Congress Has Few Workdays Ahead of Latest FY 2024 Funding Deadlines

DeSantis suspends presidential bid ahead of New Hampshire primary, supports Trump | Food import costs surge/Red Sea attacks | Tax package outlook

Washington Focus

The Senate is in session, but the House is in recess until the evening of Jan. 29. Another House recess comes after Congress last week again kicked the fiscal year (FY) 2024 funding can further down the road until March 1 for some departments (including USDA), and on March 8 for the other 80% of funding. Top leaders still have not settled on spending levels for the committees, so little additional work is expected — it has been two weeks since lawmakers agreed to stick with the original $1.66 trillion spending outline. The only way for further progress is to slice that pie into 12 bills covering all the agencies. In comments to reporters last week, Sen. Susan Collins (R-Maine), top Republican on the Senate Appropriations Committee, said she’s “concerned about the lack of a resolution” on the matter of allocations for the individual bills. “This has been dragging on for a long time and I really don’t know why,” Collins said.

Of note: Just 13 senators, all conservative Republicans, voted last Thursday to simply extend current funding levels until the end of the fiscal year, against 82 pushing for a final budget.

Limited legislative time. Exempting half-days that are scheduled for traveling into or out of Washington, the House has only five full legislative days on its calendar before lawmakers leave Feb. 16 for what is slated to be an almost two-week break from the Capitol. On Friday, House GOP leaders announced that they would bring members back to the Capitol a few days early, so they can approve something by the new March 1 deadline.

The Senate as previously noted is in this week, followed by two shortened workweeks with each having just one full day to consider legislation. Besides trying to pass all 12 bills that fund the government, Senate leaders also want to consider a critical, and controversial $110 billion national security package. The Senate’s current schedule has them leaving town the afternoon of Feb. 8 and not returning until the evening of Feb. 26, a two-and-a-half-week break to honor Presidents’ Day.

Bottom line: Between now and late February, the House and the Senate will be in session at the same time just seven days, several of those coming on shortened fly-in/fly-out travel days. As for the farm bill, no action (if any) will take place until Congress completes its work on funding measures, and likely a supplemental spending bill that may include controversial border protection language. Also, the Congressional Budget Office usually takes about five days to review these bills.

Reality comes from a lawmaker who has announced he is not seeking re-election. “If we keep extending the pain, creating more suffering, we will pay the price at the ballot box,” Rep. Patrick McHenry (R-N.C.), a senior Republican who served as acting speaker during the October tumult, told reporters last week. “At this point, we’re sucking wind because we can’t get past the main object in the road. …We need to get the hell out of the way. Cut the best deals we can get and then get on with the political year.”

— Florida Gov. Ron DeSantis (R) dropped out of the Republican presidential primary Sunday, marking the end of his candidacy and setting up a two-way race with former President Donald Trump being the most formidable candidate, with former South Carolina Governor Nikki Halley a distant second. DeSantis announced the decision in a social media video.

“It’s clear to me that a majority of Republican primary voters want to give Donald Trump another chance,” DeSantis said, adding he was endorsing Trump “because we can’t go back to the old Republican guard of yesteryear, or a repackaged form of warmed-over corporatism that Nikki Haley represents.”

DeSantis placed a distant second in Iowa’s caucuses and was polling badly in New Hampshire behind Haley (see next item for details), and Trump.

Bottom line: DeSantis’ prior support in New Hampshire will mostly go to Trump, widening his lead.

— New Hampshire first-in-nation primary comes Tuesday. New Hampshire has a long-standing tradition of holding the first presidential primary in the United States, a position it has maintained for over 100 years. This special status is protected by state law, passed in 1975, which requires that New Hampshire's primary be conducted before any other state's primary.

Unlike Iowa, which conducts caucuses, New Hampshire's primary involves secret ballot voting, making it a key early event in the presidential election cycle. Independent voters, who can cast a ballot in either party’s primary, are seen as key to the outcome in Tuesday’s GOP contest. Those who don’t identify with a party now make up 39% of the overall electorate in New Hampshire.

