Five Key Issues to Watch in the 114th Congress

Executive Summary

As the 114th Congress ramps up over the coming weeks, we wanted to take a moment to point out five of the key policy issues that we will be watching in the 114th Congress. There are several crucial deadlines over the course of the next year ranging from the need to pass legislation to keep the Department of Homeland Security operating beyond the end of February, to the need to address the impending exhaustion of the Highway Trust Fund, to increasing the nation’s borrowing limit. While there are a number of issues that will likely be debated or discussed in the 114th Congress, we focus on five of these issues that we see as having the greatest potential investor impact and point out the specific sectors we feel would likely be affected by each of these five pieces of legislation.

Federal Budget for Fiscal Year 2016

One of the essential policy debates to take place this spring will be over the budget for federal fiscal year 2016. The House and Senate leadership have indicated that they would like to return to normal order in the budget process, which includes passing a budget resolution by mid-April and passing all 12 appropriation bills. Returning to the normal order in the budget process should help wrap up the FY 2016 budget ahead of the Sept. 30 deadline and avoid the last minute budget drama that has plagued the process for the past several years. Beginning with the 2016 fiscal year, the full set of discretionary budget cuts, known as sequestration, enacted by the Budget Control Act of 2011 will go into effect. The magnitude of the across-the-board sequestration cuts was rolled back under the Ryan-Murray agreement that was forged back in 2013. In Figure 1, we highlight the federal discretionary spending levels projected through 2021 that were originally enacted from the Budget Control Act, and the revised caps established by the Ryan-Murray agreement over the last two fiscal years.1 Existing cuts to federal spending were rolled back by $63 billion over fiscal years 2014 and 2015. Should Congress enact spending levels consistent with the existing Budget Control Act caps, defense discretionary spending authority would decline 10.7 percent over last year’s levels, while nondefense discretionary spending would decline 4.1 percent.

Greater Flexibility?

Should some or all of the sequestration cuts go into effect beginning in October of this year, it is possible that Congress restructures the across-the-board cuts to provide more flexibility to agencies in how to implement the spending reductions. The first key signal of how the remainder of the FY 2016 budget process will shake out will take place by April 15 when Congress is expected to complete and pass a budget resolution that establishes the funding levels for the fiscal year. We expect the FY 2016 budget resolution to go through the parliamentary process known as Budget Reconciliation, which would allow the budget resolution, along with key policy provisions attached to it, to pass in the Senate with a simple majority. Some of the potential policy provisions that have been discussed for usage in the reconciliation process are corporate tax reform and changes to or a repeal of the Affordable Care Act.