic Target Recognition (ATR) privacy filters already installed. Currently, only the ATR filters of millimeter wave-based AITs have received approval from TSA. Pistole also emphasized TSA’s expansion of its PreCheck voluntary pre-screening efforts at participating airports. Also, Pistole told Senator Kelly Ayotte (R-NH) and others that he is considering their requests to delay the expiration date of Transportation Identification Worker Credential (TWIC) pre-clearance security cards.


    Super Committee

    This week, Super Committee members released specifics on dueling Democratic and Republican deficit reduction plans. Committee Republicans presented a proposal that includes approximately $500 billion in revenue raisers over 10 years and, for the first time, opened the door to including revenue derived from tax increases for deficit reduction. The plan, which was offered by Senator Pat Toomey (R-PA), a member of the Super Committee, would instruct the Congressional tax writing committees to report legislation next year that lowers individual rates across-the-board (marginal rates would range from 8 to 28 percent), while maintaining current policy on capital gains and dividends (15 percent rate) and estate tax ($5 million exemption; 35 percent rate). As measured against a current policy baseline, the proposal would raise roughly $250 billion for purposes of deficit reduction by significantly limiting itemized deductions. The proposal also targets a 25 percent corporate tax rate, to be paid for by reducing tax expenditures on the corporate side of the tax code. Committee Republicans agreed to score these changes statically, meaning no revenue gains from assumed economic growth that would result from tax reform would be taken into consideration in scoring the measure. The plan also includes an additional $240 billion of revenue to be raised through the sale of government assets, the imposition of certain user fees and changes in the manner tax brackets are indexed for inflation (linking to a “chained CPI” formula). In exchange for putting these revenue raisers on the table, the Republican proposal asks for approximately $750 billion in spending cuts over 10 years, to be comprised of further discretionary spending cuts, Medicare and Medicaid spending reductions, various mandatory spending cuts, including agriculture subsidies, and moving to a “chained CPI” for purposes of calculating social security cost of living adjustments. 

    Super Committee Democrats have dismissed the Republicans’ plan on the grounds that it would make the tax code less progressive and, when scored against a current law baseline, would increase the deficit by several trillion dollars. Committee Democrats offered their own proposal that would create a process for tax reform, beginning with a $350 billion “down payment” in miscellaneous revenue provisions, likely including various corporate tax increases. “Fast track” tax reform would compel an additional $650 billion, for a total of $1 trillion of net tax increases for deficit reduction and, should Congress fail to enact legislation by January 1, 2013 that meets the tax reform framework, a trigger creating $650 billion in new revenue would go into effect (approximately half from a limitation on itemized deductions for upper-income taxpayers and half from a deficit reduction charge on income tax liability before application of tax credits). The Democrats' plan also includes $1 trillion in spending cuts ($400 billion of which would come from entitlement programs), but would not take effect until either tax reform is enacted or the tax trigger is implemented. Super Committee Republicans have summarily rejected this proposal.

    The Super Committee is under immense pressure to have some measure of agreement in the near term to give the Congressional Budget Office time to score their proposal, which the Super Committee must vote on by November 23 to maintain “fast track” procedures of any legislation they report. While discussions among the Super Committee members continue in earnest, Congressional Leaders have taken a more active role in the discussions over the past few weeks. By most accounts, agreement by the Leaders represents the best chance for a deal.
    No public sessions before the Super Committee are scheduled for next week.



