January Washington D.C. Policy Update

QUICK FIX

The partial government shutdown lurches into the early days of the 116th Congress with no end in sight. House Democrats are poised to pass spending bills the Senate has no intention of taking up, while President Donald Trump threatens to declare a national emergency to build a wall on the Southern border - the main sticking point in the standoff - which would likely be challenged in court.

- Subpoenas, investigations and oversight: Democrats will use their new House majority to investigate the Trump administration, from the president's taxes to controversial policy changes to Cabinet officials to the biggest question hanging over the White House: Russian collusion.

-New era for defense: The new year ushered in some new, harsher realities for the Pentagon and the president's national security policies. A Democrat-led House Armed Services Committee is expected to pressure the administration through legislation and tougher oversight. Incoming Chairman Adam Smith(D-Wash.) could press for details on the announced withdrawal of U.S. forces from Syria , an expected drawdown in Afghanistan and troop deployments to the U.S.-Mexico border, as well as scrutiny of big-ticket weapons programs. Smith has also staked out positions on curtailing defense spending and the U.S. nuclear arsenal, which could set up a battle with Trump and Republican defense hawks.

- Another Obamacare fight: House Democrats face an all-too-familiar fight over the fate of Obamacare. But this time, the threat is from the courts, not Congress. A federal judge's December ruling invalidating the landmark law scrambled Democrats' health care plans, thrusting efforts to protect the Affordable Care Act to the top of a full agenda that also includes investigating Trump health policies, addressing the price of drugs and plotting a path toward universal coverage.

Here's a deeper dive on the month's policy agenda:

DATAPOINT

Fresh faces: More than 90 freshmen have joined the House in the 116th Congress. The incoming class is the most racially diverse elected to the House and includes the most military veterans elected in nearly a decade, 36 women and the youngest-ever and second-oldest freshman members.

The Senate gets nine new members: seven Republicans and two Democrats. - Taylor Miller Thomas

TAX

It's tax time: The tax filing season is expected to get underway sometime in January or early February. Individuals and businesses will be filing returns from the first full year of the Tax Cuts and Jobs Act. It will be the moment of truth for how successful the IRS was at making numerous changes to forms and IT systems necessary to conform to the new law. Some people, notably the agency's inspector general, have raised questions about whether the IRS is fully ready. A senior agency official said in December that filing will begin after the agency finishes testing its programs.

A shutdown contingency plan the IRS issued at the end of November indicated that implementation of the law would continue since Congress provided funding for that through fiscal 2019, and the agency has published two guidance documents since the shutdown began. However, that contingency plan was only good through Dec. 31, and IRS has not put out an updated plan.

Tax panel shake-up: Rep. Richard Neal (D-Mass.) is the new chairman of House Ways and Means Committee, and there will be several new faces on the panel to fill seats vacated by retirements and election losses. Democratic leaders have said examining Trump's tax returns is one of their top priorities, and it would fall to Ways and Means to obtain them. That could poison the well on the committee, and Trump is expected to mount a legal challenge to the effort. But Neal is known as a pragmatist and is likely to reach out to Republicans on other issues.

Senate Finance will also have a new chairman: Chuck Grassley (R-Iowa), who has held the position twice before. Grassley's agenda will be heavy on oversight, including scrutiny of nonprofit groups, something he was known for in his previous stints as chairman and as a longtime member of the committee. He's also vowed to "track down, expose and address tax shelters." - Toby Eckert

HEALTH CARE

In defense of Obamacare: Democratic lawmakers estimate they'll have about six months to both protect Obamacare and make progress on other health care goals before the 2020 presidential campaign begins to swamp their legislative agenda, complicating bipartisan work to address issues like surprise medical bills and the opioid epidemic, and delaying an inevitable Democratic intraparty debate over "Medicare for All."

The ruling striking down Obamacare is being appealed by a group of Democratic-led states. And thanks to the federal judge's stay of his own ruling, the law will remain in place as the case winds its way through an appeals process likely to consume much of the year. Democrats remain convinced it will all work to their advantage, even though any bills they pass will likely die in the Republican-controlled Senate.

