2022 Midterm Election Update

While political strategists forecasted a Red Wave sweeping across the country, as historically the President’s party usually suffers big losses, voters in the 2022 midterm elections delivered a different message. As anticipated, Democrats lost control of the House, but not by as wide of a margin as projected. The election showed that candidate quality matters, as do issues (e.g., inflation, abortion, crime) and voter enthusiasm. The Senate remains in Democratic hands by a slim margin after they held all their current seats and made a pickup in Pennsylvania. After a close race, a Georgia Senate runoff is scheduled for December 6 to determine the final Senate split. 

The narrow majorities in both chambers suggest America remains divided, and compromise will be needed to overcome policy gridlock. Neither party will hold a 60-vote supermajority in the Senate, which is needed to overcome a filibuster, limiting debate and allowing the chamber to proceed to a bill’s consideration. Given that limitation, nothing significant will become law without compromise in the House and the Senate.

As is increasingly the norm, Congress has packed its year-end schedule. The election results will affect the end-of-year agenda that includes passing a complex omnibus spending bill to fund the government by December 16, the NDAA defense spending bill, the final resolution of the January 6 Committee, and a whole host of other unfinished business. With a divided Congress in 2023, neither party is going to have obvious leverage for the FY 2023 omnibus spending bill discussion. That could be a recipe for less emboldenment by either party in the usual game of political chicken (as everyone knows it’s a must-have deal), or it could also be a recipe for no deal at all. 

Republicans’ narrow House majority next year puts Democrats under enormous pressure to finish fiscal 2023 spending bills and enact priorities like enshrining same-sex marriage rights into law. In the Senate, Democrats have secured control in the next Congress, lessening the urgency for a rush on judicial confirmations, and allowing them to focus more on legislation reflecting their platform while they’re still assured power in the House. That bodes for more action on legislation, including the debt ceiling, in the weeks ahead. 

Usually, if the majority party flips in either chamber of Congress after a midterm election, an end-of-year omnibus bill combining the 12 appropriations subcommittee bills is not likely, however  this year may be different. The two senators who lead the Appropriations Committee, Chairman Patrick Leahy (D-VT) and Ranking Member Richard Shelby (R-AL) are both retiring at the end of this Congress and might be putting together an end of year omnibus as a legacy item.

The extension of the debt limit continues to be a priority for the Biden administration and some Congressional Democrats. Failure to raise the debt ceiling restricts the federal government’s borrowing to meet existing obligations; a Republican-controlled House would be eager to use debt ceiling negotiations to force discussions to restrict future government spending, including possibly through caps, overhauls to the budgeting process or changes to mandatory spending like Social Security or Medicare. The White House and Democratic Congressional leadership are privately discussing the possibility of using the budget reconciliation process in the upcoming lame-duck session to raise the statutory debt limit as Republicans are primed for a majority in the House.

Not surprisingly, for the Biden administration, the results of the midterm elections with an expected divided government will lead to a re-emphasis on the use of regulatory and executive authority to make policy.

Here are some big-picture predictions on issues impacting agencies:

Privacy

Representative Kevin McCarthy (R-CA), the newly confirmed House Speaker for the next Congress, has indicated that he considers privacy to be a priority issue in the next Congress. However, it’s not clear that that will translate into legislative action. With the recent comprehensive privacy bill  (the ADPPA-H. R. 8152) failing to advance despite a united Democratic House and Senate, it’s unclear that privacy legislation would fare much better in a divided Congress. It’s still possible that ADPPA could be considered during the lame duck period, but it’s uncertain that’s a high priority for Democrats at the moment. Senator Cantwell (D-WA), who chairs the committee of jurisdiction in the Senate, will likely remain an obstacle to the privacy bill both in the lame duck session and in the 118 Congress, as she feels the ADPPA doesn’t have enough consumer protections in a number of key areas.

Should a divided Congress fail to advance privacy legislation, the FTC and the states will likely continue to fill the vacuum. The FTC is currently engaged at the start of a privacy rulemaking process (with a final outcome expected in late 2023), and several states are already considering new privacy bills to be introduced in their 2023 legislative sessions. 

Taxation

Whenever questions of budget come-up and Congress is looking for a way to raise funds, the proposal of limiting the deductibility of advertising as a business expense is considered. While that’s unlikely to change in the near future, the good news for the advertising ecosystem is that the importance of preserving the deductibility of advertising is an issue that has won support over the years from both Democrats and Republicans. The 4As works to educate Congress on the importance of this issue via participation in The Advertising Coalition (TAC), and will continue to do so in the next Congress. 

And while Congress’ actions in this area are to be determined, there has been movement on the state front. Recently, Maryland, the first state to pass a digital advertising tax, lost an appellate court case on a number of grounds striking down the tax. However, it appears Maryland is going to appeal. Should Maryland ultimately prevail in their appeal, then it’s likely other states will begin passing their own digital advertising taxes. Digital advertising taxes continue to have strong bipartisan support, so the ongoing threat of these types of taxes remains high.  

Sustainability

While the current lame duck Congress passed some landmark climate legislation in the form of the Inflation Reduction Act (IRA), that feat seems unlikely to repeat via any new climate-focused bills in a divided 118th Congress. Given what is likely to be a stalemate on the issue in the next Congress, focus will likely turn to new efforts by the White House and blue states. The White House recently announced that federal contractors will need to start publicly disclosing their Scope 1, 2, and sometimes 3 emissions. Additionally, the Securities and Exchange Commission (SEC) is currently engaged in a rulemaking requiring covered companies to start reporting emissions and climate risks. 

Labor

Given divided party rule in the 118th Congress, legislative initiatives addressing immigration, paid family leave, LGBTQ rights, as well as the Protecting the Right to Organize (PRO) Act (which strengthens the federal laws that protect workers’ right to join a union), are unlikely to gain any political traction in the next two years. 

The Biden Administration is in the midst of a proposed rulemaking on the independent contractor (IC) rule which throws out a previous Trump era rule and replaces it with stricter IC classification criteria, making it more in line with a previous Obama-era rule. The release of a new proposed rule on federal overtime eligibility criteria is also expected sometime this fall, with new minimum salary threshold criteria much higher than the current threshold of ~$35.5K level; the rule was last updated in January 2020.

In the labor and employment space, House Republicans are likely to investigate ongoing rulemaking relating to IC and joint employment status at the U.S. Department of Labor (DOL) and National Labor Relations Board (NLRB), respectively. Republicans are expected to flood the DOL, NLRB, and U.S. Equal Employment Opportunity Commission (EEOC) with written requests for information and invitations to testify on Capitol Hill and will wield the labor appropriations process to stymie funding for implementation of the past two years of Democratic-led labor and employment policies.

Have questions about the federal policy areas presented in this post-election update? Please contact Alison Pepper, EVP of Government Relations and Sustainability.