So long, 117th Congress. Au revoire, midterm elections. Ta-ta, 2022.
It’s a new year, a new (and divided) Congress, and a new (and bigger) election cycle. In January 2023, there are more questions than answers on how the rest of the year will unfold. But there are 10 big questions to think about that will define governing and politics in the year to come.
1. Will Rep. Kevin McCarthy (R-Calif.) Be Elected Speaker? Close, But More Likely Than Not.
The first item of business for the 118th House is to elect a new speaker. McCarthy led Republicans back to the majority last year, but it’s a smaller majority than most expected, with just four votes to spare. There are five far-right House Republicans on record opposing McCarthy and about nine more conservatives insisting on further demands for their explicit support. It has been 100 years since a vote for speaker took more than one ballot. It may take multiple ballots again. But being the Republican leader, there are several concessions McCarthy can make, and already has made, to win over enough holdouts. Whether the holdouts are looking for procedural concessions or wanting to show they can take down McCarthy is still to be determined. If it’s the former, McCarthy should be able to cajole the votes. If it’s the latter, Rep. Steve Scalise (R-La.), the number two House Republican, may be the next best option as a leader with broad support from the different GOP factions. One dark horse candidate to watch is Rep. Patrick McHenry (R-N.C.), the incoming chair of the House Financial Services Committee.
2. Do The Extremes Or The Moderates Hold More Sway? Never Bet Against The Extremes But Small Majorities Create Interesting Dynamics.
The far-right House Freedom Caucus has about 30-40 members. The moderate Republican Governance Group has over 40 members. The Congressional Progressive Caucus has about 100 members. The more moderate New Democrat Coalition and Blue Dog Coalition have over 100 members. There are dozens in the bipartisan Problem Solvers Caucus. Despite having fewer members, the extremes of either party have historically been more willing to leverage their votes. But moderate Democrats were the ones who leveraged their votes last year during reconciliation and infrastructure. Just because conservative lawmakers are playing hardball in the vote for speaker to weaken leadership doesn’t mean moderates will sit idly by when it comes to governing and getting must-pass legislation through Congress. The moderate Republicans are indicating they aren’t going to let the far right push around Congress next year. It’s these moderates who gave Republicans a majority in the House and will keep a GOP majority in the 2024 election. They aren’t willing to sacrifice their seats on tough votes and total dysfunction just for a smaller cadre of conservative Republicans.
3. Will Congress Raise The Debt Limit? Yes.
The debt limit has been raised over 100 times. It will be raised again this year, despite the theatrics over a default. Senate Minority Whip John Thune (R-S.Dak.) late last year presented the option of raising the debt limit in return for discretionary spending caps and a bipartisan commission to look at reforming entitlement spending, something that was agreed to in the past. Even if House Republican leadership isn’t willing to negotiate in the same vein as Senate Republican leadership, enough moderate House Republicans could join Democrats in using a discharge petition to circumvent House leadership to raise the debt limit.
4. Does Anything Else Get Done In Divided Government? Yes, Even If It’s Messy.
Things get done in divided government. It may not generate headlines but it can impact the bottom line. First, there’s must-pass legislation – next year that’s annual appropriations, defense authorization, the five-year Farm Bill, and five-year Federal Aviation Administration reauthorization. So big things are coming on agriculture, welfare, aviation, defense, and general spending. The legislative wheels are in motion on items like data privacy that don’t divide along traditional lines of Republican vs. Democrat. Then there are external catalysts, like a recession, that could push for some sort of fiscal response. It won’t be a major fiscal stimulus, like the bipartisan response to the pandemic in 2020 and the partisan response in 2021. But several tax priorities left out of the omnibus last year could be crafted into a bipartisan deal in response to a recession. This includes some enhancement of the Child Tax Credit for families in exchange for business tax breaks like a return to R&D expensing, higher interest deductibility limits, and greater bonus expensing.
5. Will There Be A “Powell Pivot” At The Federal Reserve? Don’t Bet On It.
There is no one more consequential to the economy and political outlook next year and in 2024 than Federal Reserve Board Chair Jerome Powell. After a year of historic interest rate increases to combat historic inflation, Powell continues to strike a hawkish tone on the Fed’s positioning heading into 2023. In the Fed’s dual mandate of price stability and maximum sustainable employment, Powell is firmly focused on bringing inflation down to a two percent target. If the unemployment rate increases, so be it. Despite outcry from politicians and the markets for a pivot, Powell is playing the institutional long game. From the triumph and failures of past Fed chairs in taming inflation, Powell knows his own reputation is on the line in how he withstands the pressure to pivot and thus risking inflation becoming pervasive. But Powell also needs to maintain the support of the Federal Open Market Committee (FOMC) members to keep calm and carry on in raising and maintaining high rates. So far, the FOMC has gone along, but pressure could ramp up among the ranks if a recession becomes more apparent.
