Gold Dome Report
Everyone who has ever spent time in the Georgia House of Representatives is mourning the loss of Speaker David Ralston, who passed away earlier this week after an extended bout of illness. Ralston earned the respect and admiration of all those who served with him. He stood atop the rostrum for thirteen years, longer than any other serving Speaker in the United States. In doing so he provided a steady hand that steered the course for the institution through increasingly turbulent waters. A staunch conservative who was also a voice for moderation, “Mister Speaker” restored the integrity of the People’s House which had been tarnished by his predecessor. Not only did he leave the House better than he found it, but the State of Georgia as well: none of the major accomplishments of the previous decade-plus would have been possible without his leadership, and everyone who calls Georgia home owes him a debt of gratitude.
Our sincerest condolences go to Sheree, Matt, and the Ralston family. Georgia has lost a giant who loomed as large as the Blue Ridge Mountains he loved and called home, but a family has lost a husband and father, and we wish them peace and comfort as they mourn his passing.
The only constant is change, and Ralston’s unexpected passing is perhaps the biggest change that will reshape the political landscape here, since he had provided the closest thing to constancy during his long tenure. His indelible mark will remain, as the gavel has been passed to Representative Jon Burns (R-Newington), a Ralston acolyte who served as Majority Leader for the previous eight years. Other members of Ralston’s inner circle are expected to remain in key house positions, but the sheer number of new members will inevitably alter the body in unforeseen ways.
It is old news by now, but in case you hadn’t heard Governor Brian Kemp romped to a win in his re-election rematch against Stacey Abrams. Kemp and his team have the unique bragging right of beating both Donald Trump and Stacey Abrams in the same year; they have also shown the Republican Party a path forward out of the morass that the former President led the GOP into two years ago. Considered (by some) a dead man walking in the aftermath of Trump’s election denials, Kemp won with flourish by uniting his fractured party and governing and campaigning with a laser focus on the issues Georgians said they cared about. Other Republicans around the country would do well to emulate the Kemp model.
Not only did the Governor trounce his rival, but the rest of the Republican field did very well despite the vaunted “red wave” that failed to materialize nationwide. One notable exception: once again Georgia’s unique majority requirement has sent us into extra innings as Hershel Walker failed to gain enough traction to overcome Senator Raphael Warnock. There is another lesson here: the key metric in this race was the greater than 2% vote share taken by the Libertarian candidate, in contrast to the Governor’s race where the third-party gleaned less than 1%. Like in 2020 and 2021, there is a critical mass of center-right voters in this state who are willing to vote split ticket or skip races where the candidates are too extreme or not qualified. Look at the results up and down the ballot: the less aligned with the MAGA faction of the GOP a statewide Republican candidate was, the more votes they got. Therein lies the rub: politics is about the future, not the past, and winning requires addition, not subtraction.
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Heard on the Hill (continued)
Polls showed that 70% of Americans thought that we were going in the wrong direction. Pundits and pollsters read the red tea leaves and felt the momentum. Predicting the final number of Republican pickups in the Senate and the House became a parlor game. Most Republicans in Washington – and some Democrats, too – expected Republicans to have a 1- or 2-seat advantage in the Senate next January and to win at least 20 new seats in the next House of Representatives.
As we all know, that is not what happened. As of today—
- Democrats will have at least a 50-50 tie in next year’s Senate, with Vice President Harris available to break a tie. The runoff in Georgia will be held December 6, so the U.S. Senate next year will either be 50-50 or 51-49 with Senator Schumer and the Democrats in control.
- Republicans have secured a majority in the House of Representatives. They currently hold 218 seats. Democrats hold 208 seats. Seven races remain uncalled.
Republicans are indeed pleased with retaking the majority in the House, even if it’s a razor thin majority. But they expected a bigger victory in the House and hoped for a new majority in the Senate.
One reason for the outcome was that the polls were off again this cycle. Some polls oversampled Republicans, trying to overcompensate for under sampling Republicans in previous elections.
It is also true that some of our assumptions about the election were off. Democrats were much more enthused about the election than previously thought, and a major reason for that intensity was the abortion issue. The Supreme Court’s decision overturning Roe v. Wade set off a wave of reaction. Democrats then put an abortion referendum on the ballot in Michigan, California, Kentucky, Montana, and Vermont, which ensured pro-choice women would go to the polls.
There’s also no question that the January 6th investigation and the intense feelings some Americans have for former President Trump helped create enthusiasm among Democrats and some Independents. Exit polls show that Republicans turned out more of their voters than did Democrats, but also show that Independents favored Democrats nationally by over four percentage points – and by a much larger margin in Arizona, Georgia, and Pennsylvania.
Independents and political moderates used to be fertile terrain for ticket splitters, but there was concern that our polarized political environment may have choked off their oxygen. This year’s election proved that ticket splitters still exist. Voters in Georgia, New Hampshire, Nevada, Ohio, Pennsylvania, and Wisconsin were asked in the exit polls if they strongly approved of President Biden, strongly opposed President Biden, or somewhat disapproved of President Biden – and if they were going to vote for the Republican or Democratic candidate.
