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Newly energized Republicans take control of Washington this month, starting with Congress on Jan. 3 and following with President-elect Trump’s inauguration on Jan. 20.
They have promised big changes and lots of action, starting with repealing and replacing Obamacare. Trump also wants to repeal a bevy of President Obama‘s regulations, reform the tax code, crack down on illegal immigration and build a border wall, overhaul trade policy, redo parts of U.S. foreign policy and eliminate spending caps on defense. He also campaigned on rebuilding U.S. infrastructure, an issue on which he should pick up bipartisan support.
In his spare time, Trump also has to fill the vacant seat on the Supreme Court.
Congress and Trump must contend with increasing cybersecurity threats that range from hacked email accounts to the power grid. And they have been wanting to undo Obama’s Dodd-Frank financial regulations created in response to the 2008 financial crisis.
But with Republicans having only a slim majority in the Senate, with 52 seats, they will have difficulty pushing through legislation that Democrats oppose. To get around that, particularly with their long-desired repeal of Obamacare, they are expected to turn to procedural moves that require only a simple majority for passage.
Here is the Washington Examiner’s look at how the first year of the 115th Congress and the new Trump administration is expected to shake out.
WHITE HOUSE
After more than a year of lofty promises and sweeping denunciations of the status quo, Trump will face pressure to start making America great again as soon as he takes office Jan. 20.
Trump has focused his early agenda around deregulation. A frequent critic of Obama’s reliance on federal regulations to enact policies, Trump likely will spend much of the first year rolling back the environmental and business regulations that he has blamed for slow job growth.
The president-elect has promised to scrap two existing regulations for every new one his administration enacts.
Trump’s pitch to skeptical conservatives consisted almost entirely of his promise to appoint a steadfastly conservative justice to replace the late Justice Antonin Scalia on the Supreme Court.
With short-listed contenders ranging from Sen. Mike Lee to social media-savvy Texas Justice Don Willett, Trump has proposed a range of qualified candidates to fill the vacancy. But he must move quickly to initiate the confirmation process given ire on both sides of the aisle over how long the bench has been incomplete.
Critics will watch Trump closely for signs that his policy moves could benefit his real estate conglomerate, particularly if the forthcoming firewall between his White House and the business is perceived to be weak.
The president-elect could find himself in tough terrain if his detractors sense ongoing involvement in the Trump Organization, and the uproar over such a perception could color the first days of his administration. Many of the moves Trump has proposed are designed to boost business across the board, so those moves would therefore benefit his company, too. Discussions about his corporation and its political implications already have tinged the media coverage of his transition process.
Having promised to cancel dozens of his predecessor’s executive actions during the height the presidential campaign, Trump will enter the Oval Office under immense pressure to follow through on that pledge.
The incoming Republican leader issued a video message shortly after his election victory identifying specific rules and policies he intends to undo on his first day at the White House. With his pen, Trump said he will immediately withdraw from the Trans-Pacific Partnership, a multilateral trade initiative negotiated by the Obama administration, and cancel dozens of federal energy regulations that have impeded domestic production of “shale energy and clean coal.”
But even as Trump seems intent on dismantling Obama’s legacy, the consummate deal-maker has signaled a willingness to preserve some aspects of programs the previous administration enacted, particularly if doing so will earn him respect among his critics and political capital he can use later on.
SENATE
Senate Republican leaders are promising longer weeks and a full calendar early in 2017 as they work to fulfill their campaign promise of repealing Obamacare as their first order of business, followed by a major tax overhaul designed to lure U.S. companies that moved offshore back to the country.
“The status quo is not sustainable — the notion that we could do nothing and allow the current [Obamacare] law to implode is unacceptable,” Senate Majority Leader Mitch McConnell, R-Ky., told reporters in his last press conference of the year in early December.
McConnell promised that an Obamacare repeal resolution with be “the first item up in the new year.”
Republican leaders are short on specifics on how they will replace the mammoth Affordable Care Act, which spans more than 1,000 pages, saying only that they hope to do so in a piecemeal fashion over time.
The legislative work to repeal the law will be done in early January, but Congress is expected to phase in its impact on the way Americans can attain health insurance over several years, coupled with a process to replace it.
