The historic disarray of the opening days of the new House GOP Majority may tempt some to dismiss the prospect of any significant legislative action from the House and Congress over the next two years – but the explosive dynamics on vivid display in the Speakership vote are a stark warning for everyone to prepare for an especially chaotic brand of divided government. 

Speaker McCarthy’s steep concessions to win the gavel weakened if not eliminated the key levers of power within the narrow GOP majority, giving hardliners greater ability to cause gridlock at the expense of moderates’ dealmaking.  Let’s remember:

• McCarthy gave up many of the tools House Leadership uses to control outcomes on the House Floor. By promising “open rules” and more seats for the Freedom Caucus on the Rules Committee, which determines what bills and amendments are brought to the floor, McCarthy has increased the risk of unplanned partisan “poison-pill” amendments blowing up must-pass bipartisan bills – dramatically increasing the unpredictability of floor votes. 
• McCarthy’s hold on the Speakership itself is in constant jeopardy. McCarthy agreed to allow a single Member to make a “motion to vacate” the Speaker’s chair, which then triggers a vote of the whole House. If a majority votes against him (in this case only five Republicans plus all House Democrats), McCarthy would be removed as Speaker. A similar threat drove Speaker John Boehner to retire early in 2015, even with a substantially larger cushion of GOP votes in his majority.

The “motion to vacate” in particular hands hard-liners a powerful weapon to threaten McCarthy if he seeks to move any bills over their objections. Critically, McCarthy will have to maintain hard-liners’ satisfaction with his leadership or receive guarantees from a Democratic minority to vote against a “motion to vacate” in order to pass critical legislation like funding the government or the debt ceiling – which would be seen as a betrayal of his own House GOP conference and likely mean the almost immediate end of his speakership.  

So buckle up, it’s going to be a bumpy Congress.

Here’s some more of what to expect with the new House majority.

Dig deeper into the pressures and tactics behind these key elements of the new Congress below.

 

Brace for a harrowing debt limit standoff, causing market turmoil regardless of the outcome.

The chaos of the Speakership vote and the rules concessions extracted by GOP hardliners are extremely troubling signs for raising the debt limit without significant market turmoil. 

GOP hardliners’ desire for confrontation has been empowered over moderates’ urge for dealmaking. Speaker McCarthy made key promises of confrontation with the Biden Administration over the debt limit and handed GOP hardliners powerful tools to thwart bipartisan dealmaking. Yet, in a divided government and with a slim House majority, bipartisanship is the only path to raising the debt ceiling. Whatever passes the House also has to pass the Senate, where Democrats view any threats over the debt ceiling to be legislative terrorism and have staked re-election campaigns on pledges to protect Social Security, Medicare, and Biden’s signature achievements over the last Congress from GOP cuts.  

The Treasury Department now estimates that it will be able to use “extraordinary measures” to extend the “X date” of a potential default on the debt limit until early June. As we reach that date, expect messy negotiations and high-drama posturing from the House GOP – which will feed market instability. Experience shows the market begins to react significantly to any news that feeds fear that Congress will fail to raise the debt limit in time, long before the limit is actually breached. After the 2011 debt limit standoff, S&P gave the U.S. its first ever credit downgrade even after the debt limit was successfully raised. Kevin McCarthy is no John Boehner, so the likelihood for drama-free negotiations or a quick resolution is slim. 

 

We will almost certainly have a government shutdown. The question is for how long – and how it ends.

Strong pressure inside the GOP to create dramatic confrontation with Biden: GOP leaders face immense pressure from the conservative media, fundraising, and political ecosystem to find opportunities to force a climactic confrontation with the Biden Administration. Over the past week, far-right holdouts openly stated demands that McCarthy convince them he is specifically willing to shut down the government in order to inflict steep cuts to federal spending. Despite the unpopularity of Republican-led shutdowns in 2013 and 2018-2019, Speaker McCarthy now faces powerful pressures from within his conference to cause one when current funding expires on Sept. 30. 

House GOP is already demanding process and cuts that foreclose bipartisanship: Here again, the Freedom Caucus’ hard-line stance and loathing of the combined “omnibus” funding bills generally used to build bipartisan majorities on funding bills in the House and Senate will further complicate matters. 

Under Speaker McCarthy’s pledge to hard-liners to cap government funding at 2022 levels, more than $130 billion would have to be cut from the discretionary budget. House GOP defense hawks, including the Chairs of Appropriations and Armed Services, are strongly opposed to making those cuts on defense – and hard-line ringleader Rep. Chip Roy’s office has publicly clarified that these cuts are intended to fall on non-defense discretionary spending. 

