capitol building

This Week:

The Senate passed legislation that would provide aid to Ukraine, Israel and Taiwan (see below). The House passed a resolution to impeach Homeland Security Secretary Alejandro Mayorkas (see below) and a bill to overturn a Biden administration decision to pause new US liquefied natural gas (LNG) export approvals (see below).

Next Week:

Both the Senate and House will be out of session in celebration of President’s Day. Both chambers will return to Washington the following week.

The Lead

Decision Time on US Aid to Ukraine.

In a strong bipartisan vote, the Senate this week passed legislation that would provide $95 billion in aid to Ukraine, Israel and Taiwan. The majority of funds – about $60 billion – would be allocated to Ukraine. The Senate moved to this bill after a bipartisan agreement that paired this funding with limited immigration reforms failed last week. The final bill does not offset the additional spending with spending cuts or revenue raisers (and consequently would add to the budget deficit). All attention now is on the House where Speaker Mike Johnson (R-LA) will determine whether and how to proceed to the bill. His options are as follows:

  • Vote on the Senate Bill. There are more than enough votes in the House to approve the Senate bill. However, most of the votes would come from House Democrats. The optics of that are not appealing to the House Republican majority. House Republicans are divided over the support for Ukraine and would rather prioritize immigration reforms in this bill. However, the comprehensive immigration bill they passed last year and would like to include in the aid bill is a non-starter in the Democratic-controlled Senate. In the current environment, House passage of the Senate bill will likely trigger a procedural motion to replace Speaker Johnson from his role. While not an attractive option, it may be the only one for the Speaker as he otherwise risks being fully blamed for handing Russian President Putin victory if Ukraine collapses this year due to a lack of US aid.
  • Add Immigration Reforms to the Bill. The Speaker could decide to add the immigration provisions that were passed last year in the House to the Senate bill and return the legislation to the Senate. That legislation probably could pass in the House, but only along partisan lines. It would be rejected by Senate Democrats and President Biden even if it could pass in the House. Indeed, the Senate doesn’t seem capable of producing any immigration reforms that are acceptable to a bipartisan majority. Adding significant immigration reforms to any House-passed bill would help the Speaker avoid some pressure for a short time, but it is not likely a viable solution.
  • Make Other Changes. Some Republican lawmakers (and former President Trump) have suggested that the aid to the three countries be sent by way of loans instead of direct assistance. That change could be made in the House bill, though it’s not clear now whether that could pass. This option will be explored, but any House Republican changes to the bill would have to be approved by Senate Democratic leaders. We’re not very optimistic about this option either.   
  • A Third Way with a Dash of Bipartisanship. A bipartisan group of lawmakers from the Problems Solvers Caucus, led by Congressman Brian Fitzpatrick (R-PA), is working on a proposal that would pare back the aid package by removing humanitarian assistance (focusing only on military assistance). It also would add select immigration reforms, particularly a provision that would require immigrants seeking asylum at the southwest border to remain outside of the US (commonly known as “Remain in Mexico”) until their cases are resolved. The proposal is still being drafted, and we don’t have all the details yet, but it appears to be a thoughtful compromise that addresses concerns from some House Republican lawmakers. Most Democrats will continue to insist on a vote on only the Senate proposal, but the Problems Solvers Caucus compromise proposal may offer Speaker Johnson an option that is more attractive than the others.  
  • Do Nothing. The Speaker could cite the absence of immigration reforms in the bill and not consider it for a vote. He would be widely condemned by President Biden, most Senate lawmakers and our allies in the world. It’s not clear if this bill can just be put aside indefinitely, while Ukraine and Israel are at war and require assistance prior to an expected increase in fighting in the spring.

Other Issues in Play

SALT Relief Dead.

The House rejected consideration of a bill to double the exemption of the state and local tax (SALT) deduction for certain individuals earning up to $500,000 per year. The bill was written by House Republicans from New York and represents a likely last effort to enact SALT relief this year. Beginning in 2026, SALT is subject to an unlimited deduction (as it was prior to the 2017 tax law that capped it at $10,000) absent any changes made in legislation passed next year. The future of the SALT deduction cap next year will be heavily dependent on the political makeup of Washington following the elections.  

House Vote to Reverse US Gas Export Pause.

The House voted this week to prevent the Biden administration from continuing its suspension of further approvals of US liquified natural gas (LNG) exports to most countries. The administration paused the exports pending the completion of federal studies to assess the impact of the exports on climate change. These studies likely will consume most of this year. The bill is dead in the Senate, although Senate Republicans from energy-producing states will try (likely unsuccessfully) to bring it up throughout the year. The climate lobby requested the pause, and it has the upper hand with the administration and the Democratic-controlled Senate.

Tax Incentives for Retirement.

A study to curtail tax incentives for retirement savings as a means to raise revenue to shore up Social Security was recently released to great fanfare in the media. The study argues that the tax preferences for employers and employees to make contributions to 401(k) plans reduced federal revenue by about $185 billion in 2020 alone. It also concluded that the tax benefits for retirement savings is skewed toward higher earners, with almost 60% of the tax benefits going to the top quintile (20%) of taxpayers. Lawmakers already have concerns about the scope of this incentive and have shown some interest in putting in place limits. For example, the SECURE 2.0 Act mandates that 401(k) catch-up contributions (starting in 2026) must be made on an after-tax basis for those earning over $145,000. Nevertheless, there is insufficient support to enact any broader changes to the taxation of retirement savings for either employees or employers at this time. When and if Congress or a presidential administration prioritizes deficit reduction, this issue could be revisited and considered more seriously.

March Deadlines on Government Funding.

While lawmakers are mired in foreign aid and immigration debates, Congress has deadlines approaching on the passage of government funding bills for the current fiscal year. Specifically, Congress must pass four of the twelve individual spending bills by March 1 to avoid a shutdown in those agencies and functions covered by these four bills. On March 8, the remaining eight bills need to be finalized. Lawmakers who work on the relevant committees are working on these issues and are saying positive things about meeting the deadlines, but funding issues are always contentious and go to the last minute for resolution. We would not be surprised if a shutdown affecting several agencies occurs in the weeks ahead.

The Final Word

*Mayorkas Drama.

“In a closely contested vote of 214-213, the House of Representatives recently moved to impeach Department of Homeland Security Secretary Alejandro Mayorkas, reflecting a deepening divide over his handling of border security and immigration issues. This decision, while indicative of simmering dissatisfaction within certain quarters of the House, is expected to face significant hurdles in the Senate, where Mayorkas is widely anticipated to be acquitted. Senate deliberations may pivot towards sidestepping the charges altogether, allowing Mayorkas to retain his position amidst the ongoing challenges at the southwest border.”

*This bullet was written not by us, but by AI. We wanted to see how accurate an AI-generated bullet would be and what color, if any, it added. We were impressed. It is concise and covers the primary facts. We would add that the Senate will certainly ignore the House action, and Mayorkas’ job is safe for now. His ongoing work, however, could be a liability for Democrats as he has low credibility with most lawmakers and voters concerned about border security.