Maxine Takes Helm at House Financial Svcs. (November 30)

Update 315:  Rough Waters Ahead for Banks?
Maxine Takes Helm at House Financial Svcs.  

The gavel passing from retiring Rep. Jeb Hensarling (R-TX) to Rep. Maxine Waters (CA) at the House Financial Services Committee augurs one of the clearest sea changes in policy and style a U.S. House Committee will see in the 116th Congress.  

Accordingly, we have a closer look today at what these changes under Waters imply regarding  particular policy priorities among the legislative agenda and issues before the Committee.

Good weekends, all…




The Immovable Waters

Rep. Waters’ bedrock issues have long been housing, consumer protection, and big bank regulation. In the 115th Congress, Waters focused on protecting the Community Reinvestment Act, designed to prevent discriminatory credit practices, and guarantee fair housing protections.

A number of bills introduced by Waters during the current Congress (capping a six-year tenure as Ranking Member of HFSC) indicate her key priorities, including:


  • Public Housing Tenant Protection and Reinvestment Act of 2017 — H.R. 3160: The bill reforms the public housing demolition and disposition rules to require one-for-one replacement and tenant protections, and provides public housing agencies with additional resources and flexibility to preserve public housing.



  • Comprehensive Consumer Credit Reporting Reform Act of 2017 — H.R. 3755: The bill enhances requirements on consumer reporting agencies, like Equifax, TransUnion, and Experian, to better ensure that the information on credit reports is accurate and complete.


  • Megabank Accountability and Consequences Act — H.R.3937: The bill would give authority to federal banking regulators to break up banks that mistreat their customers.
  • Consumers First ActH.R.6972: The bill would reverse the harmful changes to the Consumer Financial Protection Bureau imposed by the Trump Administration and restore the agency’s supervisory and enforcement powers.

  • Restoring Fair Housing Protections Eliminated by HUD Act of 2018H.R.6220 The bill would restore several fair housing protections that HUD Sec. Ben Carson eliminated.

Blue-Moon Bipartisanship?

During her tenure as Ranking Member on the Committee, Rep. Waters supported bipartisan legislation, notably the third iteration of the JOBS and Investor Confidence Act (aka JOBS 3.0; see our take on that package here). The bill includes provisions aimed at “decreasing the regulatory burden” for some financial institutions, as well as others that aim to increase protections for consumers.

In a similar vein, she partnered with Sen. Sherrod Brown on S. 1491, the Community Lender Regulatory Relief and Consumer Protection Act of 2015. The bill would give banks and credit unions with under $10 billion in assets relief from the Consumer Financial Protection Bureau’s (CFPB) “Qualified Mortgage” rule.

Appealing to Waters’ passion for housing reform, the measure would make permanent expired provisions that protect tenants from eviction when their landlord or property owner has entered foreclosure. When it comes to her bedrock issues, Waters may be more willing to compromise to ensure she reaches her legislative goals.

She has also reached across the aisle to work with Republicans to reauthorize the Export-Import Bank, and used her political savvy to get Republicans on board with a reauthorization of the National Flood Insurance Program. While she will look to make some strides in these areas as Financial Services Chair, she has expressed firm and progressive stances regarding systemic risk and oversight.

Mitigating Systemic Risk

Importantly, Rep. Waters at the helm of the HFSC means two things for systemic risk:

  • the “tide” of financial sector deregulatory passing the Committee is “at an end”
  • regulators and agencies should be prepared to will have their feet held to the fire more often

Heading into the next Congress, a key item on Waters’ agenda will be monitoring systemic and other risks in big banks. The financial industry has enjoyed several months of continuous deregulatory activity under an HFSC headed by Rep. Hensarling and a Republican-controlled Congress. Under her leadership, the Committee will be limited in its ability to stall measures at the federal regulator level, but it will be able to increase oversight and change rhetoric to keep a check on agency overreach.

In the words of Waters, “as we saw in the last crisis, it is the average hard-working Americans that will suffer the consequences if Washington deregulates Wall Street megabanks again.”