After the repeal, “we will go about the process of replacing in a step by step way the Obamacare provisions that we think have caused the most damage and put in place reforms that we think could really work,” Sen. John Thune, R-S.D., a member of the GOP leadership team, said in early December.
McConnell spent December celebrating Republicans’ unexpected success in holding on to their majority in the upper chamber. But it will be slim with just 52 seats, forcing GOP leaders to use the budget reconciliation process to repeal the healthcare law and pass a tax overhaul.
Reconciliation can be used with legislation involving taxes and requires only a simple 51-vote majority to pass, instead of the 60 votes needed to end a filibuster and advance other bills.
The Senate also will spend its opening weeks confirming dozens of President-elect Trump’s nominees for Cabinet posts. Judiciary Committee hearings for Sen. Jeff Sessions, R-Ala., Trump’s choice to be attorney general, are scheduled for Jan. 10 and 11, with the goal of holding a Senate confirmation vote Feb. 3.
Nearly all Trump’s nominees are expected to win Senate approval, with the remote exception of Rex Tillerson, the CEO of Exxon Mobil who Trump tapped to serve as secretary of state. Democrats, and a handful of Republicans, have vowed to grill Tillerson over his close ties to Russia, where Exxon Mobil has significant business dealings.
Unless several Republicans defect and vote against Tillerson, he and every other one of Trump’s nominees are set for Senate approval. Democrats nearly guaranteed that presidents are allowed to select their own Cabinet by changing Senate rules to prohibit the minority party from filibustering confirmation of all but Supreme Court nominees.
McConnell in late December also said he would push for a “permanent fix” to a depleted healthcare program for retired coal miners and their widows early in the new year.
Congress passed a stopgap budget bill in early December that ensured coverage until April for the miners, whose healthcare programs went bankrupt. Sens. Joe Manchin, D-W.Va., and Sherrod Brown, D-Ohio, tried to hold up the spending bill before Congress left town to push for a longer-term solution, but gave up after securing promises from GOP leaders to tackle the problem in January.
McConnell in late December also vowed to overturn the Interior Department’s new limits on coal mining runoff in the nation’s waterways, one of a number of late “midnight” regulations Obama pushed through that Congress is expected to reverse.
Also, a comprehensive tax reform bill, which is slated for spring consideration, is aimed at stopping the exodus of U.S. businesses overseas as a way to avoid higher U.S. tax rates.
HOUSE
House Republicans first laid out what issues they would tackle if the GOP controlled the House, Senate and White House over the summer. Now that they have won that control, one need only look to the plan called “A Better Way” for their 2017 blueprint.
First up is repealing the Affordable Care Act, House Speaker Paul Ryan, R-Wis., has repeatedly said. What will be harder and more time consuming is replacing President Obama‘s signature healthcare law.
In the meantime, the House Republican Conference is poised to begin its assault on executive agencies’ autonomy and Obama administration regulations.
As early as Jan. 3, when the 115th Congress is seated, the House could again pass the REINS Act, which requires congressional and presidential sign-off before major regulations can be implemented. Right behind it will be the Midnight Rules Act, which would allow lawmakers to repeal a bevy of late-term Obama regulations.
Ryan has long sought to overhaul the nation’s massive entitlement programs. His first crack likely will come as part of the Obamacare overhaul. The law’s Medicaid expansion means the health insurance program for the poor will have to undergo at least some changes. Overhauling Medicare, the health insurance program for seniors, perhaps into at least a quasi-private setup involving premium support, could come next.
The conservative House Freedom Caucus, among others, will push to revamp Social Security, food stamps, welfare and other programs for the poor as well.
“The war on poverty is a stalemate at best,” Ryan said in the introductory video accompanying the “Better Way” agenda.
As Ways and Means Committee chairman and Budget Committee leader before that, Ryan proposed ways to change all of those programs and is eager to see his pursuits become policy, as well as an overhaul of the tax code, which he has long pushed and Trump supports.
HEALTHCARE
Repealing Obamacare will be the biggest healthcare policy story of 2017, as Republicans in Congress move to fulfill the campaign vows they have made ever since the healthcare law was passed six years ago.