Despite its relatively small population of fewer than 1.5 million residents and its predominantly White demographic, New Hampshire takes its role as the first primary state seriously. Candidates must engage with everyday voters in New Hampshire's living rooms and diners, making it a unique feature of the American political system.

Registered Republicans and Democrats participate in their respective primaries in New Hampshire, but independent voters can also join by choosing either a Republican or Democratic ballot.

In the 2024 Republican primary, former President Donald Trump is the front-runner, although his lead has narrowed. Nikki Haley, former South Carolina Governor, has gained ground, and a recent CNN poll showed her closing the gap with Trump.

New Hampshire's primary awards 22 delegates in the Republican process, which is less than 1% of the total delegates at the party's convention. These delegates are distributed proportionally based on the candidates' statewide performance, with a minimum requirement of 10% of the vote to be eligible for delegates.

For Democrats, New Hampshire has 10 delegates in 2024, as a penalty for holding its primary earlier than the party desired.

History. While New Hampshire's primary has a history of surprising results, particularly on the Republican side, it has generally been a good indicator of the eventual Republican nominee. On the Democratic side, its track record is less consistent, with the ultimate primary winner not always securing the nomination.

Of note: In 2024, President Joe Biden is not on the Democratic primary ballot in New Hampshire due to the state's government's resistance to changing its first primary status in favor of South Carolina. Despite this, an organized write-in effort is encouraging voters to write Biden's name on the ballots. However, the contest's results are considered "meaningless" by the national Democratic Party, and no delegates will be awarded based on the outcome. There are other options — the author Marianne Williamson and Rep. Dean Phillips of Minnesota have gotten some attention. In all, there are 21 names on the Democratic ballot in New Hampshire this year. There is also a space for writing in a name at the bottom.

Updated poll: According to this morning’s tracking poll from Suffolk University, Trump’s lead has grown from 17 to 19 points (Trump 55%, Haley 36%). Florida Gov. Ron DeSantis’ support dropped 1 point, from 6% to 5% — as noted DeSantis pulled out of the GOP primary race. Some 87% of respondents in the poll say they are “not at all likely” or “not very likely” to change their minds before voting Tuesday. Bottom line: Trump appears to be cruising to a comfortable victory.

— House panel approves bipartisan tax package; boosts CTC and cuts business taxes, The House Ways and Means Committee approved a bipartisan tax deal that aims to reduce taxes for businesses while increasing the child tax credit (CTC). The deal received broad support, with 40 votes in favor and only three opposed.

A last-minute substitution amendment to the $79 billion tax bill increased its total savings to $399 million over a 10-year budget window, up from the initial $262 million. This change was reported by the Joint Committee on Taxation (JCT).

The proposal allocates $33 billion for the expansion of the child tax credit and another $33 billion for business tax breaks. These costs are offset by a $77 billion revenue increase achieved by canceling the employee retention tax credit (ERC).

Some Democrats expressed frustration that the expanded child tax credit didn't receive a larger allocation. Several amendments aimed at further boosting the CTC and making it fully refundable with monthly payments were proposed by Democrats but were rejected by the committee.

The bill is designed to be revenue-neutral and provides $33 billion in deductions for research costs and other business expenses. However, Republicans argue that the benefits to companies will be much larger, potentially exceeding $600 billion.

Of note: Some analysts suggest that the nominal parity between business credits and the CTC expansion in the legislation may not accurately reflect the long-term impact. The $600 billion figure is based on the possibility that Republicans may extend these provisions beyond 2025, when they are currently set to expire.

The White House expressed satisfaction with the progress of the legislation and emphasized that it is paid for. While President Biden continues to push for a full restoration of the expanded Child Tax Credit, the bipartisan tax bill is seen as a positive step, and Congress is urged to pass it.

