“Change-Alley bankrupts waddle out lame ducks!” – David Garrick, prologue, “The Maid of Bath,” 1771.

Overview

As Election Day predictions consume the Beltway, speculation grows alongside them about what will happen in the lame-duck session. Will lawmakers eschew another continuing resolution (CR) and agree to a spending deal? Will Congress pass the annual defense authorization bill? If so, will it include a compromise on permitting reform? What about tax extenders? The debt limit? If November 8th is a “red wave,” will Republicans be in any mood to negotiate at all?

Pay attention, because November and December could prove productive, even if a red wave, or something close to it, sweeps in a Republican majority. If some or all the issues in play get punted into the 118th Congress, one might assume that addressing (and passing) them could only grow more difficult. That’s certainly reasonable. For no matter how big a potential Republican victory in November, President Joe Biden will be in the White House for the next two years.

One should not expect House Republicans to cut any deals with Speaker Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY). But remember that, in the lame duck, Minority Leader Kevin McCarthy (R-CA) and his conference will still be in the minority, and so it’s possible that an end-of-year deal on spending, tax extenders, and other issues could happen without their support.

But note, too, that Speaker Pelosi will only have a three-vote margin in the lame duck. Only a handful of House Republicans, some of whom are retiring, will support an eventual spending deal (only 10 voted for the CR in September). That means Pelosi can ill-afford any defections among key voting blocks in her caucus.

Leaders on both sides are surely relieved, for now, that they won’t have to address the debt limit by the end of this year. The Bipartisan Policy Center, according to its updated debt limit model, projects that the new “X Date” will likely arrive no earlier than the third quarter of 2023. Nonetheless, this issue is top of mind for many legislators, who know what’s coming, and it doesn’t look pretty.

Spending

All focus this November and December will be on the two biggest legislative vehicles, the FY23 National Defense Authorization Act and a deal on appropriations, whether it’s a CR or an omnibus. December 16 is the new deadline to keep government funded, but expect Congress to finish its work by Friday, December 23, before the Christmas weekend.

Don’t expect an omnibus to come easily. Yes, Senate Appropriations Committee Chairman Patrick Leahy (D-VT) and Ranking Member Richard Shelby (R-AL) are retiring. Many want to deliver a win for them in the form of an omnibus deal. But despite the aura of good feelings, there are still many political and fiscal realities standing in the way.

At this stage, negotiators haven’t agreed to a top-line spending number. Republicans continue to push for parity between defense and non-defense spending. They also oppose any new poison-pill policy riders, including eliminating the Hyde amendment, which prohibits taxpayer-funded abortions.

Republicans will also set their sights on the Internal Revenue Service (IRS). The Inflation Reduction Act included nearly $80 billion for the IRS to increase audits and tax collection. Republicans turned this into “87,00 new IRS agents,” a potent talking point for their ad-making machine this election cycle. Thus, a key question: will Republicans, who are making IRS funding central to their campaigns, support nearly $13 billion for the IRS, which Senate Democrats are proposing?

What about permitting reform? More on this below. Sen. Joe Manchin (D-WV) failed to advance his permitting reform bill on the CR in September. But Manchin is hopeful a deal can be reached, especially for what he wants most: approving the Mountain Valley Pipeline (MVP). Sen. Shelley Moore Capito (R-WV) wants the same thing, but she is also canvassing colleagues about provisions in her own permitting bill.

Members on both sides have plenty of ideas on the topic, but Manchin and Capito are trying to frame discussions using their bills as bookends. At this stage, getting a deal on a topic fraught with controversy and inserting it into an omnibus is difficult, to say the least. Inserting so-called “air drops” into a conference requires agreement among the “Big Four,” the sobriquet for leaders of the House and Senate.

