December edition of the CEO Report

POLITICO Pro's high-level outlook on the policy issues driving the month ... and beyond.

TAX

Racing to reconcile two tax overhaul bills by Christmas: December is the make-or-break month for Republican plans to rewrite the tax code, at least if they want to meet their self-imposed deadline of getting a package to President Donald Trump by year's end, report Pro Tax's Brian Faler and Toby Eckert. The Senate and House have passed separate plans, and there are some big differences to work out, notably:

- The House version would cut the rate on pass-through businesses to 25 percent, while the Senate would give them a 23 percent tax deduction for certain income and continue to tax them overall at individual rates.

- The Senate wants to eliminate Obamacare's mandate that individuals have health insurance or pay a fine. The House bill would keep the mandate.

- The estate tax and alternative minimum tax - both long targeted by Republicans for elimination - are also treated differently. The House would boost the amount of money exempted from the estate tax and eventually eliminate it. The Senate would boost the exemption but keep the tax. The House would also abolish the AMT, which was created to ensure that wealthy people don't escape taxes entirely but has begun reaching into the middle class. The Senate decided to keep it.

- The House would cut the maximum mortgage interest deduction in half - limiting it to the interest on $500,000 in mortgage debt, down from $1 million now - and eliminate it entirely on mortgages for second homes. The Senate targeted only the interest write-off on home equity loans, which it would end.

The bills also differ on how they treat education-related tax breaks, corporate interest expenses and taxing multinational corporations, among others.

None of these, however, are considered deal-breakers.

House Speaker Paul Ryan today plans to appoint members to a conference committee to work out the differences, and Senate Majority Leader Mitch McConnell is expected to do the same this week.

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DATAPOINT

Pass-through deduction changes win support: The Senate's tax reform legislation includes last-minute changes to allow pass-through businesses to deduct a slightly higher percentage of business income. The move secured the support of Sen. Steve Daines, who had been concerned about the treatment of pass-throughs relative to C corporations. Sen. Ron Johnson has raised similar concerns, and he supported the bill as well. - Taylor Thomas

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BUDGET & APPROPRIATIONS

Stopgap rollercoaster ride: Prepare for one shutdown scare after another this month as Republican leaders attempt a string of short-term funding extensions. The spending bill Congress cleared in September only keeps the government running through Friday. And since lawmakers have yet to settle on updated levels for the whole fiscal year, stopgap spending is back on the table - times two.

GOP leaders plan to subject themselves to multiple nail-biter funding votes over the next few weeks, with one wedged up against Christmas Eve. The idea is to extend funding until Dec. 22 and then pass another stop-gap that would fund the government until sometime in January, with the hope of clearing a full-year package not too long after the start of the new year.

The two-part plan is meant to appease defense hawks who refuse to close out December without at least a promise of elevated funding for the military. Leaders aim to settle on overall caps for defense and non-defense money by that Dec. 22 deadline. But neither December vote is a sure bet for passage. Congress' fiscal conservatives say a pre-Christmas vote is never advantageous to their cause since it cedes leverage to the minority party. And in the Senate, leaders need the votes of at least eight Democrats, who may be willing to play hardball in an attempt to get concessions such as protections for young undocumented immigrants.

Always ripe for additions, any year-end spending bill is also at risk of getting tied up by other urgent efforts. This time, that could mean extending funding for the Children's Health Insurance Program, reauthorizing the National Flood Insurance Program, raising the debt ceiling or clearing another disaster aid package.

Speaker Ryan has said, however, that disaster relief funding is unlikely to hitch a ride on the spending bill Congress will try to pass this week. And the Congressional Budget Office has just provided a more optimistic assessmenton the debt ceiling, predicting the nation won't risk defaulting on its loans until the end of March or early April - further down the road than the Treasury Department's previous estimate. - Jennifer Scholtes

CYBERSECURITY

The midnight hour is nigh: The day of judgment is finally arriving for a set of online surveillance tools that expire at year's end. Congress has just a few legislative days left to find a way to renew the powerful snooping effort authorized under Section 702 of the Foreign Intelligence Surveillance Act. And as the clock winds down, lawmakers have yet to coalesce around one approach to renewing - and possibly revising - the 702 statute.