Details: The Tax Relief Act for American Families and Workers Act of 2024: (link to summary)

Increases the refundable amount of the child tax credit, providing additional financial support to families with children. Makes the credit available to more families with multiple children, although the longstanding rule stipulating that people must have at least $2,500 in income before they can begin to claim the credit would stay in place. The deal would let parents rely on the prior year’s income to trigger the credit for 2024 and 2025. Work one year — and earn benefits for two. The deal would index the credit’s value to inflation.
Modifies write-offs for research and development, allowing domestic businesses to immediately expense these costs, potentially boosting innovation and investment. Limiting the tax break to domestic R&D is a disappointment to industries with large foreign activities like pharmaceuticals.
Restores interest deductions, which can be beneficial for businesses seeking to manage their financing expenses.
Includes a provision for 100% bonus depreciation on certain assets, particularly those with extended recovery periods, placed into service between Sept. 27, 2017, and Jan. 1, 2026. This provision aims to encourage capital investments.
Extends the depreciation deduction for qualified property with longer recovery periods placed into service between September 27, 2017, and January 1, 2027, further incentivizing long-term investments.
Raises the Section 179 deduction limit to $1.29 million for the 2024 tax year, up from $1 million. This deduction applies to qualifying depreciable business assets, offering businesses the opportunity to deduct a larger portion of their asset expenses upfront.
Increases the phaseout threshold for the Section 179 deduction from $2.5 million to $3.22 million, allowing more businesses to take advantage of the deduction.
Provides disaster relief, including for East Palestine, Ohio, after the train derailment last year. The disaster relief would exempt compensation received by victims of wildfires and from taxation and extend other tax relief for victims of major disasters.
Extends tax treaty-like benefits for Taiwan that in part would help get Taiwanese chip manufacturers to build plants in the United States, a provision that upsets Beijing. The provision would eliminate so-called double taxation of Taiwanese workers and firms in America, a step toward a major priority for Taipei and Washington.

Bottom line: NPPC wisely notes that enabling farmers to deduct a larger portion of their expenses from their income can be beneficial in addressing cash flow challenges. This is particularly important for farmers, as they often have substantial investments tied up in farm equipment and other assets. By allowing greater deductions, farmers can reduce their taxable income, potentially freeing up more funds for immediate operational needs and investments in their agricultural businesses.

Opposition to the tax package. A Wall Street Journal editorial (link) notes that House Republicans struck a deal with Senate Democrats that would give tax breaks to big business in exchange for Democrats’ wish for an expanded child tax credit. “But the costs of expanding the credit — including a disincentive to work — outweigh whatever little benefit might come from the tax breaks,” the editorial notes. It concludes: “The tax deal will also complicate Republican efforts to extend many more tax cuts that expire at the end of 2025, including individual tax rates. They’ll need leverage to do it if Mr. Biden remains in the White House or Democrats run the House or Senate. If they give Democrats their top priority now, they’ll have to agree to an even bigger child-credit expansion later. The business lobby wants the tax breaks, and some Democrats in Congress want them as well. But those policies ought to stand or fall on their merits, not on a political trade that will do more harm than good.”

Outlook: House Speaker Mike Johnson (R-La.) has not publicly commented on whether or when he will bring the bill to the floor. The IRS will start accepting individuals’ 2023 tax returns on Jan. 29. The outlook in the Senate is murky due to likely opposition of some Republicans

— USDA on Thursday will release an update on food prices. Grocery prices have been rising in the United States, and what USDA’s report does not show is the variation in price increases across different states and metro areas. Consider:

