November Washington Update

Welcome to the November edition of the CEO Report, POLITICO Pro's high-level outlook on the policy issues driving the month ... and beyond.


Here we go: Republican tax writers are finally getting down to work on tax legislation, Pro Tax's Toby Eckert reports. The House Ways and Means Committee today kicks off a four-day markup of its bill, and the Senate is expected to release its version this week. Some of the highlights of the House bill: cutting the corporate tax rate to 20 percent from 35 percent, and lowering the tax on unincorporated businesses to 25 percent from a rate that can reach 39.6 percent. The plan would reduce the number of individual tax brackets to four from seven, retaining a top tax rate of 39.6 percent. The child tax credit, a favorite cause of Ivanka Trump, would be raised to $1,600 from $1,000. You can find more details here.

To help pay for those tax cuts, GOP tax writers would cut or end dozens of cherished tax benefits. Among the most contentious is a plan to lower the cap on how much mortgage interest homeowners can write off. Currently, they can deduct the interest on mortgages up to $1 million. The House plan would cut that in half, prompting an immediate backlash from the National Association of Homebuilders and the National Association of Realtors.

Republicans from high-tax states, meanwhile, are still smarting from a plan to cap the property tax write-off at $10,000 and eliminate the write-off for state and local income and sales taxes. Even though small businesses would get a tax cut, their powerful advocate, the National Federation of Independent Business, came out against the plan, saying rules attached to the cut would keep too many small businesses from benefiting. Other provisions would ding college students, people with high medical costs and private universities, among others. More on the winners and losers here.

New IRS chief? President Donald Trump says he has settled on a replacement for IRS Commissioner John Koskinen, who is stepping down when his term expires on Nov. 12. He just isn't ready to say who will get the nod. "I have just made my decision as to who it is, it will be announced very shortly," Trump told Sinclair Broadcasting's Sharyl Attkisson in an interview. Asked who it would be, Trump would say only, "Really a terrific person."

David Kautter, whom the Senate recently confirmed as assistant Treasury secretary for tax policy, will take over as acting commissioner the day after Koskinen exits. The delay in naming a permanent replacement isn't what tax professionals were hoping for. They wanted Trump to nominate a replacement for Koskinen quickly, to bring more certainty about the direction of the agency and its policies, especially with tax reform in the works.

Critics have also pointed out that Kautter would continue to work on tax reform at Treasury rather than devoting all his attention to the IRS, which is battling a surge in refund fraud related to identity theft, patching outdated technology and dealing with a decade of funding cuts. Steve Mankowski, president of the National Council of CPA Practitioners, is one of those raising concerns about Kautter's authority as a temp who will be working two jobs. "NCCPAP feels that working at both jobs, each with its own unique characteristics, will not allow either job to be performed efficiently," Mankowski told Tax Analysts, a nonprofit, nonpartisan publisher of tax news. "In addition, working on tax reform is a job that is actually contrary to the job of commissioner, whose primary tasks are the administration and enforcement of the tax code."


Spending season roulette: With federal funding set to expire on Dec. 8, congressional leaders will spend November coming up with a deal - keeping fingers crossed they don't shut down the government or dash their own holiday travel plans. Appropriators say they'll need at least 30 days to work out the details after leaders hand down overall spending levels for defense and non-defense programs. But those numbers are still in the works, with defense hawks saying House Speaker Paul Ryan has committed to seeking increased caps for defense spending.

It's still unclear whether leaders will be able to hammer out specifics and muster the political will to pass updated funding levels for the fiscal year that's already underway, or whether they'll resort again to a continuing resolution that keeps the government bumping along at current levels.

Senate Democrats have started to threaten opposition to any spending plan that comes without a policy solution for so-called DREAMers, young undocumentedimmigrants who are in limbo after Trump's decision to end the deferred action program that allows them to work legally in this country. But the president has told lawmakers he wants to avoid linking a DACA fix to a deal on government funding.

Debt limit dealing: Lawmakers had previously thought they could wait until next year to lift the debt limit again. But the Treasury Department has issued a new forecast predicting the government will run out of borrowing authority sometime in January, potentially inspiring legislators to add a boost for the debt ceiling to whatever government funding bill gets moving. - Jennifer Scholtes


Defense policy bill talks near an end: House and Senate Armed Services leaders reconciling competing versions of the National Defense Authorization Act say their negotiations are nearing an end.

Senate Armed Services Chairman John McCain (R-Ariz.) said last week the conference could be wrapped up "in the next few days." But conferees say they still haven't come to an agreement on several key issues, including the creation of a Space Corps, a new military branch that would be devoted to space.

AUMF debate heats up: Defense Secretary Jim Mattis and Secretary of State Rex Tillerson have warned senators that any new legal authorization for U.S. military operations abroad shouldn't be limited by time or geography. And their defense of the broadly written 2001 Authorization for Use of Military Force has drawn pushback from some senators eager for Congress to approve new authority to reauthorize far-flung counterterrorist operations.

