A View From Washington: Top Biden Administration Priorities and Their Implications for Business
By Michael R. Robinson, ICR Consultant
As the Biden Administration begins to implement its agenda, and with the 117th Congress now fully controlled by Democrats, the pace of activity in Washington is poised to accelerate. Below, we have detailed a cross section of the Biden Administration’s domestic priorities, provided analysis of them, and offered a strategic overview of how companies can position themselves to simultaneously benefit from this activity and, importantly, prepare in the event they become the focus of unwanted scrutiny.
We note that the agendas identified here are all part of an evolving list of priorities that will likely change in the months ahead. Additionally, an unexpected domestic or international incident could drive a re-ordering of these concerns – and we will certainly continue to provide updates in the coming months.
The Bottom Line Up Front (BLUF)
The Democrats are now in power – and they intend to use it. In the almost two weeks since President Biden was inaugurated, his administration has moved rapidly to put its stamp on the federal government, purge personnel and policies left by the Trump Administration, and set out an ambitious legislative agenda. The president has already signed and issued a record number of Executive Orders on everything from a federal mask mandate to revoking the permit for the Keystone XL pipeline.
At the strategic level, two parallel and distinct paths have emerged that we read as a template for how the Biden Administration will govern in 2021. They are:
- Legislative – Large legislative proposals drawn to solve issues of immediate national concern – with a full range of Covid-19-related programs (from direct aid to eviction moratoriums to an extension of unemployment benefits) at the top of the agenda. Politically, the White House understands that President Biden needs to be seen as working to solve this crisis and putting the country on the road to normalcy in order for him to continue to be successful. Economically, they also recognize that immediate stimulus payments will translate into increased retail spending by consumers for goods, meals, and other products and services.
- Regulatory – Limited as the Biden Administration is by Democratic control of the Senate with the narrowest possible margin (50-50, with Vice President Harris casting a tie-breaking vote), they will leverage the full range of Executive Branch regulatory agencies – from the SEC to the CFTC to the CFPB to DoL/OSHA – to advance an active and activist agenda favored by the party’s progressive caucus. These efforts will have a wide-ranging impact on businesses, irrespective of their size or industry sector. Based on the nominees to head these agencies that have been announced to date, it is clear that the Biden Administration also intends to address systemic social issues (and none more pervasively than racial justice) through a regulatory lens, among other avenues.
In this context, companies across sectors should anticipate:
- A significant increase in the number of Congressional subpoenas/hearings and regulatory investigations (often coordinated with Capitol Hill). Amplified by the mainstream media, the loudest voices of concern will drive the most action – and this will especially be the case with respect to issues and allegations around:
- Corporate wrongdoing (broadly and loosely defined).
- Fraud against the Government (especially in the healthcare and defense sectors, where the U.S.Government is the payer).
- Accounting fraud, insider trading, and other examples where elites are perceived as having an unfair advantage over individuals (hedge funds and private equity, for example).
- CARES Act investigations (criminal and civil under the False Claims Act).
- Industries including financial institutions, cryptocurrencies, life sciences, oil & gas, among others.
- Opportunities for companies that provided vital services through the pandemic, and are perceived favorably, to further a legislative and regulatory framework that will be helpful to their businesses. These include:
- Telemedicine providers.
- Domestic manufactures of key materials (PPE, medical supplies, etc.).
- Vaccine developers and others in that supply chain.
- Clean energy.
And while the precise shape of these initiatives remains in flux, companies have the opportunity to use this period of relative inactivity to carefully monitor developments (beyond the general information available from their respective trade associations) – and be well prepared with programs in place to influence the necessary stakeholders in order to take advantage of opportunities, and to respond immediately in the event of unwanted scrutiny. By way of example, Congress has been quick to announce hearings into the current Robinhood, GameStop, and market volatility issues and call for reform without – yet – specifying their perceived “villain.” Without the ability for a company to act quickly, articulate its narrative, and draw on its third-party allies, they could become subject to ongoing and damaging criticism.
The fact that the Democratic majorities in both houses of Congress are quite narrow – and at the same time that their caucuses are quite ideologically broad – means that major pieces of legislation will need to be crafted to navigate between mainstream members and those who are farther to the left. In turn, this will drive a need for more middle of the road legislative proposals, potentially jettisoning specific provisions in large packages (i.e., the $15 minimum wage proposal in the current Covid-19 stimulus bill) for consideration at a later date.
