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OUTLOOK 2021: Assessing the Washington policy landscape

13 January 2021 Roger Bernard
  • Senate in Democratic control with 50-50 tie.
  • More COVID aid coming
  • Manchin a key player now.
  • Stabenow to head Senate Agriculture Committee.

Getting the final word on the 2020 elections, even as it took until early 2021, has set the stage for the 117th Congress and for a new administration. But it is a stage that shifted in terms of the political and administrative landscape for at least the next two years.

The two runoff elections for the US Senate seats in Georgia were won by Democrats and the margin of victory in both races is outside the level that would have forced a recount. Sen. Kelly Loeffler (R-Ga.) was defeated by Democratic challenger Raphael Warnock and Sen. David Perdue (R-Ga.) was defeated by Democratic challenger Jon Ossoff. That gives Democrats a 50-50 tie in the Senate, with the challengers not seated until the results are certified later this month. Once that happens, it will mean that Kamala Harris will cast deciding votes in the event of a tie, giving control of the chamber to Democrats.

Democrats already have a narrow majority in the House of Representatives of 222-211. But there also still are two outstanding races in the House—one in New York state and now the Louisiana House seat that was to be filled by Republican Luke Letlow who died from COVID-19.

Impacts ahead from shift in Washington

Another round of checks for Americans and additional COVID stimulus help are expected to be the immediate impacts. Actions ahead are expected to see the checks for Americans bumped up to total $2,000 or an increase of $1,400 from the $600 per person most already have received.

Plus, there is expected to be aid for state and local governments emerging in the next round of COVID aid that Congress is expected to approve.

The slim Senate control should ease the way for cabinet-level appointees that have to be approved by the chamber. President-elect Joe Biden already has made most of the top-line selections for key posts, avoiding nominees that would have been more controversial. That could mean some of the sub-cabinet roles filled by some of those more-controversial nominees.

Moderates will be key players now, particularly Sen. Joe Manchin (D-W.Va.) and potentially those like Sens. Lisa Murkowski (R-Alaska) and Susan Collins (R-Maine). As long as the filibuster survives — and that seems more likely — many Democratic priorities will need 60 votes in the Senate.

That also means that legislative efforts are not going to be as aggressive or bring the significant changes that could take place with larger majorities in both chambers. This will force legislative efforts to be more centrist in nature as opposed to ones that would be more reformative in nature.

Democrats will regain the gavels in the various Senate committees, with Sen. Bernie Sanders (I-Vt.) likely as chairman of the Budget Committee and he likely will push reductions in defense spending. Sen. Ron Wyden (D-Ore.) would chair the Senate Finance Committee, which is in charge of tax writing and trade policy. He wants to tax gains in capital assets each year even if they are not sold. Sen. Sherrod Brown (D-Ohio) would chair the Banking panel and Sen. Elizabeth Warren (D-Mass.) on the financial institutions subcommittee would try to change rules to steer lending and capital to their priorities and cut lending to fossil-fuel companies. Sen. Dick Durbin (D-Ill.) will lead the Judiciary Committee.

Regulation and executive orders still key

While a divided Washington would have accelerated the regulatory and/or executive order action in Washington, the close margins in the House and Senate will mean that regulation/executive order stands as a key action point for a Biden administration.

The expectation still is that there will be a degree of "re-regulation" taking place — reversing the deregulatory efforts and executive orders from the Trump administration.

While there are tools that Congress can use on the regulatory front — the Congressional Review Act (CRA) — that can be a tricky tool to navigate as using that route also means that a similar rule cannot be pursued in the future. So that could give Congress pause in using the CRA to an extensive degree. Indications are that regulations finalized since August 21 would be potential candidates to be addressed via the CRA.

Climate change moving up on the agenda

While we do not expect a "sea change" on the legislative front involving climate change, there will be a clear shift, which will accelerate efforts to combat climate change. The control of the House, Senate and White House by Democrats will facilitate it, but the close margins will temper the degree of change that can be accomplished.

Incoming Senate Agriculture Committee Chair Debbie Stabenow (D-Mich.) has made clear that climate change will be a key focus, specifically creating a carbon market for US agriculture. "We certainly will be deciding ... what bills come to the floor, which is a dramatic difference, and as well as what bills are brought up before the committee," Stabenow told a congressional reporter. "As chair of the Agriculture Committee, we're going to lead an effort to create a voluntary climate exchange and ... climate policy for farmers and ranchers, and that's a top priority for me," Stabenow said.

Stabenow was one of the sponsors of the Growing Climate Solutions Act last year. Under the bill, USDA would provide information to farmers and forest owners interested in participating in carbon markets, and it would certify businesses to verify that participating landowners are carrying out practices that capture carbon, reduce emissions, or improve soil health.

But the keys for anything related to climate change for US agriculture are what type of changes that may be sought for agricultural producers and perhaps, most importantly, what size of payments can producers expect to receive in exchange for climate actions. That will be the key for the situation moving forward as farmers will not be willing to change cropping practices, etc., if they are not provided with an attractive payment to make up for any changes to productivity that result.

Infrastructure also gaining traction

The Trump administration had pushed infrastructure as a likely area of bipartisan agreement. Democrats were on board, but how to pay for action on infrastructure stymied agreement as conservative Republicans balked. However, with a focus on the economy key, that has more observers expecting infrastructure action will become a reality.

And if it is melded into efforts to bolster the economy, that will likely temper spending critics. Infrastructure actions loom large for agriculture as improvements to waterways, roads and bridges facilitate getting farm products to market and will create a slew of jobs as projects get underway.

Tax changes less likely

Given the immediate focus on the economy for the Biden administration, pushing through significant changes in tax law does not seem likely. Actions to increase taxes on businesses or even high-income Americans would likely temper economic activity and, thus, would run counter to the administration's goal of jumpstarting the US economy.

Trade policy still further down on the list

No major changes are expected on trade policy ahead. The Biden administration will review the Phase One agreement with China and is not seen adjusting tariffs on Chinese goods that were put in place by the Trump administration. That means a new trade deal with the UK will be further down the road and even the US rejoining what was the Trans-Pacific Partnership (TPP) agreement will take time and would be an area where a Biden administration would seek changes.

How to pay for actions is important

While deficit spending accelerated with the COVID aid efforts that have been deployed, when it comes to efforts like climate change, there will still be questions of how to pay for any such activities such as payments to farmers.

There becomes a point where not everything can be considered "emergency" spending and, thus, outside of the need for spending increases to be met with offsetting declines in other areas. Unless Democrats can adopt changes in the way the Senate operates, the spending question will loom over the consideration of activities relative to climate change, in particular.

Potentially narrow window for change

The focus is on the next two years relative to the ability of Democrats to move forward on their agenda. History shows the party in control of the White House often loses seats in the first mid-term election that comes after taking office. However, history has not proven near as reliable for how elections are playing out in the current climate.

But Democrats will push hard to move forward on their agenda over the next 18 months as they eye those mid-term elections.

Posted 13 January 2021 by Roger Bernard, Policy Analyst, Refining Chemicals And Resources Solutions, S&P Global Commodity Insights



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