Congress and President-elect Trump won’t be able to scrap all of President Obama‘s signature law, due to opposition from Senate Democrats, but they plan to ditch the measure’s biggest provisions that prompted about 20 million more Americans to gain health coverage by using special rules in a process known as “budget reconciliation.”
Lawmakers are working off a blueprint they passed in early 2016, which gets rid of the law’s Medicaid expansion and its income-based subsidies for low and mid-income households to buy private plans. Their plan is to pass Obamacare repeal as quickly as possible, likely by the end of February, and then start working within committees on a replacement.
Republicans will buy some time for the difficult task of replacing the law by delaying its repeal for anywhere from two to four years. Staffers say the goal is to agree on a replacement as soon as possible to minimize uncertainty among insurers, but they’re not setting a deadline for when final legislation or pieces of legislation must be ready.
GOP leaders have been noncommittal about what they will include in their version of health reform. But it’s most likely to draw from the “Better Way” plan Ryan rolled out over the summer and a similar plan proposed by Rep. Tom Price, who is taking the helm as Trump’s secretary of the Department of Health and Human Services.
Both the Ryan and Price plans propose age-based insurance subsidies for people without employer-sponsored coverage, giving block grants for Medicaid so states carry more of the costs, and expanding the use of tax-free health savings accounts. Those ideas enjoy wide support from Republicans, but getting enough Senate Democrats on board to actually pass some of them will be tricky.
Other areas Congress might dabble in are Medicare reform and high drug prices, although Trump appears to view those two areas as lower priority. Ryan has long backed transitioning Medicare to a premium support system, where seniors are given a set amount of funds to buy private plans. But Ryan’s approach would likely result in cutting benefits for some seniors, which Trump promised during his campaign not to do.
Conversely, Republicans are generally opposed to an idea Trump backed during his campaign of allowing the federal government to negotiate Medicare drug prices lower. Yet escalating public concern about the issue has prompted lawmakers from both sides of the aisle to ramp up pressure on drug makers to stop dramatically raising costs for longstanding drugs and introducing new drugs to the market at sky-high price points.
Trump, who is expected to be more business-friendly than his predecessor, could have strong influence next year over two major health insurer mergers the Department of Justice is trying to block.
A federal court is expected to decide in January whether consumers will be worse off if Anthem buys Cigna and if Aetna is allowed to take over Humana, two deals that would result in the country’s five largest insurers shrinking to just three. If the companies lose their cases and make an appeal, a Trump administration could strike a deal that would be friendlier to the insurers.
ENERGY and ENVIRONMENT
Trump promises to dismantle the Obama administration’s energy and environment agenda quickly in 2017. Whereas last year saw major court action from the states and industry in fighting Obama’s broad climate change agenda, Trump plans to begin rolling back many of the disagreeable rules in favor of coal and oil-producing states.
That has prompted environmental groups to beef up up their legal ranks in preparation for a major conflagration in pushing back against the Trump administration’s plans to deregulate U.S. energy.
Here’s what to expect from Trump on energy and environment issues:
• Repeal of the Clean Power Plan, the centerpiece of President Obama‘s climate change agenda. The plan is being opposed by more than half of the states and more than 100 groups in federal appeals court, and Trump has promised to take action even before the court comes down with a ruling.
• Trump said during the campaign that he planned to exit from the December 2015 Paris climate change agreement. But after winning the election, he told reporters at the New York Times that he has an “open mind” on climate change and has not made a decision on whether or not to pull out of the climate deal.
• Trump appears poised to kill off any and all environmental programs at the State Department, according to transition team documents. The Trump team is targeting the Green Climate Fund under the Paris climate deal that requires hundreds of millions of dollars from the U.S. Treasury to go to the fund annually to help developing nations cope with climate change. Eliminating the fund has been a key priority for Republicans in the last year.
• Trump will be going after regulations that would make it harder for coal miners to find work, including lifting a moratorium on federal coal leases and new eleventh-hour regulations from the Obama administration that would make it nearly impossible to mine coal due to clean water restrictions. Look for Trump’s proposed repeal of those regulations as part of fulfilling his campaign promises to coal country.