Nationwide grocery price increase: Grocery shoppers across the country have noticed that food prices have been steadily increasing over the past few months. According to a ConsumerAffairs analysis of grocery price data collected from 150,000 stores, there has been a 5.3% year-over-year increase in grocery prices.
Comparison with previous years: While the current increase is significant, it is an improvement compared to the pace of food inflation in 2022. Over the past two years, prices for various grocery items have risen by 25.5% nationwide.
State-level variation: One of the surprising findings is that over the past 12 months, grocery inflation has varied significantly from state to state. In some states like Pennsylvania, prices have risen twice as fast as in others like Colorado. This variation means that where you live can have a significant impact on your grocery expenses. For example, it could make a $500 difference per year for a family of four spending $750 a month on groceries.
Metro area differences: Similar to state-level variations, there are differences in grocery price inflation among different metro areas. For instance, Orlando, Florida, has experienced a higher average increase of 6.5% in 12 months, while grocery shoppers in Richmond, Virginia, or San Diego have felt significantly lower increases.

Economic Reports and Events for the Week

The Fed communications blackout period around the Jan. 30-31 FOMC meeting went into effect at midnight on Saturday, Jan. 20, and lasts through midnight on Thursday, Feb. 1. The data on personal income and spending in December at 8:30 ET on Friday includes the PCE deflator numbers.

The advance estimate of fourth quarter GDP at 8:30 ET on Thursday is forecast to come in well below the third quarter’s 4.9%.

Econ Calendar

Monday, Jan. 22

Leading Indicators: Down by 0.5% in November, the index of leading economic indicators in December is expected to extend its long streak of decline, down a consensus 0.3%. This index has been signaling a coming recession.
China: People’s Bank of China loan prime rate announcement.

Tuesday, Jan. 23

Richmond Fed Manufacturing
Japan: Bank of Japan rate-setting announcement.

Wednesday, Jan. 24

MBA Mortgage Applications
PMI Composite Flash: January's consensus for manufacturing is little change at 47.7 versus 47.9 in December; for services, the consensus is 51.0 versus 51.4.
Canada: Bank of Canada interest rate announcement.
700th day of Russia/Ukraine war.

Thursday, Jan. 25

Jobless claims for the Jan. 20 week are expected to rise back to 200,000 versus 187,000 in the prior week, which was well below the consensus and the lowest since the Sept. 24 week of 2022.
Durable Goods Orders: Forecasters see durable goods orders rising 1.0% in December following November's 5.4% increase and October's 5.1% decrease that both reflected swings in aircraft orders. Ex-transportation orders are seen up 0.2% in December with core capital goods orders, after November's 0.8% jump, falling back 0.2%.
International Trade in Goods: The US goods deficit (Census basis) is expected to narrow by $0.8 billion to $88.5 billion in December after narrowing by $0.3 billion in November to $89.3 billion.
Wholesale Inventories are expected to decrease 0.2% in the advance report for December that would match November's draw.
GDP: Fourth-quarter GDP is expected to slow to 2.0% annualized growth versus third-quarter growth of 4.9%. Personal consumption expenditures, after the third quarter's 3.1% rate, are expected to rise 2.5%.
New Home Sales have been swinging sharply from month to month. After November's lower-than-expected 590,000 annual rate, December's consensus is a sharp rebound to 650,000.
KC Fed Manufacturing
Fed Balance Sheet
Money Supply
EU: European Central Bank rate-setting announcement.

Friday, Jan. 26

Personal Income & Outlays: Personal income is expected to rise 0.3% in December with consumption expenditures expected to increase 0.4%. These would compare with November's increases of 0.4% and 0.2%. Inflation readings for December are expected at monthly increases of 0.2% both overall and for the core (versus 0.1% contraction overall in November and a 0.1% gain for the core). Annual rates are expected at 2.7% overall and 3.0% for the core (versus November's 2.6% and 3.2%).
Pending Home Sales Index: Pending home sales in December, which were unchanged in November, are expected to rise 1.3%.
Japan: Bank of Japan monetary policy committee meeting minutes.

Key USDA & international Ag & Energy Reports and Events

USDA on Thursday issues another update on food prices.

Monday, Jan. 22

Ag reports and events:

Export Inspections
Cotton Ginnings
Chickens and Eggs