    • Tax Reform in Super Committee Deliberations. Significant partisan divide over policy outcomes and revenue targets continues to persist, as evidenced by the differing proposals released by Super Committee Democrats and Republicans this week. Whether, and to what degree, tax provisions will be included in any final agreement remains an important and open question. As evidenced by details of the dueling proposals released this week, it remains highly unlikely that the Super Committee will be able to actually include fundamental reform in its forthcoming legislative proposal. Short of this, possible options include setting up a process, like that included in recent proposals by Super Committee members, whereby fundamental reform could be compelled next year, and/or including various piecemeal tax provisions in the final legislative product while leaving fundamental reform to be dealt with at a later point in time.
    • Senate Votes to Repeal Three Percent Withholding Law. On November 10, by a vote of 95-0, the Senate passed legislation (H.R. 674) repealing a three percent withholding tax on the payments private companies derive from government contracts, which absent such legislation is set to take effect in 2013. The legislation is fully paid for by replacing the Modified Adjusted Gross Income (MAGI) calculation for determining eligibility for premium subsidies for the health insurance exchanges included in the Affordable Care Act and for determining Medicaid eligibility beginning in 2014, with the income formula used in all other federal programs. The Senate also adopted an amendment by Senator John Tester (D-MT) that provides a variety of benefits to veterans and provides employers with tax credits of up to $9,600 for hiring unemployed veterans. While originally viewed as a tax compliance measure, the three percent withholding is now considered a policy that would disrupt cash flow to private business and consequently threaten jobs, thereby reducing economic growth. The House is expected to take up the measure, as modified by the Senate, on its suspension calendar next week, and the Administration has indicated its strong support for the legislation. While House Democrats originally opposed the MAGI offset, given the Administration’s support, the legislation is expected to pass the House.
    • Tax Reform Hearings Next Week. The House Ways & Means and Senate Finance Committees continue to hold hearings on fundamental tax reform. The following hearings are scheduled for next week:

      November 15: House Ways & Means Committee, Subcommittee on Oversight, hearing on the Small Business Health Insurance Tax Credit

      November 17: House Ways & Means Committee, Subcommittee on Select Revenue Measures, hearing on Chairman Dave Camp’s (R-MI) international tax reform discussion draft released on October 26.

      November 17: Senate Finance Committee, hearing to consider certain nominations, including Mary John Miller to be an Under Secretary of Treasury; and Alastair M. Fitzpayne to be a Deputy Under Secretary of the Treasury

      The Senate Finance Committee postponed a hearing scheduled for Wednesday, October 12, on Tax Reform Options: Capital Investment and Manufacturing. It is possible that this hearing will be rescheduled later this year. The previously announced witnesses for that hearing were: Dr. Jane Gravelle, Senior Specialist in Economic Policy, Congressional Research Service, Library of Congress; Douglas Holtz-Eakin, Ph.D., President, American Action Forum; Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation; Dr. J.D. Foster, Norman B. Ture Senior Fellow, Economics of Fiscal Policy, The Heritage Foundation; Dr. Michelle Hanlon, Associate Professor of Accounting, Massachusetts Institute of Technology, Sloan School of Management.




    • Net Neutrality. On November 10, the Senate, in a party-line vote, rejected S.J. Res 6, the latest effort by Senate Republicans to overturn the Federal Communications Commission’s (FCC) December 2010 Open Internet Order. The Senate’s action paves the way for the agency’s network neutrality rules to go into effect on November 20. The FCC’s Order established a framework for “Open Internet” regulation affecting how broadband providers manage Internet traffic over their local networks, with different requirements for wireline and wireless providers. It is possible that Republicans may pursue other attempts to block the Open Internet rules, including through the appropriations process. Meanwhile, the FCC’s Order faces court challenges by Verizon and other companies in the D.C. Circuit Court of Appeals, although a decision on the case is not likely until next year. Should the FCC lose in court, it could trigger new regulatory and legislative debates.
    • FCC Reform. The House Communications and Technology Subcommittee on November 16 will markup Chairman Greg Walden’s (R-OR) measure to reform FCC processes and reporting requirements. Walden has criticized the FCC for past actions, including passage of the net neutrality rules and a lengthy review of the Comcast-NBC Universal merger, which was approved with a series of conditions. Walden joined Senator Dean Heller (R-NV) earlier this month in unveiling two bills – H.R. 3309/S. 1784 – the Federal Communications Commission Process Reform Act – that would reform the Commission’s practices. Among the reforms included in the bills would be to:

      Require the Commission to identify a market failure, consumer harm or regulatory barrier to investment before adopting economically significant rules. After identifying the issue, the FCC would need to demonstrate that the regulation’s benefits outweigh its costs.
      • Require the Commission to establish performance measures for all program activities.
      • Apply to the Commission the regulatory reform principles that President Obama endorsed in his January 2011 Executive Order.
      • Wireless/Online Taxes. On November 9, Senators Lamar Alexander (R-TN), Mike Enzi (R-WY) and Dick Durbin (D-IL) led a bipartisan group in the introduction of S. 1832, The Marketplace Fairness Act – a bill that combines provisions of several measures already pending before Congress
        S. 1832 gives states two options for collecting sales taxes already on the books for online purchases:
      • Streamlined Sales and Use Tax Agreement (SSUTA): The legislation allows any state that is a member of the SSUTA to require remote retailers to collect state and local sales and use taxes.
      • Alternative Minimum Simplification Requirements: States that are not SSUTA members may require remote retailers to collect state and local sales and use taxes if they adopt minimum simplification requirements.