Senate Foreign Relations Chairman Bob Corker (R-Tenn.), who hosted the two secretaries before his committee last week, said he would aim to mark up a new AUMF "fairly soon," but offered no timeline.

Senate breaks nominee logjam: McCain has ended his blockade of Pentagon nominees. He had been holding up picks for senior Defense jobs in recent weeks to extract information from the Trump administration on a slew of issues, including its strategy in Afghanistan and details on the deadly ambush in Niger that killed four U.S. soldiers.

The Senate Armed Services Committee held confirmation hearings last week for four Pentagon nominees, including Mark Esper to be secretary of the Army. - Connor O'Brien


Trump's big trip: Asia and NAFTA, in that order, will dominate U.S. trade news this month, beginning with Trump's longest overseas trip since taking office. The rookie president, whose staff prepared a series of short briefings to focus his attention on policy issues surrounding the tour, left on Friday. The trip will span a dozen days and five countries, with stops in Japan, South Korea, China, Vietnam and the Philippines. U.S. Trade Representative Robert Lighthizer will join Trump on all five legs of the tour. Each country presents trade challenges. But his visit to China brings into play Trump's favorite trade measuring stick, the U.S. goods trade deficit with Beijing, which totaled $347 billion in 2016, the largest U.S. deficit with any country. By contrast, the U.S. trade gap with the Philippines was just $1.84 billion, one of the smallest.

NAFTA talks head south (to Mexico!): Shortly after Trump returns, U.S. negotiators will head to Mexico City for the fifth round of talks on revamping NAFTA, nearly a month after the fourth round, held in Washington, revealed deep fissures among the three countries. The fifth round was delayed to allow the parties to retreat to their respective capitals to work out challenging points. When Round 5 begins on Nov. 17, officials could continue to whittle away at relatively non-controversial areas of the talks, without closing gaps in more difficult areas, such as auto rules of origin, dispute settlement and a proposed five-year sunset provision. Further rounds have been pushed back into the first quarter of 2018. Check out our recap after Round 4 ended in an impasse. -Doug Palmer


Fast track for Powell: Jerome Powell, President Donald Trump's choice to lead the Federal Reserve, will begin his confirmation process this month. Senate Banking Chairman Mike Crapo says he hopes to move Powell through the panel "much before the end of the year." The Idaho Republican - who has voted against the Fed governor in the past - has committed to supporting Powell's nomination to lead the central bank. Still, the Republican Powell could face opposition from other GOP lawmakers for not being conservative enough.

What's the rush?: All the attention surrounding the nomination of Powell obscures that fact there are still a number of high-profile vacancies in regulatory agencies. FDIC Chairman Martin Gruenberg's term ends Nov. 15, but Trump still hasn't nominated his replacement. James Clinger, originally tapped for the post, withdrew due to family reasons. Jelena McWilliams, a former aide to Sen. Richard Shelby (R-Ala.), is expected to be picked for the job, but it would likely be months before she could take over the agency. That means Gruenberg could be asked to stick around in an acting capacity. There are still at least three openings on the Fed board as well - four, if Janet Yellen steps down when her term as chair ends in February.

Treasury review: Also keep an eye out for two reports due from the Treasury Department. The first will be on the Financial Stability Oversight Council, the uber-regulatory body set up by the Dodd-Frank law, and its power to subject some nonbank financial firms to stricter oversight. Treasury will then release a report on so-called orderly liquidation authority, under which the government can take over and unwind failing megabanks, a contentious issue on both sides of the Atlantic.

Prime time for flood insurance, banking deals : Work on reauthorizing the National Flood Insurance Program is hitting a critical period with its expiration date just weeks away. For months, lawmakers have been trying to narrow down a set of proposals that would overhaul the program and keep it alive for years to come. A potential legislative vehicle could come in the form of the next aid package for victims of this year's hurricanes.

At the same time, Crapo, the Senate Banking chairman, will try to pick up the pieces of a bill that would ease regulations on smaller and regional banks after talks with the panel's top Democrat, Sen. Sherrod Brown (D-Ohio), fell apart. Moderate Democrats on the committee are eager to cut a deal, one of the rare areas of bipartisan agreement in Congress.

Stock trading war: As soon as this month, the Securities and Exchange Commission could propose changing the rebate method that exchanges provide, wading into one of the most controversial and complicated aspects of the stock market's structure. In what is known as "maker-taker" compensation, exchanges offer fees and rebates to traders to increase trading at their venues. Yet some regulators say the system can distort pricing and unfairly benefits high-frequency traders. The maker-taker payment scheme has drawn intense scrutiny ever since Michael Lewis' 2014 book "Flash Boys" cast a negative light on high-frequency trading. - Mark McQuillan


Immigration lottery on chopping block: After an alleged ISIS follower killed eight people in Lower Manhattan on Halloween and injured at least a dozen others, the president vowed to end the diversity visa lottery that allowed the suspect, Sayfullo Saipov, to enter the United States. The program offers 50,000 visas each year to people from countries that typically send few immigrants to the U.S.; in recent years, most beneficiaries have come from Africa and Eastern Europe. "Diversity lottery. Sounds nice," Trump told reporters Nov. 1 before a Cabinet meeting. "It's not nice. It's not good."