Party leaders plan to make the newest GOP threat to Obamacare a central theme of the new Congress' opening weeks - believing concerns over the fate of the law's pre-existing condition protections will resonate with voters the way it did during the midterm elections. Democrats on their first day in powerauthorized the chamber to intervene in the lawsuit to defend the ACA - an early move to force Republicans who campaigned on protecting Obamacare's pre-existing condition provisions to go on the record. Hearings will follow focused on the law's consumer benefits, as well as legislation that would provide more generous subsidies, boost open enrollment funding and restrict short-term health plans that critics say undercut Obamacare coverage.

But Democrats and Republicans are unlikely to strike a deal on a prospective plan that would protect sick Americans should the ACA fall. And with the law's fate in legal limbo, there's little incentive for the parties to come together. - Adriel Bettelheim

TRADE

China on their minds: U.S.-China negotiations are continuing, with a teamled by Deputy U.S. Trade Representative Jeffrey Gerrish and Treasury Undersecretary for International Affairs David Malpass traveling to Beijing this week. A successful discussion could set the stage for further meetings between U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

Trump, Lighthizer and other top administration officials are expected to be in Davos, Switzerland, for the World Economic Forum Jan. 22-25. Officials could continue to talk with China on the sidelines, as Chinese Vice President Wang Qishan will be there with Beijing's delegation.

All talk: Top U.S., European Union and Japanese trade officials meet in Washington on Jan. 9 to discuss ways to reform the World Trade Organization to address the challenges raised by China. U.S.-Japan trade talks could also start this month, although no date for the first round has been announced. USTR will close out the month with a hearing on objectives for a possible trade deal with the United Kingdom after it leaves the EU. - Doug Palmer

AGRICULTURE

USDA's shutdown woes: The budget stalemate is causing uncertainty at USDA over aid payments to farmers hit by retaliatory tariffs. New farm bill programs, like additional support for dairy farmers, are also getting delayed. And monthly crop production and world agricultural supply and demand estimates, which many commodity traders rely on, are not expected to go out as scheduled.

Farmers and ranchers face a Jan. 15 deadline to sign up for the USDA trade assistance. Producers who didn't enroll before the first week of the shutdown will have to wait until the government is reopened, which could put pressure on Agriculture Secretary Sonny Perdue to change the deadline.

New year, new priorities: POLITICO obtained a list of potential hearings and oversight issues that the House Agriculture Committee is considering - including scrutinizing Perdue's decision to move and realign the USDA's Economic Research Service and National Institute of Food and Agriculture. Some issues, like implementing the farm bill and Trump's trade policy, may take precedence. - Catherine Boudreau

DEFENSE

Replacing Mattis: The Republican-led Senate Armed Services Committee will be tasked with assessing Trump's eventual permanent pick to replace Defense Secretary Jim Mattis. Since Mattis' abrupt retirement last month, Deputy Defense Secretary Patrick Shanahan is the acting secretary. Trump has suggested he's in no hurry with any nomination, but there is an ever-changing roster of contenders, including Shanahan, Air Force Secretary Heather Wilson, Navy Secretary Richard Spencer, Sen. Tom Cotton (R-Ark.), Director of National Intelligence Dan Coats, former Sen. Jim Webb (D-Va.) - maybe - and David McCormick, a financier and former Treasury official in the George W. Bush administration. - Connor O'Brien

FINANCIAL SERVICES

New day at the Fed: When Fed policymakers meet again on Jan. 29-30, they aren't expected to raise rates, but the session will break new ground anyway: It will kick off Chairman Jerome Powell's plan to hold press conferences after each of the eight meetings scheduled for this year, twice as many as his predecessors. That will give Powell the chance to provide more insight into the central bank's economic outlook for 2019 amid the turmoil in the stock market.

Wall Street under Waters: Rep. Maxine Waters took the gavel of the House Financial Services Committee, giving the liberal firebrand and Trump nemesisa powerful hand to fight the president's deregulation agenda, protect consumers and expand affordable housing. The early days of her tenure will be devoted to adding new members and naming subcommittee chairs. Waters has floated the idea of overhauling the subcommittee structure, including by creating a new diversity and inclusion panel.

