Republicans Challenged to Govern

***From Jan-Feb 2015 Edition of The Maritime Executive magazine***

What do the GOP victories in November mean for the maritime industry and the nation?

Having achieved historic gains in the 2014 midterm elections and gained majority control of Congress, Republicans must now determine how they will govern. Like the proverbial dog that caught the car, what does the GOP do now that it has got its wish? Merely barking is not governing. So will it continue to score points by barking or will it move to enact bipartisan legislation that President Obama can sign into law to demonstrate that it can actually govern?

GOP Establishment Control

The GOP establishment is now firmly in control of the party’s leadership and determined not to repeat the mistakes of November 2013 when its Tea Party faction nearly dispatched congressional Republicans into the political wilderness. Senator Majority Leader Mitch McConnell (R-KY) has emphasized that his primary objective is to ensure the Republican Congress does not appear “scary” to the American people. 

So the good news is there will be no government shutdown or threat to the nation’s fiscal stability by Republican refusals to raise the debt limit. But while this is no doubt good news, what more we can expect remains unclear. 

According to McConnell, we should not expect big conservative victories like the repeal of Obamacare but instead only measured wins. One such win would be repeal of Obama Administration environmental policies like the EPA’s vessel general permit regulations, which produced an industry-criticized patchwork quilt of disparate regulations for vessels operating in the U.S.

Encountering Political Reality and Defining Differences

The GOP kicked off its new legislative agenda by reprising long-suffering legislation to authorize the Keystone XL pipeline. The House quickly repassed the measure just as it had during the previous Congress, this time by a margin of 266 to 153. The Senate allowed the measure to reach the floor where it secured a filibuster-proof majority of 63 senators, including 10 Democrats, to allow further debate and amendments. McConnell praised the vote as the “latest example of Congress getting back to work” under Republican leadership. 

But in the face of Obama’s veto threat, McConnell’s challenge now will be to secure four more votes to provide a veto-proof majority in the Senate. The House-passed measure also did not secure a veto-proof margin, so House Speaker John Boehner (R-OH) faces the same challenge.  

The key number to watch in the House this session is 291, the number of votes needed to override a veto. Simply put, the votes are not there. So at this stage McConnell’s claim of “Congress getting back to work” really appears to be more about defining differences than actually enacting a measure that the President will sign into law. 

Of course, if the Republican leadership wants to enact energy legislation it could offer congressional Democrats and the President meaningful concessions on Democratic objectives like repealing the favorable tax treatment of fossil fuels and supporting renewable energy alternatives. But such serious efforts at compromise are not yet in the offing. Experience teaches that we will likely endure a substantial period of point-making before we get down to real legislating.  

The President is engaged in the same process of defining differences. In his State of the Union message he proposed increasing federal taxes by $320 billion over ten years on the largest 100 financial institutions and the top one percent of American income earners to pay for tax expenditures benefiting middle-class Americans, including increased child care tax credits, a working couple tax credit, and federally funded community college tuition.

When asked specifically if he actually thought a Republican Congress would enact the President’s proposals, White House spokesman Dan Pfeiffer answered that he thought it was important for both parties to define their differences first.

Likewise, the GOP’s goal to reverse President Obama’s recent executive actions on immigration policy appears not only to lack the necessary veto-proof majorities in the House and Senate but political viability as well. The recent terrorist acts in Europe have undercut the likelihood of a legislative strategy predicated on shutting down the Department of Homeland Security when the nation is under such a palpable terrorist threat. 

When asked if he would allow a “clean” Homeland Security funding measure to come to the House floor, Speaker Boehner declined to rule that out. And seeing the writing on the wall, Senate Majority Whip John Cornyn (R-TX) opined that “If we can’t pass the House bill, we’ll have to come up with an idea of what can pass the Senate.”

Shifting Agendas

The GOP goal of reducing the federal debt appears to lack any real substance or political force.  Besides threatening not to raise the debt limit and to shut down the federal government, House Republicans previously advanced the policies of sequestration, which proved unsustainable in practice, and Social Security reform, which lacked support in the Senate. 

It remains unclear how the GOP Congress will cut the federal debt. Thus far, the only initiative that has surfaced is the adoption of dynamic scoring by the Congressional Budget Office. But the notion that Congress could actually reduce the federal debt by cutting taxes and employing an accounting device seems both far-fetched and a sign that the GOP has no viable proposals.

For his part, the President shifted his agenda toward helping the struggling middle class, which has lost economic ground in recent years. Having seen the federal deficit shrink by two-thirds, cutting the federal debt is not a major concern for his Administration. By proposing new tax breaks, expanded education and retirement savings programs, and the right to sick leave, Obama is defining major differences with his Republican opponents. 

With former Republican presidential nominee Mitt Romney now calling for federal programs to spark “rising wages” for the middle class and “lift people out of poverty,” it remains to be seen how Congress will respond to the President’s proposals. The improving national economy and plummeting gasoline prices have given more leeway to Obama’s move to the left with politically attractive proposals targeted at the middle class that could prove politically nettlesome for the GOP to oppose.

The GOP’s proposal to reform the corporate tax system represents a particularly ambitious goal. Republicans have long decried the top corporate tax rate in the U.S. as putting the country at a competitive disadvantage. Conversely, Democrats and the President have proposed changes to the corporate tax system that would eliminate perceived incentives for U.S. firms to move jobs offshore. Obama also proposed a measure similar to that proposed by former House Ways and Means Committee Chairman Dave Camp (R-MI) to levy an excise tax on the largest financial institutions. 

So common ground may exist for compromise on corporate tax reform. But the real challenge is even if a reform proposal makes it past the broad ideological differences, it usually founders on special-interest politics. The existing tax code embodies many tax preferences for diverse interests that would have to be eliminated to allow across-the-board reductions that are budget-neutral.

Potential Maritime Industry Benefits

Given the significant differences between the two parties’ agendas, perhaps the most likely area of compromise is one that has substantial importance to the maritime industry – free trade. The President’s desire for fast-track trade authority is in line with the GOP leadership’s goal of expediting free-trade deals by the U.S. 

Two major deals are already in the works. The Trans-Pacific Partnership would link the U.S. with eleven other countries on the Pacific Rim of Asia and South America, which together account for 40 percent of global economic activity. The Trans-Atlantic Trade and Investment Partnership would link the U.S. with the European Union.  It is estimated that the two deals would boost world output and benefit the U.S. by approximately $200 billion annually.

A phalanx of business interests, including the Chamber of Commerce and the Business Roundtable, are united in support. GOP congressional leaders have identified free trade as a top priority, and the President wants it. Like the NAFTA ratification debate in 1993, organized labor and its congressional allies are likely unable to block such a formidable alliance between business, the President, moderate congressional Democrats and the new Republican majority.  And if enacted into law, the GOP Congress could rightly claim that it had governed. – MarEx

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