The practical implications of a Democratic-controlled Congress include:
- Virtually guaranteed confirmation of all Biden Administration appointees. While it’s possible that one or two individuals could have personal issues that derail his or her nomination, those will be the one-offs.
- Control of all committee chairmanships which will give Democrats the power to:
- Author and advance the legislation they want.
- Control what, and when, issues come to the floor for votes.
- Support Biden Administration priorities, including Covid-19 stimulus and the likely infrastructure spending package that is expected to be introduced later in February, along with other important initiatives.
- Give them subpoena power to compel the production of documents and witnesses from the private sector, as well as previous officials from the Trump Administration, and conduct hearings that will help to advance Biden Administration priorities by demonstrating a need for specific programs.
- Potential use of the budget reconciliation process to secure legislative priorities with 50 votes in the Senate, instead of the normal 60 votes. While arcane, this process allows for expedited consideration of certain tax, spending, and debt limit legislation only – and is not applicable with respect to matters that are purely policy-focused. In the Senate, reconciliation bills are not subject to the filibuster and the scope of amendments is limited, giving this process real advantages for enacting controversial budget and tax measures.
- Congress has two separate opportunities to use the reconciliation process in 2021, given the fact that an official fiscal year 2021 budget was never passed.
- Using this process, however, would solidify Republican opposition to the bulk of the Biden agenda, and significantly slow down the broader legislative process.
- Covid-19 Stimulus – Dubbed the American Rescue Plan, the Biden Administration’s signature legislative proposal (so far) is the $1.9 trillion Covid-19 response and stimulus package that was introduced in January.
- Not surprisingly, the plan includes a raft of programs and spending for direct pandemic-related issues (vaccination distribution, virus testing, direct stimulus checks, increase in the federal unemployment benefit, etc.) as well as other long-standing Democratic policy priorities ($15 minimum wage, direct aid to states, etc.).
- Opposition has already begun to solidify and is focused on:
- Spending of almost $2 trillion is premature until the impact of December’s $900-plus billion package can be better measured.
- The amount and income thresholds for the direct stimulus payments are too high.
- The addition of non-pandemic priorities like the minimum wage don’t belong in this package; inserting them is purely political and is a disincentive to bipartisanship.
- The White House has made it clear that they are open to negotiation on the contents of this package. Suggestions have emerged that separate bills (one just for vaccination support, for example) could make more sense and win immediate passage.
Given the urgent need of many of the individual programs in this package, we expect that if this process appears to break down, the White House will seriously consider a more incremental approach to tangibly demonstrate the results it is achieving for the country. An important cohort of Republicans do not want to be seen as obstructionist and will be more supportive of the more targeted bill approach. In fact, 10 Republican senators offered an alternative $600 billion package for consideration and met with the president to discuss it. This is noteworthy given that with these ten senators, the 60 vote (non-reconciliation) threshold to pass the legislation in the Senate would be met, provided all 50 Democrats supported the approach.
- Infrastructure – The Biden Administration’s next major legislative priority (expected to be announced later in February) will be a multi-trillion-dollar infrastructure plan. This will:
- Speak to two key Democratic constituencies: unions (with jobs), and the progressive caucus (with investments in green industries and progress on climate change).
- Support the “Buy American” Executive Order the president signed in January.
- Be politically attractive, given that so many cities and towns across the country will benefit.
Spending at this level will be difficult to get through Congress, especially coming on the heels of some, or all, of the Covid-19 stimulus plan. We expect that key elements of this proposal will eventually get approved and funded, but not the entire package right away.
- Tax Reform – With Sen. Ron Wyden (D-OR) slated to become the Chairman of the Senate Finance Committee, coupled with plans President Biden articulated during the campaign, a full range of tax issues will be on the table, and a range of current provisions will be at risk:
- Elite-favorable tax provisions, including carried interest, 1031 Exchanges, tax deduction for income from non-corporate businesses, among other provisions.
- Consideration of mark-to-market taxation of certain financial products, tightening international tax rules, increasing the low-income housing tax credit, and reforming current rules around the taxation of cannabis.