Exit polls in these six states showed that the voters who somewhat disapproved of President Biden were about 10% of the total sample of voters, but they made up a significant amount of the swing voters in four of the six states.
- In Georgia, this group backed Republican Governor Brian Kemp by 16 points, but backed Democratic Senator Raphael Warnock by 6 points.
- In New Hampshire, they backed Republican Governor Chris Sununu by 20 points, but backed Democratic Senator Maggie Hassan by 47 points.
- In Nevada, they backed Republican gubernatorial candidate Joe Lombardo by 12 points, but supported Democratic Senator Catherine Cortez Masto by 3 points.
- In Wisconsin, they backed Democratic Governor Tony Evers by 15 points, but supported Republican Senator Ron Johnson by 3 points.
It may also be worth noting that Democrats’ efforts aimed at Generation Z voters paid off and may have made the difference in many close races. As one example, exit polls show that 72% of young women aged 18-29 voted for the Democrat candidate in House races nationwide.
The Republican message during the election was that Democrats were the party in power, and they either created or were responsible for inflation, the spike in crime, and ballooning illegal immigration. The Democratic message was that this election was not a referendum on President Biden. Rather, it was a choice between Republicans and Democrats, and that extremist Republicans can’t be trusted to be competent and return America to the relatively normal life we had before the pandemic.
Republicans turned out their voters, but some Republicans also turned off Independents.
The Reaction
Democrats in Washington, D.C., as you can imagine, are a little giddy. As Winston Churchill famously said, “nothing in life is so exhilarating than being shot at with no result.”
Republicans are working to digest the election and plan for the future. House Republicans on Tuesday nominated Congressman Kevin McCarthy to be their candidate for Speaker of the House, surviving a challenge from Congressman Andy Biggs. Congressman Steve Scalise (R-LA) was unopposed to be Majority Leader. Congressman McCarthy will have to find a way to get 218 votes for Speaker when the House convenes in January.
Senate Republican leader Mitch McConnell was opposed by Senator Rick Scott, who was Chairman of the National Republican Senatorial Committee this past election cycle. Senator McConnell said for months that he had the votes he needed to be reelected, and he did. Senator McConnell was reelected Wednesday by a 37-to-10 vote, which sets him up to break the record next January as the longest serving Senate leader.
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Washington Whispers
As Congress returns to Washington and the dust settles after this month’s midterm elections, Members of Congress and advocates have a long list of potential to-do items in the lame duck session, which began this week.
A lame duck session of Congress occurs when Congress still has business to do between the elections and the swearing in of the newly elected Congress. The 118th Congress will be sworn in on January 3, 2023. The largest factor driving the lame duck is the expiration of government funding on December 16. But since Congress is in session, there are all kinds of issues they could resolve before adjourning to end the 117th Congress. Those issues, in order of likelihood to happen, are:
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National Defense Authorization Act. This annual defense policy bill has been passed for nearly six decades and Congress watchers expect this year to be no exception. At this point, the House has passed its version of the bill with some significant non-defense provisions, and the Senate is set to pre-conference a final version with the House while the Senate also has its debate on the bill.
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Government funding. With government funding running out December 16th, Congress will need to pass either a continuing resolution (CR) or an omnibus appropriations bill to fund the government. There are some in the newly elected House Republican majority who want to try and save this bill for leverage next year, but it seems likely that Congress will fund the government until the end of the fiscal year, Sept. 30, 2023, and save the fight on government funding in a divided government for another day. In addition to government funding, there are a large number of earmarks for retiring and returning Members tied up in this package. Appropriations leaders are currently negotiating a total number for the spending bill, and they will need to arrive at an agreement by the end of next week, or sooner, if they have any chance of getting this done this year.
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Secure Act 2.0. This retirement security bill has broad bipartisan support and should be able to be folded into any package that moves, although this bill does have a number of tax provisions, which could be excluded if a broader agreement on taxes is not reached.
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Increase in the debt ceiling. The United States is expected to reach the limit of its borrowing authority sometime in the spring or summer of 2023. In order to avoid a massive fight in a divided Congress, some leaders are considering raising the debt ceiling now to ensure that the full faith and credit of the United States lasts through the next presidential election. Democrats are saying this effort must be bipartisan, even as some Democrats suggest it would be best for them to use the filibuster-proof budget reconciliation process. Look for this conversation to be resolved before other items move.
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Medicare cuts. These cuts to doctors are a product of congressional “pay-as-you-go” (PAYGO) rules and are often described as sequestration. Congress is likely to take care of doctors.
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Tax items. There is a lot of pent-up demand, especially among House and Senate tax writers, for some tax provisions. Republicans are currently discussing fixing the amortization of the Research and Development Tax Credit (IRC Section 179), while Democrats want to temporarily or permanently revive the Child Tax Credit that was part of the American Rescue Plan. These two items cost wildly different amounts, and as a result, a compromise may be hard to reach. However, it is not clear what other items either side might want in such a package, which is why this is so far down on the list.
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Nominations. Before it was clear that Democrats would hold the Senate, most congressional watchers assumed Senate Majority Leader Chuck Schumer (D-NY) would spend most of the lame duck session moving Biden Administration and judicial nominees. With the majority assured, he will likely have most of these nominees wait until the 118th Congress.