• Major environmental groups are promising to sue the Trump administration over those actions, which likely will see his Justice Department spending a good deal of time in court defending his moves.
• Trump has yet to announce his “clean coal” agenda. Many are unsure what it will entail, what technologies it will focus on, or if it is simply based on repealing the Obama administration’s climate rules.
• Also expect big fights in the Senate over Trump’s nominees: Oklahoma Attorney General Scott Pruitt to head the Environmental Protection Agency and former Texas Gov. Rick Perry to head the Energy Department. Democrats are vowing to push back against the nominees and block their confirmations, although that would be difficult, since Republicans have the Senate majority.
GLOBAL THREATS
When Trump takes the oath of office Jan. 20, he will inherit a world full of threats that promises to grow only more treacherous in 2017. He faces challenges to U.S. interests and influence by Russia, China, North Korea, Iran and the Islamic State, just to name the big five.
And ironically, the most straightforward, and therefore least threatening problem may be hastening the demise of the Islamic State, where the terror group is in retreat in both Iraq and Syria, and the current strategy seems to be succeeding in turning the Islamic State from a caliphate that holds and governs land to an underground movement that can still threaten the West.
“You know my plans,” Trump dubiously asserted to reporters when they asked if the recent Christmas market attack in Germany by a Tunisian asylum-seeker would affect his immigration screening policies for the U.S.
In fact, we don’t know his plans. We don’t even know if Trump knows his plans, which seem to be subject to constant recalibration.
As the billionaire businessman prepares to become the leader of the free world, not only are many of his policies a mystery, but America’s status as the premier player on the international stage seems increasingly challenged.
Trump will have no shortage of advice, not just from his national security team, but from Washington’s abundance of think tanks.
Here’s what some policy analysts and national security experts advise:
• China: Despite Obama’s warning to Trump not to allow the U.S.-Chinese relationship to degenerate into “full conflict mode,” a just-released report from the Center for Strategic and Budgetary Assessments advocates forcefully confronting China publicly, while working behind the scenes with regional allies to keep China off balance. The report was highly critical of what it called the Obama administration’s “overly cautious approach,” which it said has emboldened China to pursue a policy of adventurism in the South China Sea.
• Russia: Olga Oliker, director of the Russia and Eurasia Program at the Center for Strategic and International Studies, is advising caution when it comes to establishing warmer relations with Moscow and making deals with Russian President Vladimir Putin. “It is not the coming to power of a new U.S. president that makes deals possible,” Oliker writes. “Deals have been on the table all along: the problem was that Russia wanted them on its own terms only.”
Sanctions could have been lifted, she argues, if Russia was willing to live up to the Minsk agreement, meant to settle the Ukraine crisis, and cooperation would be possible in Syria if Russia wasn’t simply interested in propping up Bashar Assad. Any deals, Oliker says, must “include clear gains for the United States that are evident not just to the White House, but also to the Kremlin.”
• Iran: Trump’s in-house Iran expert is his nominee for defense secretary, James Mattis, a former U.S. Central Command chief, who has extensive experience dealing with the Iranians. In remarks this year in Washington, long before the retired four-star general had any inkling he would serve in a Trump administration, Mattis argued it’s too late to tear up the nuclear deal with Iran and instead should draw up military options to hold Iranian nuclear facilities at risk if Tehran is caught cheating.
• North Korea: As the regime of Kim Jong-un continues to make steady progress toward developing the capacity to threaten the United States with a long-rang nuclear-tipped missile, Trump has indicated he will press China to rein in North Korea’s nuclear ambitions that threaten everyone in the region. “Hope springs eternal that China will choose to cut the albatross off its neck, but the world has been disappointed each time,” Georgetown University professor Victor Cha writes in a CSIS report. “We should still continue to press, persuade and promote China to take a more responsible position in its relations with North Korea, but we should not at the same time subcontract the policy over a core threat to U.S. national security to a great power competitor.”