- Raising the marginal income tax rate from 37% to 39.6% for Americans who earn more than $400,000. Those who make more than $1 million annually also would pay 39.6% on long-term capital gains and investment incomes.
- Reverse elements of the 2017 tax reform law passed under the previous administration to once again allow the deduction of state and local income taxes.
Along with other hot button financial issues, such as the cancellation of student debt, we see these as second-tier priorities that, while important (and certain to generate continued discourse), are not likely to be a part of the Biden Administration’s first year agenda, even as momentum for these types of changes in 2022 will continue to build.
As distinct from its largely mainstream nominees to Cabinet-level departments, the Biden Administration has readily embraced more activist nominees across key regulatory agencies. As a result, we expect issues around social justice (including the representation of members of diverse communities on corporate boards of directors), climate change, workers’ rights, and related matters will be high on the agenda.
By way of example:
- SEC – With the nomination of Gary Gensler, an avowed Wall Street foe, the Commission is likely to be far more aggressive and forceful across its enforcement actions, as well as the policies it develops that will have an impact on all public companies. These are likely to include:
- Heightened corporate reporting requirements around issues such as climate change, conflict minerals, ESG/corporate governance, diversity on boards, and corporate disclosure of political campaign contributions.
- Closer examinations of – and possibly increased regulation of – SPACs, direct listings, and cryptocurrencies.
- Considerable increase in enforcement activity with a corresponding growth in the imposition of large fines and disgorgements as well as a requirement for more admissions of violations/wrongdoing as part of settlement agreements.
- Provision of fewer waivers in offering settings.
- More rigorous audits of Chinese companies in U.S. markets.
We anticipate that the growing concern about market volatility, Robinhood, GameStop, and related matters will prompt the Senate Banking Committee to accelerate Gensler’s confirmation hearing (which as of today has not been scheduled).
- CFTC – The nominee for CFTC Chairman as not yet been announced. Market volatility issues are likely to speed the announcement of the Biden Administration’s pick for the CFTC, and the Senate Agriculture Committee would move quickly to schedule a confirmation hearing.
- OSHA – James S. Fred¬er¬ick, a Pitts¬burgh-area work¬place safety ad¬vo¬cate who worked for the United Steelworkers for more than two de¬cades, has been nominated to lead OSHA, sig¬nal¬ing tougher fed¬eral en¬force¬ment on em¬ploy¬ers amid the Covid-19 pandemic.
- Following his inauguration, President Biden directed OSHA to take several steps to enhance workplace safety amid Covid-19. First, OSHA was instructed to issue revised guidance for employers on workplace safety by early February, and consider whether any emergency temporary standards on Covid-19, including with respect to masks in the workplace, are necessary, and if so, issue those standards by March 15, 2021.
- Second, OSHA has been directed to review its Covid-19 enforcement efforts, identify changes to better protect workers and ensure equitable enforcement, and launch a national program to focus OSHA enforcement efforts on violations that put the largest number of workers at serious risk or are contrary to anti-retaliation principles.
- President Biden has directed that OSHA and state entities responsible for workplace safety better coordinate to improve workplace safety.
- CFPB – With the nomination of Rohit Chopra as Director of the CFPB, the agency is certain to return to a much more forceful enforcement and policy agenda. Chopra, who is currently a Commissioner at the Federal Trade Commission (FTC), is a strong consumer advocate allied with Sen. Elizabeth Warren (he helped Sen. Warren establish the CFPB in the Obama Administration). One of Chopra’s first priorities will be to restore the agency’s focus on enforcing fair lending laws. Two other items – cracking down on payday lenders and building robust case law on what counts as an “abusive act or practice” under the Dodd-Frank law (which gives the agency wide latitude) – will take longer to achieve. Chopra can also move quickly to restore the Office of Fair Lending, which will allow the fair lending staff to draw on supervision and enforcement tools to combat discrimination.
The testimonies of Biden Administration nominees for Secretary of Labor, Secretary of HHS, EPA Administrator, and other key roles will provide additional guidance on their respective policy priorities.
Key Sectors & Issues
- Near-Term – The most immediate positive impact on the consumer sector will come from the spending of the next round of Covid-19 stimulus payments (at whatever level is eventually approved).
