The Washington brief

Executive summary

• We don’t expect a government shutdown on March 22^nd. That said, we also don’t expect any major legislation – including a tax bill – to be passed in 2024. Smaller-scale supplemental funding bills and targeted messaging bills remain comparatively likely.
• Following their recent primary wins, President Biden and former President Trump are on their way to being the nominee for their respective parties. However, there are real but small chances either candidate could be upended by medical questions and legal issues.
• Within the Senate, it remains to be seen if the primary winners will be viable general election candidates. If Republican primary voters select strong general election candidates, Republicans have a solid shot to take control of the Senate.

Our Take

Setting the stage in Congress

With the political season now upon us, debates around government funding continue. Importantly, we expect that a March 22^nd partial government shutdown will be avoided. The recently passed $459 billion funding bill covers allocations for roughly 30% of the federal government, including funding for departments of Agriculture, Commerce, and Energy. Currently, the second tranche of spending bills must be passed by March 22^nd to avoid a partial shutdown. We believe a partial shutdown of the remaining six agencies – impacting high-profile areas such as military service members, Border Patrol, IRS agents, and TSA staff – would be comparatively disruptive. For this reason, we expect Congress to complete work on the remaining fiscal year 2024 appropriations bills by the March deadline.

With voters’ attention now shifting to the election, we don’t expect any major legislation will be passed in 2024. The recent effort to produce a tax package involved some elements of bipartisan and bicameral cooperation but didn’t include enough key member votes necessary for Senate passage. With tax season now soon to end, there isn’t enough time to complete work on a comprehensive bill. Supplemental funding bills may be passed, but they will likely be narrow in size and scope. We believe a comprehensive immigration reform bill is also unlikely. Additionally, messaging bills – many of which have little chance of passing – will be ongoing, as both Republicans and Democrats seek to motivate their respective bases. Areas of interest include a potential TikTok divestiture/ban (passed by the House on March 13^th, but less likely to pass the Senate), drug pricing transparency, and abortion-related measures. Lastly, “new” issues like artificial intelligence and “old” issues like cryptocurrency regulation still lack consensus.

The Presidential race

Following their recent primary wins, President Biden and former President Trump are on their way to being the nominees for their respective parties. However, there is a small but realistic chance that neither make it on the ballot in November due to medical questions and legal issues for both candidates. President Biden’s recent State of the Union performance addressed some questions about his capabilities, which spurred his best two hours of fundraising ever during the speech. This said, it’s a long time until November in political terms. It is a very close race, with former President Trump holding small leads in recent polls across many key states.

Aside from changes on the health and legal fronts, the determining issue for the outcome will be the state of the economy into the early fall in our opinion. Any further improvements could have a meaningful positive impact for President Biden, while a return to higher inflation may further impair Democratic polling. Above all else, we view this race as a referendum on President Biden’s performance. This presents both opportunities and risks. While recent polling for President Biden has not been good, we believe he has the time and ability to improve his polling numbers before November. Additionally, we expect President Biden to benefit from organizational and financial advantages Democrats currently have over the Republicans.

The battle for the Senate/ House

As close as the presidential race seems, the battle for the Senate is even more uncertain. Of the 34 open Senate seats this year, 23 are held by Democrats and Independents that caucus with Democrats. Democratic incumbents are running in three states (OH, MT, WV) that President Trump won in the last two elections and six states (WI, PA, NV, MN, ME, and MI) where President Biden won by single digits. Additionally, there is an open seat in Arizona, a state that President Biden won by less than half of a percent. How these states vote in the presidential race is important because, in recent years, only one incumbent senator has won when their state voted for opposite party in the presidential contest. The final pieces to the Senate puzzle will come together after the various state primaries are completed. It remains to be seen, especially in Republican primaries, if the primary winners will be viable general election candidates. If they are, Republicans have a solid shot to take control of the Senate.

For the House, it is difficult to project how the outcome for control will play out at this point. Many states have just recently finalized their Congressional districts, most of which are newly configured, shifting the possibilities for some candidates. Additionally, there are new candidates and many retirements. On March 12^th, Rep. Ken Buck (R-Colo) pulled forward his retirement to March 22^nd. That takes the GOP majority down to 218, narrowly above the 217 needed to constitute a majority. And that’s if there’s 100% attendance for votes, which is rare. 

Bottom line

We continue to believe Congress will pass the remaining six appropriations bills by the March 22nd deadline. However, comprehensive bills addressing taxes or immigration reform appear increasingly unlikely, as focus shifts to smaller-scale supplemental funding bills and targeted messaging bills. The November Presidential match up of President Biden versus former President Trump is also set.