Payday D-Day: The Consumer Financial Protection Bureau is expected to release a revised rule on payday lenders this month, along with five-year lookbacks on three key Dodd-Frank rules regulating mortgages and remittances. Consumer advocates will have their knives out if the bureau, as expected, eases these rules.

Trump's choice: Trump will have to decide whether to renominate Marvin Goodfriend and Nellie Liang for the Federal Reserve Board. Both nominees face serious political opposition from Democrats and Republicans, so the president may choose different candidates. If so, expect him to tap nominees who are more sympathetic to his view that the Fed should hold off on raising interest rates. - Mark McQuillan

ENERGY

Climate time: Climate change will move back to the forefront in the House. Speaker Nancy Pelosi called climate change an "existential threat" in her opening address, and Rep. Frank Pallone (D-N.J.) plans to make the topic the subject of his first hearing at the powerful Energy and Commerce Committee. All eyes will be on the newly established Select Committee on the Climate Crisis. Though it doesn't have the power to write legislation or subpoena witnesses, the panel will explore policy solutions even as its chairwoman, Rep.Kathy Castor (D-Fla.), tries to bridge the gap between progressives who want an ambitious agenda and moderates who fear expensive proposals that will put Democrats in an difficult political position ahead of the 2020 elections.

FERC in focus: The death of FERC Commissioner Kevin McIntyre in early January has left the energy regulator with a 2-2 split between Republicans and Democrats, which could prevent action on any controversial business, potentially delaying some natural gas projects. It's not clear when the White House will nominate a new candidate, or how quickly any pick could navigate the Senate confirmation process. - Matt Daily

EDUCATION

School rules: A panel appointed by the Education Department begins work on rewriting a slew of federal rules governing higher education. On the table: accreditation, religious schools and nontraditional education providers. Education Secretary Betsy DeVos has said an "ambitious" rulemaking push will "aim to restore shared responsibility in higher education oversight and to encourage new approaches and new partnerships."

Higher Education Act on the horizon? With Democrats taking control of the House and Sen. Lamar Alexander (R-Tenn.), the Senate education chairman, planning to retire in two years, buzz is building about a renewed effort to pass an update to the federal law governing higher education. Look for hearings in the House Education and Labor Committee for hints on House Democrats' proposal.

Comments welcome: DeVos' controversial proposed overhaul of the rules for how schools handle allegations of sexual harassment and assault remains open until Jan. 28. It's already attracted tens of thousands of comments. - Benjamin Wermund

TECHNOLOGY

Privacy please: Washington may have a unique window in the new Congress to actually move privacy legislation, thanks to bipartisan buy-in and a sense of urgency driven by a succession of data security scandals and new laws out of Europe and California. A U.S. privacy regime would be a new reality for a tech industry that's largely been left to police itself over the past several decades. Industry and Washington types alike say it's needed both as a matter of consumer protection and to ensure that Europe's tough General Data Protection Regulation or similar laws don't end up setting the global standards for privacy policy.

But to deliver on privacy legislation, lawmakers will have to resolve a number of questions, including how much power the Federal Trade Commission should have over enforcement; whether consumers should be able to sue companies like Google and Facebook for privacy violations; and whether a federal privacy law would override more stringent state regulations. - Eric Engelman

CYBERSECURITY

The China syndrome: Lawmakers and Trump administration officials have been cracking down on Chinese hacking, with more actions expected early this year. U.S. allies such as Canada, the U.K., Australia and Japan are also warning against the digital threats to corporations posed by Beijing in what amounts to a growing alliance against Chinese digital theft of trade secrets.

The DOJ says the majority of its cases involving economic espionage and trade secret theft connect to Beijing. "It is unacceptable that we continue to uncover cybercrime by China against other nations," said Deputy Attorney General Rod Rosenstein. And Shanahan, the new acting Defense secretary, last week reportedly told civilian military leaders to focus on China, a chief U.S. rival in cyberspace.