6. Will President Joe Biden Run For Reelection? Very Likely Yes.
The octogenarian incumbent was born closer to President Abraham Lincoln’s 1864 reelection than his own potential 2024 reelection. Yet all signs are pointing to a reelection run for Biden, with an announcement in the first half of the year. The discontent among Democrats earlier last year is turning into quiet acceptance after a better than expected midterms that Biden will be at the top of the ticket. Progressives, the bloc most likely to mount a challenge, seem the most excited by another Biden run. No one loves Biden, but no one hates him, either. With former President Donald Trump running again, Biden still can lay claim to being the one person who can beat him. Even if Trump isn’t the Republican nominee, Biden will make the case that he can defeat the “ultra-MAGA” GOP.
7. Will Governor Ron DeSantis (R-Fla.) Run For President? Very Likely Yes.
The moment is now for DeSantis, and he and his wife know it. That doesn’t mean DeSantis is the prohibitive favorite to beat Trump in a 2024 primary, especially if there’s a more expansive field, with the likes of former Vice President Mike Pence or Governor Glenn Youngkin (R-Va.). But the latest RealClearPolitics national polling for 2024 has Trump at 47 percent and DeSantis at 29 percent. Several other polls show an even closer race. As a reference, at the start of the 2008 Democratic presidential primary, then-Senator Hillary Clinton (D-N.Y.) was at 35 percent and then-Senator Barack Obama (D-Ill.) was at 18 percent. While Trump struggles to keep his grip on the party, DeSantis will try to use the upcoming legislative session in Florida as a time to bolster a campaign launch. Culture war issues, like an anti-woke agenda, are likely to be at the forefront. But DeSantis will also go to his Republican roots with tax cuts focused on families. The goal for DeSantis is to be the successor to the MAGA movement, not an antagonist to it, while also being acceptable to the broader Republican Party. A presidential announcement could come after the state legislative session ends in the spring.
8. Does Former President Donald Trump Get Indicted? Stay Tuned.
In November, Attorney General Merrick Garland designated Jack Smith, a prosecutor who formerly worked on war crimes cases in The Hague, as a special counsel to handle the Department of Justice’s investigations into Trump over the Mar-a-Lago classified documents and the January 6 insurrection. Smith is tasked with overseeing the ongoing investigations and will decide whether or not to prosecute Trump for any federal crimes discovered. If Trump is indicted, all bets would be off for the 2024 presidential election. Republicans in Congress have gone on record pledging to come to Trump’s defense, which could become a major political flashpoint. The more Trump is in the spotlight, the harder it could be for a non-Trump candidate to have space to mount a credible challenge.
9. Do The Courts Push Back On Biden’s Administrative Agenda? Yes, To An Extent.
In the face of divided government, Biden is looking to his regulators for help pushing forward progressive policy wins. What has been developing over the first couple of years will only ramp up over the next year. The Securities and Exchange Commission last month released proposed rules to overhaul equity market structure with a finalized corporate climate disclosure rule expected later this year. The Federal Trade Commission is continuing to fight against mergers and acquisitions in the tech space and will seek to issue a proposed rule on commercial surveillance and data security. The Department of Labor is looking to finalize a rule this year to classify more workers as employees rather than independent contractors. But this administrative agenda faces litigation from businesses and Republican-led states, giving the courts an outsized say in what happens. Over the last two years, the conservative courts have been less inclined to give the Biden Administration the benefit of the doubt in wielding the executive powers they claim to have. Antitrust law remains more rooted in the consumer welfare standard than a focus on non-price matters. But not all of the Biden administrative agenda is about throwing spaghetti against the wall and hoping some of it sticks. Some rules could pass muster with the courts.
10. How Does The Biden Administration Navigate The US-China Relationship? A Preference Towards “Stiff Competition” Over “Decoupling.”
The continuing war in Ukraine and a potential trade war with the E.U. will be major geopolitical flashpoints in 2023. But China remains the top long-term foreign policy priority here at home. The past several years have seen a pivot away from focusing on the commercial benefits of integrating China into the global economy and towards the national security risks of a growing authoritarian power. Congress last year passed legislation boosting American manufacturing, semiconductors, and clean energy to compete against China. The Biden Administration also issued export controls restricting China’s ability to obtain, develop, and manufacture certain advanced computing chips and semiconductors. The pressure is on from Democrats and Republicans in Congress for Biden to go further this year. No one wants to appear weak on China – that’d be a political liability in the 2024 election. So the Biden Administration is expected to act on a variety of fronts. This includes expanding the export control list, screening outbound investments into China, ensuring China does not get access to American user data from TikTok, and modifying Trump’s tariffs on China. Yet Biden is not looking for a complete decoupling with China that could lead to broader conflict, exacerbate inflation, and strain relationships with allies. Instead, the goal for 2023 is to maintain some commercial ties while focusing more on industries that pose concerns to national security.