In its Global Forecast for 2017, Center for Strategic and International Studies CEO John Hamre argues that Trump faces a world where America’s allies are more ambivalent while its adversaries more aggressive, as a communications revolution has given U.S. enemies an arsenal of new cyber weapons.
Hamre warns of a “real danger” that adversaries could gain access or exert control over U.S. nuclear command and control, the banking system, or the electrical grid.
“I cannot recall another time when an incoming administration faced more questions at home and abroad,” writes the former deputy dense secretary. “The complexity of the challenge is immense.”
DEFENSE SPENDING
One of the biggest defense policy fights to look for this year is whether Trump can make good on his campaign trail promise to repeal sequestration.
Trump has vowed to undo the across-the-board budget cuts that the Pentagon says has hamstrung military readiness, but the next commander in chief can’t do it alone: He will need support in Congress to repeal the law. Many experts say they don’t know if lawmakers are on board and predict a continuation of the clash between Democrats and Republicans that have plagued budget debates.
Even though many Republicans support higher defense spending, the budget hawk-faction of the party does not support lifting the spending caps. And Democrats are unwilling to support higher defense spending without boosting spending on non-defense priorities, too.
One of the specific areas in which Trump has called for a significant boost is shipbuilding, including growing to a 350-ship Navy. But analysts predicted no real moves on that until Trump submits his budget proposal for fiscal 2019, which will be the first he builds from the ground up, in early 2018.
Trump also will be trying to push these priorities through with the help of a new roster of civilian leaders at the Pentagon. If confirmed, the Pentagon will have retired Gen. James Mattis at the helm and new faces in charge of each of the services whose priorities could differ from those who held the jobs under Obama.
Not much turnover is expected among uniformed leadership, however, since many service chiefs and combatant command leaders began their tours in 2016.
The issue of whether women will be required to sign up for the draft is expected to pop back up this year. While Congress voted in the fiscal 2017 National Defense Authorization Act that women do not need to sign up with the Selective Service, it also requires a report from the defense secretary on whether the draft is still needed. The report is due to Congress by July 1.
The top four lawmakers at the House and Senate Armed Services committees will remain in 2017, so efforts to reform the Pentagon and cut waste will likely continue. Rep. Mac Thornberry and Sen. John McCain, the chairmen of the House and Senate panels, have said that each year’s National Defense Authorization Act will see more reforms to the military’s organizational structure under the Goldwater Nichols Act.
One issue that’s not clear is the future of Defense Secretary Ash Carter’s Defense Innovation Unit Experimental program to build partnerships with tech companies that traditionally don’t work with the Pentagon. The fiscal 2017 defense policy bill will withhold a portion of the unit’s funding until the defense secretary can prove its usefulness and answer questions about how its priorities overlap with other small business initiatives. But it’s not clear if driving innovation in this way will remain a priority for Trump’s Cabinet.
After a year of several acquisition milestones, fewer contracts or major steps in acquisition projects are expected in 2017.
The Air Force is expected to award a contract for its new two-seat T-X trainer this year to replace the T-38. The teams bidding for the work are Lockheed Martin/Korea Aerospace Industries, Raytheon/Leonardo, Boeing/Saab and Northrop Grumman/BAE Systems.
The F-35 joint strike fighter from Lockheed Martin is reportedly preparing for its first overseas deployment in 2017. A report is also due to Congress by March 31 looking at potential alternative management structures for the program, including whether the Joint Program Office should be continued or if each of the services should be in charge of its own piece of the procurement.
The Air Force will receive its first KC-46 tanker from Boeing in August, pushed back from an initial plan to deliver the first plane in March.
The second Zumwalt-class destroyer, the Michael Monsoor, built by General Dynamics Bath Iron Works, is expected to be commissioned in 2017. The littoral combat ship named after Gabrielle Giffords, built by Austal USA, is also expected to be commissioned this year.
INFRASTRUCTURE
Trump’s infrastructure plan may prove to be one of the few areas where he will find support from congressional Democrats in 2017.
Trump campaigned hard on a message of improving U.S. roads, bridges, airports, the electricity grid and virtually every other part of the country’s critical infrastructure. It’s widely seen as an area for immediate economic investment that will be necessary sooner rather than later.