Oversight in Her Sights

A robust oversight agenda will accompany the legislative priorities of the Committee under Waters. This agenda will likely focus on four distinct areas: firms, rulemaking, agencies, and the presidency.

On the firms, Waters has expressed indignation about the slap-on-the-wrist treatment of Wells Fargo in light of the improper and unfair foreclosures on its customers. Many were erroneously denied loan modifications to lower their mortgage payments.

A Democrat-controlled House cannot do much in the way of affirmative rulemaking, but it will no longer have to play defense against further attempts at deregulation. Much of Waters’ oversight in this area will be over agencies, ensuring that the Trump appointee-controlled CFPB, FSOC, and OFR are operating according to their original statutory purposes and with the resources they need. This will likely take the form of hearings, subpoenas, and investigations.

Waters has been steadfast in her position that investigation into the president’s alleged illegal financial dealings is on her agenda, but it’s not her top priority. In a Bloomberg interview earlier this month, Rep. Waters was clear that she would use her authority to get more information, using subpoenas if necessary, but was far more eager to discuss Wells Fargo and the CFPB.

An Able Veteran who Came to Legislate

Waters is a skilled and seasoned legislator. Her turn with the gavel at HFSC is very welcome news and signals the end of the tide of deregulation. It also signals an end to a period of free-reign for regulators (or should we say deregulators) dogmatically pursuing an agenda that puts Wall Street megabanks ahead of ordinary Americans. Her agenda will be limited by the Republican-controlled Senate, but it will set the tone and pave the way for future legislation that will curb the rollbacks of Dodd-Frank that have occured in recent years.


Trump Floats Tax Cuts by Decree Called “Illegal, Flat-Out Bonkers” (August 1)

Update 289:  Trump Floats Tax Cuts By Decree Called “Illegal, Flat-Out Bonkers;” Is it News?

The GOP impulse to overreach when it comes to tax cuts is gaining almost frantic momentum right before the the August recess, as the GOP’s hopes of keeping its majorities in Congress looks ever more remote.  

Last week it was Tax Reform 2.0.  This week, it is an aggressive approach to capital gains: index them for inflation.  The Trump administration is eyeing yet another tax cut for the wealthy, this time bypassing Congress and using executive power to push another plutocratic windfall under the family and friends plan.  

Details of the plan, if you can stand them, revealed below…




Treasury Secretary Steven Mnuchin has confirmed in recent data that his Department is in fact looking at the “tools” necessary to change tax law, without seeking Congressional authority, to index capital gains for inflation for income tax purposes.

The Tax Policy Center estimates that the change would cost the country’s coffers $100 billion over ten years — with more than 97 percent of the tax savings going to the top 10 percent of earners, and nearly two-thirds going to the top 0.1 percent.

Screen Shot 2018-08-08 at 9.27.09 AM.png

Source: Tax Policy Center

Indexing Cap Gains — What Does it Mean?

Capital gains taxes are assessed on the difference between the sale price of an asset and its original cost basis.  The proposed change would adjust the original cost of the asset for inflation, reducing the tax burden on taxable gains and potentially saving wealthy individuals millions of dollars in tax liabilities.

For example:

  • Under current law, if you bought $10,000 worth of stock in 1980 and it grew to be worth $40,000 by the time you sold it in 2018, then you’d pay capital gains taxes on the difference between what you sold the stock for and what you bought it for ($30,000).
  • Under the proposed changes, the original purchase price of the stock would be adjusted for inflation. From 1980 to 2018, the dollar experienced an average inflation rate of around 3 percent a year. In other words, $100 in 1980 is equivalent to $300 in 2018.

  • In the example above, the original purchase price would be inflation adjusted from $10,000 to $30,000 to reflect the fact that prices had tripled over the period, and the indexed capital gain would go from $30,000 to just $10,000.

  • Consequently, in the scenario above, you would only pay taxes on $10,000 — reducing the capital gains tax liability by a whopping two-thirds. The change would provide a huge windfall for wealthy individuals on their long-term investments at the expense of the federal budget deficit.