After the House Judiciary Committee spent weeks pushing a renewal measure that contained significant alterations - including some fiercely debated warrant requirements for FBI officials seeking to view Americans' digital communications in certain situations - the Intelligence panels in the House and Senate decided to plow forward with their own renewal measures that contain fewer revisions and no warrant requirements. And the leaders of both Intelligence panels have indicated they may have to attach their 702 measures to a must-pass bill, such as legislation to avert a government shutdown.

The move has enraged privacy and civil liberties-minded lawmakers on both the right and left, who insist that a strict warrant requirement is necessary to protect the constitutional rights of Americans whose online chatter is incidentally sucked into the NSA's foreign surveillance database. But Trump administration officials have warned that such a provision would hamper criminal and terrorism investigations.

Protecting future elections: In the coming weeks, House Democrats will roll out a bill they believe will help harden the digital defenses of the country's election system. It will be the latest in a slew of legislative offerings - many of them bipartisan - Capitol Hill has received this year to inoculate future U.S. elections from foreign meddling. But there's been few signals that Congress will take swift action. And for some critical targets, it might already be too late . By this point during the 2016 election cycle, Russian hackers had already been in the Democratic National Committee's networks for at least three months.

Tell her about it: Expect lawmakers to keep Uber in the spotlight after the ride-hailing giant recently revealed it had covered up a 2016 data breach by paying off the digital thieves to keep quiet. The incident - which has spawned multiple government investigations and lawsuits - has once again spotlighted the lack of a nationwide standard for when companies must notify victims and regulators following cyber intrusions. The issue was already front and centerafter the mammoth Equifax data breach, which exposed over 145 million Americans' private data, with several lawmakers introducing proposals for such a law. But none of the offerings have moved, and with a packed congressional calendar, lawmakers don't seem poised to act soon.

Kaspersky be gone: Federal agencies have until mid-December to start removing Russia-based Kaspersky Lab software from their computer systems. The Department of Homeland Security in September barred the government from using the antivirus giant's tools, citing concerns that the software could give the Kremlin a foothold in the U.S. government. For years, Kaspersky has fended off allegations that it assists the Kremlin with its digital espionage efforts. Those fears came to a head in October when several news outlets reported that Moscow had obtained secret National Security Agency cyber weapons through Kaspersky's software, which had apparently picked them up from an NSA employee's personal computer. Kaspersky has vehemently denied it handed the NSA tools over to the Kremlin, suggesting that Russia-linked malware on the staffer's computer nabbed the classified files. - Cory Bennett

TECHNOLOGY

Net neutrality vote : After months of buildup, the Republican-led FCC is poised to fully dismantle the agency's net neutrality rules this month. GOP commissioners are expected to approve the repeal at the FCC's Dec. 14 meeting over the objections of the minority Democrats. That will open the door, at least in theory, for internet service providers to block or throttle websites, or charge businesses for internet "fast lanes" to consumers. While the FCC says the Federal Trade Commission will be able to curtail companies that engage in anti-competitive behavior, digital activists fear the internet will slowly turn into something akin to cable service, with different tiers. They also warn it will create an uneven playing field for businesses, with startups and small firms unable to pay for the same access to consumers. The repeal is widely expected to end up in court, with some combination of public interest groups filing a lawsuit to challenge the decision. So in the end, judges, not regulators, may have the final say.

AT&T-Time Warner lawsuit : Another big telecom lawsuit is already playing out in court, as the Justice Department battles AT&T and Time Warner over the government's decision to block their $85 billion merger. It's shaping up to be a groundbreaking case, with the DOJ arguing the combined company would have too much power and the firms contending the government broke with years of precedent in rejecting their "vertical" deal, which doesn't eliminate a direct competitor. Hovering over the proceedings are the words of Trump, who has said he doesn't like the merger and makes a habit of attacking Time Warner's CNN over its coverage of his administration. While AT&T and Time Warner, in their initial legal response to the government's lawsuit, didn't make an issue of the president, many expect the companies will seek to explore potential White House meddling with the antitrust decision. When the negotiations began to break down in early November, sources close to the dealtold POLITICO that it was clear the Justice Department wanted AT&T and Time Warner to get rid of CNN, something DOJ officials denied. - Angela Greiling Keane