During the campaign, Trump called for about $1 trillion to be poured into infrastructure updates.
“Infrastructure investment strengthens our economic platform, makes America more competitive, creates millions of jobs, increases wages for American workers and reduces the costs of goods and services for American consumers,” Trump’s campaign website stated.
The incoming leader of the Senate Democrats has already said he is willing to work with Trump on that area of the economy.
New York Sen. Chuck Schumer told Politico last year that he’s on board for a massive plan. When told that Trump wants a potentially ten-figure investment, Schumer said, “That sounds good to me.”
The biggest opponents to Trump’s plans might come from inside his own party as Republicans have signaled that they’re loathe to add massively to the national debt and they have opposed raising gasoline taxes for years as a way to replenish the transportation trust fund.
The issue of deficit spending to pay for massive infrastructure work raised its head during the campaign as Trump promised not only to invest in infrastructure but to also lower taxes. According to the Tax Foundation, Trump’s tax plan presented during the campaign would cost the country between $4.4 trillion and $5.9 trillion.
The incoming president suggested a private fund to raise money for infrastructure investment, but that fund has not been created.
Perhaps the most talked about infrastructure project of the campaign also will start to be discussed seriously in the halls of the Capitol in 2017: Trump’s wall along the Mexican border.
Trump mentioned the wall at virtually every campaign rally during 2015 and 2016, and it was a huge applause line for many of his supporters. Chants of “build the wall” were heard constantly during Trump’s barnstorming trips during the election and during his “thank you” tour afterward.
While Trump has permission from Congress to build the wall, thanks to a 2006 law, he still will need millions of dollars from Congress to complete the structure. About 36 miles of the more than 1,900 miles of border have double-layered fencing, and most of the border has no fencing at all.
Estimates for how much the wall will cost range between $12 million and $25 million, but taxpayers may be off the hook: Trump promised to get Mexico to pay for the wall during almost all of his rallies as well.
Among the proposals Trump has floated to get Mexico to pay for the wall is blocking remittances from going back into Mexico from people who have left the country. Remittances are payments send to foreign countries from people who have emigrated to the United States that often fund their families back in the home country.
TAXES
Business groups and insiders expect tax reform in 2017. The only question is how much.
Thirty years have passed since Congress’ last successful effort to reform the tax code, an exercise in which thousands of individual interests and groups give up prized tax breaks and loopholes and get lower rates and simpler administration in return.
House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady have said that they hope to have Trump sign a tax reform plan even more ambitious than the one that Ronald Reagan signed in ’86. In their vision, individuals would get tax cuts, especially high earners. So would multinational corporations, which would also see major relief for their foreign subsidiaries. Small businesses would get a special new low tax rate.
Brady, whose committee would be responsible for writing the legislation, has insisted that the House GOP is going to push for the boldest version of reform. With a Republican Senate and Trump in the White House, his promises are credible, as investors appear to believe.
Yet there are still many obstacles to tax reform. In the Senate, Democrats still have the ability to filibuster, and their party has moved to the left on taxes since the 2003 Bush tax cuts. They could stop the GOP plan or force Republican leaders to use procedural tools such as budget reconciliation that would require them to revamp and scale back the tax changes.
Also, some businesses and interest groups are already signaling that they might resist the reform, despite the rate cuts they would receive.
The real estate industry indicated early on that it was skeptical that the rate reductions and simplifications in the plan would be worth giving up the many pro-housing tax breaks that adorn the tax code, especially the deduction for mortgage interest, worth $77 billion in 2016.
Some groups have bigger problems with the plan. Retailers and oil refiners are wary of the House GOP plan to “border-adjust” corporate taxes by disallowing deductions for imported goods and materials, which they fear could cut into profits.
Brady has said that that provision is staying in, but it’s early in the bargaining.
If Republicans fail to get everything they want — tax rate cuts for corporations, small businesses and individuals — they will need a backup plan. For years, businesses have warned Congress that a crisis is imminent unless they change the way international profits are taxed. As major companies have increasingly sought to move their headquarters overseas to low-tax countries, lawmakers have become alarmed.