        The bill also exempts online retailers with annual sales of less than $500,000 from collecting any tax at all. 

        The bill is supported by a host of groups representing local government and online retailers, including: the National Governor’s Association, National Conference on State Legislatures, National Conference of Mayors, National League of Cities, National Association of Counties, Governing Board of the Streamlined Sales and Use Tax Agreement, International Council of Shopping Centers, Retail Industry Leaders Association, Amazon, Performance Marketing Association, American Booksellers Association, National Association of College Stores, National Association of Real Estate Investment Trusts and the Outdoor Industry Association.
    • Data Security. Legislation introduced by Senate Commerce Committee Chairman Jay Rockefeller (D-WV) and Senator Mark Pryor (D-AR) – the Data Security and Breach Notification Act – that aimed at data security and breach notification, which recently slipped from Committee markup, may be poised for action in December.
    • Hearings. The House Judiciary Committee will hold hearings on H.R. 3261, the “Stop Online Piracy Act,” on November 16, and “Cybersecurity; Protecting America’s New Frontier,” on November 15. The Senate Commerce Committee also will hold a nomination hearing on Federal Trade Commission nominees Jon Leibowitz to be re-appointed as Chairman and Maureen Ohlhausen to be a new commissioner on November 15.


    • FCC Nominations. As we reported last week, on October 31, President Obama nominated Jessica Rosenworcel and Ajit Pai to be FCC Commissioners. Although these nominees are non-controversial, their confirmation process has hit a road block in the form of Senate Judiciary Committee Ranking Member Chuck Grassley (R-IA). Senator Grassley announced his intention to block Senate action on both FCC nominees until the FCC meets his request for information regarding the agency’s review of LightSquared. Senator Grassley has been in a disagreement with FCC Chairman Julius Genachowski since January regarding what he says is a lack of response to his inquiry regarding the FCC’s review of the prospective new national broadband network being proposed by LightSquared.




    • SAFETEA-LU Reauthorization. On Wednesday, November 9, the Senate Environment and Public Works Committee (EPW) marked up a bi-partisan two-year highway reauthorization bill known as “MAP 21.” During the mark-up, the Committee unanimously adopted a Managers Package of mostly technical amendments. The Committee did not formally report the bill because the Senate Finance Committee has yet to identify the $12 billion in additional revenue needed to maintain current funding levels for two-years. At the mark-up, Senate Finance Committee Chairman Max Baucus (D-MT) said that he is continuing to work to find the additional revenue and pledged that he would do so, and that it would be bi-partisan. Indications are that the Banking Committee and Commerce Committee are making preparations to mark-up the transit and rail/motor carrier safety titles of the reauthorization shortly. On the House side, Speaker Boehner announced that the House would be releasing, and trying to pass before the end of the year, an energy-infrastructure bill that would tie SAFETEA-LU reauthorization to expanded domestic energy production, using the energy revenues and royalties to make up for the shortfall in the Highway Trust Fund. Many observers believe that meeting the end-of-the-year deadline will be difficult, and that it will also be difficult to release a bill before Thanksgiving as earlier reports suggested. Reports this week also indicate that the House may be looking at a shorter-term bill than six years (possibly as short as two years) given realistic revenue projections from the oil and gas leases.
    • Transportation Appropriations. The House and Senate are in final negotiations over the Transportation-HUD appropriations bill which is expected to be moved to the floor next week and enacted into law in advance of the November 18 expiration of the current Continuing Resolution. Previous editions of Capital Thinking have described the differences between the House and Senate bills, and next week's edition will cover the final compromise bill.