ENERGY

Arctic oil drilling: Republicans are on the cusp of getting a policy change they've sought for more than two decades: opening the Arctic National Wildlife Refuge in Alaska to oil and gas drilling. The language, authored by Senate Energy Chairwoman Lisa Murkowski and attached to the GOP tax plan, directs Interior to hold two lease sales over the next decade, which the Congressional Budget Office has said would raise $1 billion. Previous attempts to open ANWR during the Bill Clinton and George W. Bush presidencies failed, and it faces staunch opposition from environmental groups and Democrats. But with the current legislation moving under the budget reconciliation process, it would avoid a Democratic filibuster.

Electric grid resiliency: The electricity market regulators at FERC have promised to take action by Dec. 11 on a proposal pushed by Energy Secretary Rick Perry to help keep coal and nuclear power power plants afloat in the name of bolstering grid resiliency. It's anyone's guess what the FERC action might look like, but Perry's push has drawn opposition from interests as varied as the renewable energy industry, many power generators and the oil and natural gas sector. The chief FERC proponent, Neil Chatterjee, has called for establishing an interim measure to protect coal and nuclear power plants, but he's likely to face opposition from his colleagues. - Anthony Adragna

FINANCIAL SERVICES

Interest rate watch: Federal Reserve policymakers will meet Dec. 12-13 to decide whether to raise interest rates. Though they are expected to hike rates for the third time this year, it's not a slam dunk. While outgoing Fed Chair Janet Yellen told lawmakers on Nov. 29 that she expects the economy to continue to expand and the job market to strengthen, she has expressed puzzlement that inflation is so tame. Other Fed officials have underscored that concern, although they still seem to be leaning toward a December move. Gov. Jerome Powell, Trump's pick to replace Yellen as Fed chief, told senators last week that a case for raising rates "is coming together."

Less stress for lenders: On the bank regulation front, the Fed is also likely to propose making more information available about its annual stress tests for lenders. The idea is to help banks better gauge whether their estimated losses under extreme market conditions are in line with the Fed's models. Banks have complained the criteria for passing the tests has been vague - a perhaps intentional move by Fed officials to keep the examinations from becoming too predictable.

A bank bill with legs: The Senate Banking Committee on Tuesday is expected to approve a landmark bill that would ease regulations for a number of small and regional banks. The legislation - which has rare bipartisan support - is the most significant attempt by the Senate to rewrite financial rules since the 2010 Dodd-Frank law. Analysts say the bill probably has enough backing to clear the full Senate, though that might not happen until next year.

The committee also set its confirmation vote for Powell for that same day.

Blowing through flood insurance deadline: Congress appears unlikely to pass a long-term reauthorization and overhaul of the National Flood Insurance Program before the Dec. 8 expiration date. A short-term extension will likely be needed to keep the program fully functional. That could push the issue into 2018 - an election year - when lawmakers may be even more reluctant to debate a high-stakes program that millions of coastal Americans rely on.

Fannie-Freddie buffer: Officials at Treasury and the Federal Housing Finance Agency are working on a plan to let Fannie Mae and Freddie Mac maintain a capital buffer, and could make an announcement this month. The clock is ticking: Come January, both mortgage giants will have exhausted their financial assets as part of a bailout deal struck after the housing collapse. - Mark McQuillan

TRADE

WTO reproach? Front and center on the trade calendar is the Dec. 10-13World Trade Organization ministerial conference in Buenos Aires, where U.S. Trade Representative Robert Lighthizer could offer a further rebuke of the failings he sees in a rules-based system. Lighthizer and other Trump administration officials have criticized the WTO and other global agencies for what they see as overreach and hindering economic growth.

Meanwhile, trade ministers from 11 countries working to salvage the Trans-Pacific Partnership could meet on the sidelines to advance the pact abandoned by the U.S. earlier this year.

NAFTA slog: NAFTA talks will continue with chief negotiators meeting the week of Dec. 11 in Washington, D.C. T