As noted, Speaker Pelosi faced a revolt from nearly 80 members of her caucus over Manchin’s bill riding on the CR, in large part because of the MVP language. One suspects that dynamic won’t change much if MVP is central to any eventual deal. And as with any omnibus, there are multiple competing issues, ranging from abortion to immigration and national security, that by themselves can scuttle agreement on a final bill. The last thing negotiators would need is a bill that inflames the opposition of environmental activists.

National Defense Authorization Act

This week Senate Armed Services Chair Jack Reed (D-RI) and Ranking Member James Inhofe (R-OK) will unveil the manager’s amendment of the FY 2023 National Defense Authorization Act (NDAA). Over the last two weeks, Armed Services Committee staff sifted through hundreds of amendments. This process included several other committees, which were involved in clearing or objecting to amendments in their jurisdiction. The next step is an informal conference with the House, which will begin in earnest next week. Negotiators expect to agree on a compromise bill that can pass both chambers during the lame-duck.

The conference will try to tackle some weighty issues, including some, as has become customary, considered extraneous to the bill’s scope and purpose. Many are closely watching for a potential agreement on an outbound investment monitor regime. These talks mostly center around Senators John Cornyn (R-TX), Bob Casey (D-PA), Sherrod Brown (D-OH) and Pat Toomey (R-PA). Influencing these discussions is a potential end-of-year executive order by the administration.

Can a permitting reform compromise ride on NDAA? At the moment, that seems unlikely. We should note that this NDAA is named after Ranking Member Inhofe, who is retiring this year. He is opposed to Manchin’s bill but is nonetheless open to reforms proposed by Republicans, including Sen. Capito. Even so, a permitting deal would have to be bipartisan and then accepted by the informal House-Senate conference. So far, no deal appears on the horizon.

Tax Extenders

Discussions around a tax extenders package will commence once members return to DC. Retiring Ways and Means Committee Ranking Member Kevin Brady (R-TX) is likely to stick to his long-held opposition to tax extenders. That means negotiations will likely occur between Ways and Means Chairman Richard Neal (D-MA) and the Senate.

The main drivers of a potential deal center around retirement savings promotion and provisions that typically fall into a tax bill.

Negotiations could easily get stuck on the enhanced child tax credit and R&D tax credit, both of which passed as part of reconciliation. Various trade-related policies are also up for debate, including Trade Adjustment Assistance, the Miscellaneous Tariff Bill, and the Generalized System of Preferences program. During debate over the CHIPS bill, Senate Finance Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) agreed to resolve many outstanding trade issues, only to have Chairman Neal dismiss the deal. Should Chairman Neal come back to the table with constructive counterproposals, then talks could resume.

Other Issues

There are plenty of other issues on the table when Congress returns in November. The Respect of Marriage Act is one, and its proponents expect it could pass once the election comes and goes.

Privacy legislation is another. Yet given the lack of support for the House “American Data Privacy and Protection Act” from Speaker Pelosi and Senate Commerce Committee Chair Maria Cantwell (D-WA), it’s difficult to see a comprehensive deal coming together any time soon.

Two other issues on the radar: Sen. Amy Klobuchar’s (D-MN) anti-trust legislation, though it seems doubtful the bill can get sufficient Republican support. Also, election certification reform could find its way into an end-of-year legislative package.

Finally, when not working on legislation, Majority Leader Schumer will try to confirm judicial and executive branch nominees—possibly his last shot in scheduling the executive calendar. It’s possible that the Senate, as it has done before, could agree to a package of nominees, but that would likely depend on the outcome of the election.

Next Year

Looking ahead to the 118th Congress, here are some themes and issues to expect if Republicans take the House:

• Economy and inflation
• Supply chain
• China
• Energy independence
• ESG
• Securing the border and building the southern border wall
• Funding approximately 200,000 more police officers
• Law-and-order legislation
• Rebuild the military to the previous administration’s levels
• “Parents Bill of Rights,” with a focus on respect for schools and education
• Bolstering legislation around the CURES Act
• Increased funding for telemedicine
• Data security
• Privacy legislation and crack-down on big-tech