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Electoral Count Act. This bill would make some changes to the law governing the certification of elections in Congress. It is working toward 60 votes.
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Permitting reform. Senator Joe Manchin (D-WV) has been pushing for a permitting reform bill. He tried to attach it to the continuing resolution in September but was thwarted by Republican opposition. He continues to push for its inclusion in the defense bill, but it is not clear that he has 60 votes.
The Congress is hoping to accomplish some or all of these items while American consumers do their Christmas shopping. The continuing resolution on government funding runs through December 16th and if a deal on other issues is close, it could very well be extended about a week to allow the Congress to finish its work. The toxic mix of jet fuel and mistletoe will certainly overtake negotiations by December 21 or 22 and all Members will likely be gone from Washington by December 23. In years past, they have returned after Christmas, but with the calendar this year, it is more likely than not that they will get their work done and adjourn to return for the swearing in of the new Congress in January.
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Interchange Fee Issue Coming to a Head
Will the Durbin-Marshall credit interchange bill become law? This seems to be one of the predominant questions in the lame duck session, as both the financial services and retail industries once again prepare for the latest chapter in a long-running battle over fees charged for electronic payments.
To review the bidding, on July 28, Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) introduced the Credit Card Competition Act of 2022, which would require multiple competing networks to be available for the routing of credit card payments, beyond Visa and Mastercard. According to the Senators, “the Federal Reserve would issue regulations, within one year, ensuring that banks that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed…at least one of which must be outside of the top two largest networks (Visa and Mastercard).”
Interchange fees, whether associated with debit or credit transactions, are charged by credit card companies to create, maintain, and update electronic payment transaction networks. Additionally, the companies, the banks, and the credit unions that issue cards to consumers use income from these interchange fees to protect data sent through the networks, an increasingly complex and expensive process given the prevalence of data breaches and other financial cybercrimes.
The merchant lobby hailed the legislation, which would act as a companion to a similar amendment governing debit transactions that Senator Durbin inserted into the Dodd-Frank Act in 2010. Controversial at the time of passage, the original Durbin amendment sought to cap debit card interchange fees charged by credit card companies and the financial institutions that issue them. In the decade that followed, critics have said that the Durbin amendment amounted to a giveaway to large retailers—a 2015 study by the Richmond Fed found that 98% of merchants did not pass savings from debit regulation to consumers and over 20% of merchants actually increased prices.
Senate sources say that Senator Durbin and Senator Marshall are now floating a plan to attach their bill to either the annual defense bill or the federal spending bill that is needed to fund the government past the December 16 deadline. Although there is a possibility that Majority Whip Durbin will maneuver his way into a recorded vote on the Senate floor, Senators on both sides of the issue say that passage is unlikely for several reasons:
- The issue is generally unpopular because it forces Senators and Congressmen to choose sides in the bitter, expensive, and exhausting war between two powerful lobbying groups – financial services and retailers.
- The financial services industry has made a relatively strong argument suggesting that this bill would lead to transactions being routed to payment networks that, while cheaper to use, are also not secure and easily breached by cybercriminals.
- Attaching anything to either the defense or spending bills will further complicate an already tortured path as Congress tries to dispose of its year-end business in a very limited time frame. The two legislative options would require broad bipartisan support and this effort is still too politically contentious. A Republican Senate leadership staff member told me that “putting the Durbin amendment onto already controversial bills doesn’t make sense to anyone. Hard to see it happening.”
The latest Durbin-Marshall credit interchange bill has its share of Senate supporters. Some sources say as many as 20 Republicans could join most Democrats in voting for the bill if it is offered as an amendment on the Senate floor. In theory there are legislative avenues for Durbin and the merchant lobby to pursue, but it appears that the political arithmetic is against passage in the remaining weeks of the 117th Congress.
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Hearing Report
Senate Banking, Housing and Urban Affairs Committee Hearing on the Oversight of Financial Regulators: A Strong Banking and Credit Union System for Main Street
Tuesday, November 15, 2022; 10:00 a.m.
Senator Sherrod Brown (D-OH), Chairman
Senator Patrick J. Toomey (R-PA), Ranking Member
Witnesses:
The Honorable Michael S. Barr
Vice Chair For Supervision
Board of Governors of the Federal Reserve System
The Honorable Todd M. Harper
Chair
National Credit Union Administration
The Honorable Martin J. Gruenberg
Acting Chair
Federal Deposit Insurance Corporation
Mr. Michael J. Hsu
Acting Comptroller
Office of the Comptroller of the Currency
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This e-newsletter is produced by Total Spectrum/SGA and Total Spectrum Georgia. The views expressed herein may include subjective commentary and analysis that are the views of the editors and authors alone. Information in this e-newsletter is obtained from sources believed to be reliable, but that cannot be guaranteed as independently investigated or verified. Information in this e-newsletter is not an endorsement, advertisement, recommendation, or any type of advice, political, legal, financial, or otherwise. With questions about the content of this e-newsletter, please contact Total Spectrum Georgia. |
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