The lottery represents the type of immigration that Trump is trying to end - admissions based on luck or family connections, rather than skills. The program requires a high school diploma or two years of work experience before a participant can get a green card, but that's a breeze compared with other visa programs. Like all lotteries, the visa lottery is popular despite itslong odds: In fiscal year 2015, more than 14 million people applied for the 50,000 slots.

Opponents of the lottery say the roughly 1 million legal immigrants who arrive in the United States each year already bring a great deal of diversity, and a merit-based system could do that, too. They also point out that Iran, which is targeted in the Trump administration's travel ban, has been a principal beneficiary in recent years. For these reasons, it shouldn't be impossible for Trump to persuade Congress to eliminate the program - provided congressional Democrats get something in return. Trump could make its elimination a condition for legalizing the Deferred Action for Childhood Arrivals program for DREAMers. The Trump administration announced in September it would phase out the program, and DACA enrollments will begin to expire in large numbers by March - a strong incentive for Congress to act before then. Some Republican lawmakers, such as Sen. Lindsey Graham of South Carolina, have already expressed a willingness to scrap the lottery as part of a DACA agreement.

Trump attacked Senate Minority Leader Chuck Schumer for helping to create the program back in 1990, when Schumer was in the House, but more recently Schumer voted to eliminate it as part of the 2013 "Gang of Eight" bipartisan immigration bill. Democrats needed some persuading to support the change; the Congressional Black Caucus in particular sees the lottery as a useful fast track for immigrants from majority-black nations. But in 2013, the Gang of Eight bill cleared the Senate with support from the entire Democratic caucus and 14 Republicans. Now that the program can be tied to a terror incident, it's hard to imagine Democrats would put up much resistance to including the lottery's elimination in a DACA compromise. - Ted Hesson


What's ahead for Obamacare sign-ups: Confusion and widespread pessimism surround the six-week season to enroll in Obamacare coverage that began Nov. 1 and wraps up Dec. 15. An administration that's hostile to the health law is pitted against a loose but growing network of advocacy groups, health care companies and prominent Democrats united by the goal of getting more Americans insured. S&P Global Ratings projects that enrollment could drop as low as 10.6 million - the lowest point since Obamacare's inaugural 2013 sign-up period and a 13 percent decline from last year. That reduction will likely be driven by a lag in new customers, along with more people who don't receive federal subsidies deciding to go without coverage instead of paying far higher premiums.

However, California and New York, which have the two biggest state-run exchanges in the country, are going all out to keep their marketplaces stable and counter Trump's messaging that Obamacare is "dead," which confuses the public. Both states have committed to keeping the original 12-week enrollment period. And while the federal government has cut Obamacare advertising and outreach from $100 million to $10 million this year in the 42 states that rely on the federal site, California increased spending to about $111 million. New York has committed $27 million on advertising and outreach, the same as last year. - Adriel Bettelheim


Russia, Russia, Russia: All eyes are on Robert Mueller's team, waiting for any new signs that the Trump campaign may have known about Russia's election-related hacking efforts far earlier than the public - or even the victims themselves. The first data point came in late October when Mueller - the special counsel tapped to investigate Moscow's attempts to interfere in last year's election - announced the arrest of former Trump campaign aide George Papadopoulos, who had regular contacts with Russia-linked officials offering "dirt" on Hillary Clinton in the form of "thousands of emails." The Russian cutouts made the offer in April, weeks before the disclosure of the hacks at the Democratic National Committee and Clinton's campaign.

While it's unclear whether the cache of emails being extended to Papadopoulos was the same one that intelligence officials say Russia stole, the exchanges have raised questions about when Trump first learned of Russia's hacking schemes.

Getting the go-ahead: The Trump administration could get a slate of key cyber nominees confirmed in the coming weeks, including the next head of the Homeland Security Department and two top Justice Department officials. The Senate Homeland Security Committee will meet on Wednesday to consider the nomination of Kirstjen Nielsen, whom Trump tapped in October to replace John Kelly at DHS. Nielsen would bring considerable cyber experience to the job, having founded a consulting firm specializing in cyber risk and critical infrastructure resiliency.

Over at DOJ, John Demers, Trump's nominee to run the agency's National Security Division, and Brian Benczkowski, the pick to head the Criminal Division, are both inching toward a full Senate floor vote. Demers has vowed to cooperate with congressional probes into Russia's election-year meddling, although he irked a few Democrats with his defense of a controversial surveillance practice. Benczkowski has taken some heat from lawmakers over his work for a Russian bank, but still advanced out of the Senate Judiciary Committee.

And finally, at the White House, indications are t