Have you talked to Mark Warner yet? The Democratic senator from Virginia and his colleagues on the Senate Intelligence Committee are making the rounds to warn the business community about threats posed by China. In addition to Warner, Republicans such as Intelligence Chairman Richard Burr(N.C.) and Sen. Marco Rubio (Fla.) have given corporate briefings on China, in some cases sharing classified information on a need-to-know basis. Warner said the effort amounts to something of a "road show" for the members to answer questions from business leaders about China. At an event in Washington in December, Warner said private equity firms with large investments in China have been most resistant to the message from the committee members, saying in some cases "they don't want to hear the truth."

The senators' outreach comes as U.S. diplomats press European allies against using components from Chinese telecom giants Huawei and ZTE, which the U.S. has long said pose national security risks due to the companies' close ties to the Chinese government - an allegation the companies dispute. That message will get louder from U.S. officials as the West moves toward implementing fifth-generation, or 5G, telecommunication networks. - Michael B. Farrell

CANADA

Tariff time: Two of Canada's top priorities for 2019 are largely in the hands of the U.S. government - lifting steel and aluminum tariffs and ratifying the U.S.-Mexico-Canada Agreement. Neither is a slam dunk for our northern neighbor, as Trump has yet to indicate a willingness to cancel the metal tariffs and lawmakers are expected to protest aspects of the trade pact as it winds through the divided Congress. Two points of leverage to watch for are what House and Senate Democrats demand for their signoff, and whether pro-trade Republicans hold their votes hostage unless or until Trump lifts the tariffs.

Pot pitch: Expect House Democrats to push legislation to loosen federal enforcement of marijuana laws to give states where the drug is legal some leeway to let the industries grow. Democrats will likely propose legislation allowing cannabis businesses to access, to some degree, the U.S. banking system, as well as limits on how the feds police the substance. - Lauren Gardner

TRANSPORTATION

Drones moving ahead - and above: Early January could see the release of a long-awaited rule that would create a framework for commercial drones to fly over people. (Under current rules, commercial outfits must go through a special exemption process to do this.) The rule has been delayed several times, but the OMB's final signoff just before Christmas suggests it could be out any day now.

A jump-start: A senior GOP senator hopes to attach the chamber's self-driving car bill from the last session to a spending bill early this year. John Thune (R-S.D.), the bill's sponsor and the chamber's No. 2 Republican, expressed hope that the bill could be quickly reintroduced and attached to a funding measure, rather than going through committee again. But even if the Senate acts quickly, the new Democratic majority in the House will likely try to shape the bill more to its liking. - Kathryn A. Wolfe

EMPLOYMENT & IMMIGRATION

Oversight is the watchword: House Democrats have pledged to step up oversight of federal immigration agencies. They're expected to focus on everything from immigration detention conditions to the Trump administration's family separation policy, which split apart thousands of parents and children over the summer. One priority will be shelters for unaccompanied children, such as the Tornillo tent city in South Texas. A November inspector general report found HHS did not perform adequate background checks on staff at the temporary facility.

Rallying for DACA, TPS: Immigration advocates will press Democrats to introduce a bill that offers a path to citizenship to so-called Dreamers brought to the U.S. as children. Also included in the push will be roughly 400,000 people covered by "temporary protected status," which allows people already in the U.S. to remain after a natural disaster, armed conflict or other extraordinary event. Trump moved in October to phase out protections for roughly 700,000 Dreamers enrolled in the Deferred Action for Childhood Arrivals program, but that's been blocked by federal judges. He's also attempted to wind down most TPS designations, but that's also been held upby courts.

H-1B spouse rollback: The Homeland Security Department still intends to rescind work authorization for spouses of H-1B visa holders, even though a proposed rule expected in 2018 never surfaced. The administration faces litigation in the D.C. Circuit over the Obama-era work permits, which allow roughly 91,000 spouses, most of whom hail from India, to work legally in the U.S. DHS said in a court filing it would send the measure to the White House budget office by the end of 2018, but the department appears to have missed that self-imposed deadline. - Ted Hesson

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