With Senate Democrats continuing to control the process on the other side of the Hill, the coming months are likely to be fraught with massive disagreements that trend toward a shutdown at the end of the fiscal year: 

• Opening battlelines: Our first opportunity to see the stand off should come this spring when each chamber crafts a budget resolution with the initial indication of overall spending levels. 
• The September slide into shutdown: In September, the process will come to a head as each chamber passes their own attempts to keep the government open – likely through a short term continuing resolution with flat funding levels – but even that simple extension is likely to prove challenging given the Republican incentive to drive the numbers down while picking a fight with the White House and Senate Democrats. 

Prepare for a fall standoff and a shutdown. 

Disruption from a shutdown expands and intensifies over time: The three-day shutdown of January 2018 fell largely over a weekend and had few lasting impacts. But as a shutdown drags on, problems snowball. The 16-day shutdown of 2013 cost the economy $2 to $6 billion in lost economic activity, in addition to costly delays and disruptions for private businesses. The 35-day partial shutdown of 2018-2019 (the longest in history) cost the economy $11 billion and began to jeopardize the operation of commercial air travel, as “essential” but unpaid TSA workers began to miss shifts. 

An uncertain road out: Ultimately, Democrats and Republicans will need to negotiate a bipartisan agreement in order to fund the whole government. Senate Democrats have fought and won (in their eyes) a series of similar shutdown battles in the past by holding firm, highlighting national security concerns, and pointing out the real world impacts that specific cuts have to voters – including holiday travel impacts, national park closures, and impacts on families who rely on child care, health care, and education benefits. 

 

GOP committee oversight agenda may ensnare unfamiliar targets far outside government.

The realities of divided government and a fractious House GOP conference will limit House Republicans’ legislative productivity and inevitably frustrate hard-liners. Thus, even before the midterms produced the added difficulties of their unexpectedly thin majority, the GOP Leadership strategy has been to channel conservatives’ energy into aggressive, high-profile oversight and investigations by their committees.

One area of oversight is the culture war battlefield – not only in the familiar territory of schools, but increasingly into the conduct of corporate America. While Republican orthodoxy on low corporate tax rates and reduced regulation isn’t going anywhere, the GOP’s traditional deference to blue-chip business has frayed as conservative anti-establishment fervor grows.

GOP targeting “woke capitalism” and corporate criticism of Republican laws: Massive homestate employers Delta Airlines and Disney both found their corporate perks under attack from GOP state lawmakers after they criticized new conservative state laws. In Congress, Republicans have also begun threatening to strip tax benefits from corporations paying for employees to travel out of anti-choice or anti-transgender states for treatments. Corporate ESG investing practices have also come under increasing conservative attack.  

Beyond committee scrutiny (more hostile if conducted by the more combative Chairmen of the Oversight and Judiciary Committees, comparatively more respectful of business in Energy & Commerce, Financial Services and Ways & Means), do not expect serious legislative action on these topics at the federal level with a divided Congress. 

The Select Committee on the Strategic Competition Between the US and Chinese Communist Party: With an expansive agenda, aggressive chairman, and potentially explosive issues with bipartisan alignment, this is a key committee to watch. Entities unaccustomed to facing hostile congressional scrutiny may quickly find themselves in the hot seat – and as the overwhelming bipartisan vote to create the committee indicates, corporate targets with baggage in China will find few defenders among Democrats. Keep an eye on developments in these sectors:

• Hollywood/Entertainment – Disney and the NBA have already drawn congressional scrutiny for their engagement in China, and as the entertainment industry openly pursues Chinese markets, Republicans may see further opportunity to embarrass their culturally progressive antagonists.
• Tech Industry – Tik Tok may be only the beginning, as House Republicans’ combative relationship with the tech industry intersects with China. Questions of data privacy and censoring content for Chinese markets will draw increasing scrutiny. Expect the China committee to be more combative in its hearings than Energy & Commerce, which holds the original jurisdiction to write legislation in this space.

Notably, this Select Committee does not have the power to mark up legislation, only to make recommendations to be considered in the standing committees with legislative jurisdiction. 

Distinguish bark from bite: Most punitive GOP bills introduced targeting corporate critics or “woke capitalism” are designed to provoke and generate press, not become law. Here, the more significant threat over the next two years is hostile committee hearings or investigations, generating headlines and TV coverage that may negatively politicize the target organization or inflict reputational damage if uncomfortable practices are newly spotlighted. 

The legislative recommendations of the China committee – while likely designed to push the Biden Administration further than it is willing to go – may have far more power to shape bipartisan consensus that becomes law due the bicameral, bipartisan interest in standing strong against the Chinese Communist Party at home and abroad.

 

Key issues to watch – particularly where they intersect with government funding fights.