The problem is that the U.S. has the developed world’s highest corporate tax rate, at 35 percent, and that, unusually for a rich country, it charges the tax on profits earned by foreign subsidiaries, at least in theory. The reality is that corporations try to avoid that tax by keeping their earnings overseas or moving their headquarters to places such as Ireland or the United Kingdom, that don’t charge taxes on international profits.
One way to solve that problem would be to lower the corporate tax rate and stop taxing profits earned abroad. The GOP tax plan would do that. But congressional leaders and President Obama already tried a version of that approach in 2015, and it didn’t work out. Liberals were too worried that rich individuals might find a way to benefit, while small businesses objected that they would get left out.
When it became clear that corporate tax reform wasn’t going to pass, a few key players, including Ryan and incoming Senate Minority Leader Chuck Schumer, sought an even narrower reform aimed just at the second part of the problem, namely that companies must pay taxes on all international profits. By addressing just that broken feature of the tax code, they thought that they might halt the “inversions” of companies relocating headquarters to tax havens. Yet even that effort fell short of gathering the necessary support.
The experience of the past few years can serve as a warning to the new Republican majorities. Either they get it all in 2017 or end up negotiating progressively smaller deals, risking the kind of gridlock that stymied Obama in his last years in office.
FINANCE and BANKING
At the end of 2017, 10 years will have elapsed since the start of the Great Recession.
As it happens, 10 years is also about the average time between financial crises, economic historian Charles Kindleberger concluded in his review of centuries of panics.
Alex Pollock, a financial regulatory expert at the conservative R Street Institute, has speculated that it is often about 10 years between crises because that’s how long it takes for humans to forget about the suffering caused by crises and become overtaken by optimism and let down their guard. Pollock is now one of the members of the team responsible for preparing the Trump transition team to take control of financial regulation in the new administration.
If financial regulation is a balance between safety and innovation, Trump’s incoming administration has made its choice clear: They think that the post-crisis rules implemented by Obama are too stifling. Trump has repeatedly said that the 2010 Dodd-Frank financial reform law must be dismantled.
Dodd-Frank mandated the most consequential changes to the architecture of the U.S. financial system since the Great Depression, and a lot of that is at risk now. The Trump team and congressional Republicans appear to favor big changes to the Consumer Financial Protection Bureau tasked with regulation consumer finance, the Financial Stability Oversight Council given broad powers to monitor future threats to the financial system, the rules preventing banks from trading for profit with accounts backed by the government, and the Federal Reserve’s new powers to regulate and rescue banks.
For critics of Wall Street, the real possibility of significant deregulation is a major reversal of expectations. As late as November, it appeared that Hillary Clinton, swayed to the left by the primary challenge from Sen. Bernie Sanders, would be setting the agenda. Her platform called for stricter rules on banks, taxes on high-speed trading and new regulations for “shadow banks,” or non-bank firms that provide credit outside the regulatory perimeter. Liberal groups were preparing a campaign to pressure senators to reject any Clinton nominees to regulatory positions who came from banks or didn’t share the view that finance should be policed aggressively.
Now, Senate Democrats look to be cut out of the deal entirely. Republican Senate leadership has expressed interest in cutting back Dodd-Frank using procedural tools that allow passage of legislation with only 51 votes, taking the power of the filibuster away from Democrats.
Instead, Rep. Jeb Hensarling, the conservative chairman of the House Financial Services Committee, has been empowered. Hensarling is the author of a sweeping reform bill that would replace Dodd-Frank. It passed his committee in September, and he says he is working with the Trump team to revamp it for passage next year. The key feature of the law is that banks would be given the choice of complying with the existing rules or avoiding them by raising their capital levels significantly.
There is much more in the bill, however, and in Republicans’ plans — and on banks’ wish lists.
One top item is a repeal of the “Durbin Amendment,” a cap on fees that banks charge to merchants for debit card transactions. The entire banking industry wants to see that provision repealed, while retailers, gas stations, grocery stores and many others will lobby to keep it in. Hensarling’s bill included repeal, hinting at a major industry-on-industry battle next year.
