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Traditionally, most of the legislation enacted during a president’s first term is passed between the first October and April before the midterm elections. Based on our view of the calendar and political forces, we think this cycle is on track to match historical precedent. Our legislative forecast is that there will be a busy late winter and spring, but if significant legislation is still outstanding by Memorial Day, it will have nearly no chance of being enacted until the next Congress comes back into session in 2019. So what will be talked about for the next few months? Here is a preview:

Tax Reform "Clean-up" Legislation: With the speed of the recent tax overhaul, there were a number of apparent glitches, loopholes, and omissions that need to be addressed in subsequent legislation. It is an open question how expansive these changes will be. While we can be sure some mistakes will be fixed, the definition of "mistake" for legislators can mean a number of different things—unintended consequences, misplaced punctuation, or a need for altogether new provisions. In the first quarter of the year we can expect Congress to be thinking about the necessary and not so necessary, but it will almost certainly specifically target requested changes to the recently passed bill. Here the challenge will be that any such "fixes" would need 60 votes in the Senate, making it likely that the legislation would not come together until later in the year. In the short term, we can expect a discrete tax package, known as the "tax extenders" bill, to be passed, which would retroactively extend a small number of provisions for the 2017 tax year that expired, such as the mortgage insurance deduction.  

Government Funding and Potential Shutdown: Just before the holiday, Congress passed a stop-gap spending package that kept the government funded until January 19. Most observers expect that a deal will not be reached by the 19th, and another continuing resolution will be necessary, possibly through Presidents' Day. Thereafter, the goal for Republicans is to pass a two-year budget deal that eliminates statutory caps on spending. In the New Year, a number of unresolved but pressing issues are going to be taken up and tied closely to this process. A nonexhaustive list includes:
  • Disposition of the Deferred Action for Childhood Arrivals program remains in limbo;
  • Defense spending increases per President Trump's campaign promises and reciprocal demands from Democrats for domestic programs increases;
  • Disaster relief for hurricane- and wildfire-impacted areas;
  • Health insurance subsidies; and
  • The National Flood insurance program.

Infrastructure: President Trump announced that in the coming weeks he will be releasing concepts for an infrastructure bill. Details are scarce on what the administration may have in mind and how much such a bill could cost, but we anticipate that the plan may provide up to $200 billion in seed money over 10 years, which is expected to spur further development with private leverage/matching requirements. Details are fluid, but suffice it to say that any infrastructure bill will be light on direct spending and heavy on incentives for private-sector development, and will rely on state and local funds. Politically, an infrastructure bill poses challenges and opportunities for the Republicans. At one time, Senator Schumer supported an infrastructure deal with new federal funding and an infrastructure bank, paid for with a portion of repatriated funds. However, with the tax bill passed, it is hard to see Congress revising it to recapture some of those funds for infrastructure. Furthermore, the $1.0-$2.3 trillion score for the Tax Bill renders further deficit spending very difficult. On the flip side, a real infrastructure bill would be something Republicans could campaign on and would be a win for a lot of Trump-voting states—not to mention other Democratic states that have large-scale projects proposed and awaiting more funding.

Financial Reform Legislation: By the end of 2017, the committees with jurisdiction over the financial system in both chambers of Congress had narrowed down their lists of deregulatory reform proposals. The Senate Banking Committee combined its proposals into one bill, S. 2155, while the House Financial Services Committee has forwarded a larger number of bills, with some significant overlap with the Senate companion. Far from "breaking up the big banks," this legislation favors small and regional institutions. In the first quarter of 2018, the final provisions will be worked out, and what remains unresolved will likely be picked up by the financial regulators, who (for the most part) have been confirmed and seated in their new positions. Expect a close look at rules regarding capital, liquidity, and systemic risk.

Housing System Legislation: We can expect a great deal of discussion in early 2018 about the unfinished business of the financial crisis—housing finance reform. There are a number of political tailwinds that could make these discussions successful now when other efforts have failed. The proposals on the table are starting to leak out of the House and the Senate, and each involves rewiring the secondary market for mortgages and mortgage-backed securities. These changes are intentionally designed to have minimal impact on the primary market (the one that interacts with consumers), but the degree to which that is possible is the political question that will determine the fate of the legislation.

Farm Bill: The House and Senate Agriculture Committees are working to draft a rewrite of the current farm bill (PL 113-79), which will expire September 30, 2018. House Agriculture Committee Chairman K. Michael Conaway (R-TX) has set his sights on the first quarter of 2018 to complete the committee's work with key federal agencies and select industry stakeholders on draft legislation. The farm and food reauthorization traditionally comprises an array of issues impacting nutrition, trade, conservation, rural development, commodities, and other programs. Although a draft is not yet complete, it is believed the House bill will attempt to improve upon programs for cotton and dairy farmers and the Supplemental Nutrition Assistance Program.

Cabinet and Administration Staff Turnover: The only thing that is permanent in D.C. is its impermanence. While it may seem that a number of appointees and senior staff/advisors to the president have just gotten started, it is not unusual to see a number of high-profile departures in the first 6 months of this year. With these departures, the replacement staff and appointees will have new views and provide a new forum for discussion about the regulatory issues of the day.

Oversight Priorities: We can expect inquiries into the Russian contacts of the Trump campaign to persist and Robert Mueller to continue his work as special prosecutor. Other oversight priorities will likely focus on new headlines that are cropping up—such as blockchain technology and cryptocurrency.