- Long-Term – At the same time, the union-friendly Biden Administration with a focus on implementing enhanced OSHA requirements (as well as new rules likely from the Department of Labor) will pose a long-term challenge for the industry with increased direct and compliance costs. The $15 minimum wage issue will also continue to be a priority for the Democrats. See below for more information on important data security issues.
Real Estate & REITS
- Near-Term – The Biden Administration has prioritized extending the moratorium on residential evictions, with the CDC already having ordered the current ban to continue in force until March 31st. The Department of Housing and Urban Development (HUD) has also extended its foreclosure and eviction moratorium for single family mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Office of Native American Programs through March 31st. The Biden Administration’s Covid-19 stimulus bill would extend the eviction and foreclosure moratoriums until the end of September.
- Long-Term – The possibility of tax reform – and the elimination or curtailment of key tax incentives – could have a major impact on the industry. Over time, we anticipate that the massive spending in 2020 and 2021 will drive Congress to increase taxes on sectors they believe have been favored for too long with tax structures that benefit only the wealthy to help bring down the federal budget deficit.
- Near-Term – To date, the Biden Administration has focused on macro-level healthcare issues, including an Executive Order that enabled HealthCare.gov, the federal health insurance marketplace, to open for a special enrollment period from February 15th to May 15th to allow more time for people to sign up for health insurance coverage. The order also directs federal agencies to review rules and policies to ensure they do not hinder people’s access to health care, such as those that may reduce affordability of health coverage or undermine the Affordable Care Act’s (ACA) protections for people with pre-existing conditions.
- Long-Term – During the campaign, President Biden said that his Administration would limit price increases for all brand, biotech, and abusively priced generic drugs, except to keep pace with inflation. With its focus on pandemic-related vaccination issues, and as HHS Secretary nominee Xavier Becerra awaits his confirmation hearing (which has not yet been scheduled), the Administration’s priorities around telehealth (especially where the U.S. Government is the payer), healthcare IT, and other issues have yet to become clear. It is, however, safe to assume that they would generally favor polices that would expand access to healthcare, especially for disenfranchised groups (including Native Americans and other underserved populations). Keeping profits in check for healthcare companies will also continue to be politically powerful.
- Near-Term – The major social media companies will continue to face a “techlash” in the Biden Administration and on Capitol Hill, with numerous voices calling for changes to Section 230 that would hold the companies liable for the content that appears on their platforms. In the wake of the January 6th assault on Capitol Hill, technology companies are facing further examination for their roles in helping to facilitate those events. We expect Congressional hearings will be convened and that a Biden-led Federal Trade Commission (FTC) will become more active in regulating technology companies.
- Long-Term – The entire sector will face close scrutiny in Washington. As of now, there are three primary issues of importance. First, the desire for a national data breach law, as advocated for by Sen. Mark Warner, the likely incoming Chairman of the Senate Intelligence Committee (and a former technology executive in Northern Virginia). Second, increased antitrust enforcement by the FTC and DOJ, including of vertical mergers, which would make it more difficult for smaller companies to be acquired by larger strategic players in their sector. Third, stepped-up enforcement activity across a range of issues, including: data privacy, algorithmic bias, artificial intelligence, facial recognition, and related matters.
- Near-Term – In late January, Senate Majority Leader Chuck Schumer said lawmakers are in the process of merging various marijuana bills, including his own legalization legislation. He is working to enact reform in this Congressional session. This would include the Marijuana Freedom and Opportunity Act, that would federally de-schedule marijuana, reinvest tax revenue into communities most affected by the drug war, and fund efforts to expunge prior cannabis records. It is likely that the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act would be incorporated. We note there is an important racial justice element around this issue as well, which could help drive its passage.
- Long-Term – Prior proposals, including the SAFE Banking Act (or Secure and Fair Enforcement Act, a bill that would allow cannabis companies to access the federally-insured banking system and capital markets without the risk of federal enforcement action), and the Strengthening the Tenth Amendment Through Entrusting States Act (or STATES Act, a bill that seeks protections for businesses and individuals in states that have legalized and comply with state laws) will garner renewed attention.
As noted above, these priorities are likely to be joined by additional issues in the coming months. Nonetheless, the fundamental configuration of the Biden Administration as a focused, activist team with Democratic Congressional majorities will enable them to accomplish a great deal.