Banks would be less favorably disposed to efforts to reduce the Federal Reserve’s autonomy. House Republicans have called for various reforms to the central bank, while Trump has repeatedly and personally criticized Chairwoman Janet Yellen and the Fed for, he says, manipulating interest rates to benefit Obama and Clinton politically. It might be under the radar now, but the Fed faces potential changes this year.
CYBER and TECHNOLOGY
Amid the uproar over Russian hacking, perhaps the top cybersecurity policy questions awaiting the new administration are also the most ambiguous: How will the Trump team articulate cyber deterrence policy and what kind of new initiatives will be undertaken globally to create international norms of behavior in this domain?
Obama’s State Department worked on the international norms question for years, with mixed results. An agreement with China, in which each side swore off commercial espionage and pledged not to target certain infrastructure with cyberattacks, was perhaps the high point.
The low point: Russia’s disregard for such niceties and aggressive cybersecurity actions against targets such as the Ukrainian power grid and U.S. political system.
Candidate Trump vowed to strengthen U.S. offensive cyber capacities, and has indicated deterrence and retaliation will be the hallmarks of his cyberpolicy.
It’s not clear who will spell out and “own” the policy, although the president-elect clearly has big things in mind for the Pentagon when it comes to cyber.
The Pentagon’s potential role in securing domestic infrastructure also will have a major impact on the Department of Homeland Security, which has been the key civilian agency on cybersecurity. Trump’s view of DHS’ capabilities and position in the cybersecurity hierarchy remains to be spelled out.
Policymakers in Congress, at the Justice Department and elsewhere also face decisions on “strong encryption,” in short, how to gain access to encrypted communications related to terror attacks or crime.
A report issued Dec. 20 by a bipartisan congressional working group largely favored the tech industry’s position that government shouldn’t be empowered to require that techies build in ways to access encrypted data on their products, which the law enforcement community is seeking.
The issue was thrust into the spotlight amid reports that the terrorists in the San Bernardino, Calif., and Paris attacks made use of encrypted communications.
Congress seems deadlocked on the issue and it’s unclear if or how the Trump administration will seek to find a workable compromise.
Beyond the headline-producing cyber issues, an assortment of policies are unfolding down in the bureaucratic weeds.
The Federal Communications Commission has been a leading player on cyberpolicy, and a new chairman and GOP majority will have to decide on what to do with outgoing Chairman Thomas Wheeler’s cybersecurity initiative for “5G,” the next generation of wireless technologies.
The commission put out a notice of inquiry in late December seeking public comment on possible regulatory approaches to securing 5G.
And, the fate of Wheeler’s highly controversial “net neutrality” rule will determine what happens to accompanying cybersecurity and privacy requirements that industry strongly opposes.
Telecom industry sources believe the commission’s new leadership is going to swiftly abandon these regulatory initiatives.
Wheeler also started a process for examining security needs associated with the “Internet of Things,” the vast web of interconnected consumer and other devices that is rapidly becoming central to the U.S. economy.
The Internet of Things is seen by some cyber professionals as a security nightmare, but the industry sees a regulatory tilt to Wheeler’s approach, and a Republican-led FCC may put the brakes on setting any kind of compulsory requirements on tech and telecom companies.
Obama’s blue-ribbon cybersecurity commission recently recommended that a new interagency group examine how to assign liability for cybersecurity flaws in Internet of Things devices, one way to compel manufacturers to take security more seriously.
It remains to be seen whether the Trump team favors leveraging liability in such a way.
Stringent cybersecurity regulations are also pending for the financial sector, which can be expected to mount a campaign to persuade treasury secretary nominee Steven Mnuchin to take a more industry-friendly approach.
Across government and industry sectors, the outgoing administration generally favored industry-led approaches to cybersecurity, backed by the threat of regulation.
That is expected to change in industry’s favor, but reorienting the policy will be an agency-by-agency exercise that may take awhile.
Susan Crabtree, Paige Winfield Cunningham, Nicole Duran, Kyle Feldscher, Jacqueline Klimas, Joseph Lawler, Jamie McIntyre, Charlie Mitchell, Gabby Morrongiello, John Siciliano and Sarah Westwood contributed to this report.