Three Areas To Watch: Fiscal Packages/Shutdown Risk, Special Election 2024 Impact & Q1 Catalyst Calendar

In this episode of Street Cred, Chris Krueger, Macro Policy Analyst, breaks down three areas to watch in Washington during the next six weeks:

• The fate of the two fiscal packages and looming government shutdown risk
• Special election takeaways and impact on 2024
• A catalyst-rich policy environment through Q1

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Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Chris Krueger:

Good morning. Welcome back to TD Cowen Street Cred. I am Chris Krueger with TD Cowen’s Washington Research Group, and we’ll attempt to translate K Street to Wall Street faster than a speeding Acela and even faster if you juice up the playback. We’re doing much better with our 2024 resolutions with our third post this month really exceeding our lack of a dry January. The 2024 inaugural pod attempted to try and make sense of the November election by breaking the year into three separate tracks that are currently running parallel, which of course, now intersect as our second podcast dealt with six wild cards for the election.

On today’s, which was recorded on February 15th, so fair warning if everything has changed, we wanted to update listeners on three main areas in Washington. Number one, the state of play with the two big fiscal packages and looming shutdown risk in March. Number two, takeaways from the Tuesday special elections, and then three, some of the key catalysts on the horizon to close out Q1.

Okay, number one, there are two quite large fiscal packages that have passed in opposite bodies of Congress over the past couple of weeks, although, both are in pretty precarious positions and it’s hard to see how they both get enacted, but this is 2024.

So the first bill is the Senate passed $95 billion Security Supplemental. That’s essentially a foreign and military aid package for Ukraine Israel, Gaza, Taiwan, a few others that passed the Senate. Huge bipartisan vote, 70 to 29. The second big bill is the House passed basically $80 billion tax in stimulus deal. That also huge bipartisan vote, 357 to 70. About half of that bill is an expanded child tax credit, so call it 40 billion, and then the other half is a combination of three business tax extenders, essentially retroactively fixing some of those business tax credits, the research and development tax credit, bonus depreciation and interest expensing.

The Senate bill on the foreign and military aid package, that is not offset. It’s deficit financed, which is par for the course on supplementals, while the House bill is offset by reforms and an expiration of the pandemic era employee retention credit. Neither of the two bills addressed the southern border. The bipartisan Senate border security bill was blocked and is not going to see a vote.

In terms of passage of these two big fiscal packages, there are really three potential legislative vehicles to carry these bills. The issue for that security supplemental is basically, former President Trump and a lot of opposition in the House to Ukraine aid. The opposition to the House tax bill is from Senate Republicans who have real objections to that expanded and refundable child tax credit. But the three potential vehicles are right around the corner. They’re on March 1st and March 8th. So March 1st, you have the first of two government funding deadlines. Four of the smaller appropriation bills run out on March 1st, and then the other two potential legislative vehicles are both on March 8th. That’s when the eight remaining appropriation bills expire, government funding, and then when the FAA authorization expires.

Wrapping up all three of those bills by March 8th is going to be a pretty tall order, particularly given the upcoming President’s Day recess and the Senate impeachment trial of Homeland Security Secretary Mayorkas, which begins on February 26th. So it seems likely that the Congress will have to push out all of those dates two weeks, but again, very unknown and the House is gone for a 13-Day vacation. Will return with 72 hours to prevent a government shutdown. So would expect next week a lot of the headline coverage around D.C. To be about the tick-tock with government funding about to expire.

Okay. Second area we wanted to flag, just some takeaways from Tuesday’s Special elections. As the saying goes, as go the suburbs and the suburbs, generally speaking. Have been pretty positive ground for Democrats in the off-cycle elections from this past November and also, the midterms in 2022. House special elections in presidential years always generate massive coverage and potential insights into what could transpire in November. Former Democratic congressmen defeated the Nassau County Republican legislator to fill the seat of the expelled, and currently indicted, Congressman George Santos from Long Island. This is a district Biden won by nearly eight points in 2020. Santos won the seat in 2022 by nearly the same margin, and the Democrats flipped it again, winning it by nearly eight points. So the election was Tuesday, and on the eve of that special council report that was highly critical of Biden’s memory plus, the intense focus on the migrant crisis at the southern border, the political atmospherics, despite the snowstorm really favored the Republicans. But the suburbs remain largely democratic, and that is a warning sign, we think, for Republicans, mainly within the House races. Because you look at the geography and margin for the House, and Republicans are defending 17 similar suburban districts that Biden won in 2020. Democrats are only defending five Trump won 2020 districts. So the geography favors Democrats and the margin is now a two-seat margin in the House for Republicans.

So control of the House is a key gating question for policy next year. You have the debt ceiling coming up, you’ve got the expiration of the 2017 Tax Cuts and Jobs Act, individual rates and changes. You have the Obamacare subsidy cliff, so a lot going on in the House.

I think the other interesting takeaway from Tuesday was the under card, and that was the vacant Pennsylvania State House seat. This was around Bucks County, so Philadelphia suburbs and the Democrats won. Won that State House seat, retained their majority. If you think about Pennsylvania probably being the most critical state in the Electoral College, the Philly suburbs in Bucks County are probably the most critical county. So Democrats winning there as well.

Okay, bucket three, we’re entering a catalyst-rich period to close out Q1. You have the Munich Security Conference this weekend. Could also get clarity on Trump’s criminal trial over January 6th and election interference. That had been scheduled to start March 4th. That now probably doesn’t begin until the late spring.

Looking at the calendar, February 24th, next Saturday you have the South Carolina primary. Two days later, Monday, February 26th, you have the first impeachment trial of a cabinet secretary and well over 100 years. It takes 66 senators to convict. We see no scenario where that happens. How long the trial lasts, again, it hasn’t happened in an extremely long time. Best guess is maybe a day. You are going to have 11 House managers acting as prosecutors, and some of these managers are some of the more controversial members of the House Republican Conference. So I think there is probably some risk here for Republicans to really overplay what is candidly going to have the feel of a bit of a circus.

The day right after that trial begins, you have the Michigan primary on February 27th. I already flagged the March 1 and March 8 deadlines for government funding, but in between, those are Super Tuesday on March 5th and Biden’s State of the Union on March 7th. So March just gets off to an unbelievable start in terms of scheduled catalysts.

March 12th is the Georgia primary, and then March 19th is a host of other big state primaries. March 19th is when Trump is likely to secure a majority of the delegates and become the de facto nominee. Then the month likely closes out March 25th with the beginning of Trump’s first of four criminal trials. That’s the New York trial over the so-called hush money case, although, could get more clarity on that later in the coming days on the actual start date for that.

Okay, that’s a wrap just about 10 minutes or less. This has been Chris Krueger with TD Cowen’s Washington Research Group for Street Cred. Have a great long weekend.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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