Immigration: While the end of year efforts at a major Senate bipartisan immigration deal failed, the group of would-be dealmakers continue to work together in an effort to build the trust needed to cobble together a proposal. This week’s CODEL to the border shows continued interest among Senate dealmakers in transforming the border from a political football to a bipartisan problem to solve. 

However, any bipartisan progress in the Senate will hit a brick wall in the House, as it did on immigration in 2013. Many Republicans view immigration and the border as a powerful partisan tool, with former President Trump continuing to lead that charge. Expect House bills to massively increase border security funding, roll back asylum protections, and prevent the Administration from ending Title 42 – without expansions of legal immigration. With a looming presidential race and Senate Democrats defending as many as ten seats in red-to-purple states in 2024, it will likely be difficult if not impossible to thread the political needle in Congress and make progress on fixing our broken immigration system.  Expect political fodder, but little action.  

Health Care: Health care spending could be a major target of GOP deficit hawks around the debt limit fight, especially Medicaid and ACA subsidies. Republicans may also push increased private alternatives in Medicare, or increase the retirement age for future beneficiaries. Providers have previously faced the specter of sequester cuts in deficit reduction agreements. 

Some leading Republicans have expressed interest in fully repealing Democrats’ prescription drug negotiation law, however this is unlikely to amount to a major legislative push this Congress and is DOA in a Democratic Senate. 

Anti-Abortion: While Republicans will reintroduce all the same panoply of federal abortion bans without exceptions that they have sponsored in previous Congresses, expect House GOP Leadership to focus floor action on narrower political targets, along the lines of the Born Alive Survivors Protection Act. Other measures are likely to include conscience exemptions from covering or providing reproductive health care, expanding the scope of the Hyde Amendment, and targeting other government spending traditionally viewed by Republicans as funding abortions – such as Title X or the Defense Department paying for troops to travel out of state for reproductive care. These Hyde Amendment related anti-reproductive health funding limitations are likely to become a significant element of fights over larger must-pass bills, like government funding or the NDAA.

The Senate Democratic majority is firmly on record in support of expanding access to reproductive health care and, with legislative prospects dimming, expect more regulatory action that can offer direct, immediate relief.

Anti-transgender youth: Republican campaigns in the last cycle leveled aggressive attacks at transgender youth, both in school sports and in receiving gender-affirming treatment. Expect Republicans to use government funding bills to try to block schools from allowing transgender athletes to compete and to seek to prevent the use of federal funds to pay for gender-affirming care. 

 

A narrow path still exists for bipartisan bills in the House – which can have significant impacts for stakeholders.

Partisan combat will occupy the headlines, but even in a House of Representatives as bitterly divided as this one, there is still a narrow path for bipartisan bills. Look for quiet dealmaking at the committee chair / ranking member level, particularly on issues where partisan battlelines have not been strongly drawn and Republicans do not feel they are handing a key political victory to President Biden. 

Tech Industry: Members of both parties have shown hostility toward the tech industry, though for vastly different reasons, which has limited the possibility for bipartisan legislation despite bipartisan interest. Data privacy has shown to be a more fruitful path for bipartisanship, though significant obstacles to these bills remain in both chambers. While antitrust and content moderation efforts tend to drive the loudest conversations around the tech industry in DC, the bipartisan, bicameral efforts on a federal privacy standard appear to have the best prospects for success in the new Congress given committee makeup and the existing work product. 

Crypto Regulation: The spectacular collapse of FTX has drawn substantial bipartisan interest, and chastened legislators who previously preferred a lighter regulatory touch. While Sam Bankman-Fried’s support of steering crypto regulation toward the CFTC has damaged the credibility of that approach, Financial Services Chairman Patrick McHenry is also broadly critical of the SEC’s aggressive approach under Chairman Gary Gensler. There is, however, increasing bipartisan agreement that a regulatory framework is urgently needed, with members from Debbie Stabenow to Cynthia Lummis driving attention to the need for bipartisan action.  

Transportation and Infrastructure: Often the last bastion of bipartisanship, transportation and infrastructure reauthorizations often move with big bipartisan majorities when nothing else will. Watch for the biennial Water Resources Development Act passed each Congress and the five-year FAA reauthorization which expires in 2023. 

Beware, however: these bills still have to run the gauntlet of the House floor and conservative opportunists have a long track record of injecting controversy into otherwise bipartisan agreements. If a bill is not brought forward under the “suspension of the rules” that bars amendments but requires a 2/3rds vote in the House, Speaker McCarthy’s concessions on the Rules Committee create immense new risk of poison-pill amendments that can tank a bill even with the broadest bipartisan support.

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