History of Treasury Unilateralism

Constitutional Issues

In 1992, the National Chamber Foundation (NCF) requested legal consult to discern if the Treasury, by regulation, could index capital gains to inflation. They decided Treasury did have the power to do so. The NCF memo relied on the Supreme Court legal doctrine of Chevron Deference to administrative agencies and what they thought of as the ambiguous definition of “cost basis” in the IRS Tax Code.  

The Treasury independently concluded that they did not have the legal authority, but President George H. W. Bush asked the general counsel of the White House to assess the NCF memo, as well. The conclusion from the counsel affirmed that Treasury did not have the sought-after regulatory power for a few reasons:

  • If the intent of Congress is clear then there is no blanket authority for regulatory rewriting of statutes, according to Chevron Deference.

  • Congress had repeatedly considered proposals to index capital gains for inflation but had not sent any to the President to be enacted.

  • Legislative history evidences a clear congressional intent that “cost” be given its common and ordinary meaning, that is, price paid in normal dollars not adjusted for inflation.

The Congressional stance on indexing capital gains has not changed since 1992. For these reasons, the same conclusions reached by the general counsel in 1992 would still apply. There would almost certainly be a swift court challenge if Secretary Mnuchin goes through with the plan.

Legislative Efforts

Various other indexing measures have been introduced in the past two decades, but none have progressed past committee and almost none were the subject of a floor speech or debate or a committee report. Most recently, in early 2018, Sen. Ted Cruz introduced a bill to index capital gains to inflation. It was referred to committee but no action has been taken since. No one has co-sponsored this bill.

(Capital) Gains for Some, Not for Most

In addition to the incredible regressivity of the tax cut and the $100 billion hole in the federal budget it would create, there are other issues that would make indexing capital gains a bad move.

  • Indexing capital gains will create tax shelters: “If you index the asset side of ledger but don’t index liabilities, you have a clear arbitrage for debt-financed investments,” according to Steven Rosenthal from the Urban-Brookings Tax Policy Center. In other words, if you index capital gains, without indexing capital expenses, this creates tax arbitrage opportunities for savvy taxpayers who might look to take advantage of these inefficiencies. Yet another sign that the Administration seems hellbent on creating opportunities for those who can afford it (themselves) to game the system.

  • Indexing unknowns: There are still lots of questions to be answered on the logistics and substance of such a change. What price index would be used? What assets would be included/excluded? Would the change be an addition or substitute for existing tax benefits? Would indexing cover both past and future inflation? Could indexing create or exacerbate capital losses?

At the end of the day, the proposed change to index capital gains to inflation is a blatant and brazen attempt to appeal to the wealthiest Americans in an attempt to pry open their checkbooks before the midterms, as well perhaps to those who imagine being wealthy enough to benefit someday.  

If at First You Don’t Succeed, Bypass Congress

The overreach of the Administration in pushing such an unpopular and untimely move, even with the certainty that any such change would be challenged in court, shows how much it prioritizes fulfilling the desires of GOP donors while controlling the Congressional majority.  

Despite a vocal minority of Republican legislators led by Sen. Ted Cruz, there doesn’t seem to be widespread Republican support for indexing capital gains to inflation. Legislatively, both now and in the past, nothing concrete has been done on this issue. In fact, even in the most recent tax bill passed by Congress, the Tax Cuts and Jobs Act, they left capital gains alone. Logically, if there were widespread support and it could be easily passed by Congress, the measure would not need to be unilaterally carried out by the executive branch.

Taxing the Future, a GOP Trilogy (July 27)

Update 288 — Taxing the Future, a GOP Trilogy; Does Tax Reform 2.0, ff. = Triple-Down Economics?

House Ways and Means Committee Chair Brady is on a mission to make tax cuts a winning issue for Republicans in the fall.  His legislative vehicle is “Tax Reform 2.0.” The Tax Cuts and Jobs Act (TCJA), signed last December, has been less popular than expected and most Republicans up for re-election have given up even mentioning it on the campaign trail.  The original tax cuts contained embarrassing mistakes and the many and sizable kinks still need to be ironed out with a technical corrections act in the works.

All the same, Republicans in the House are marching on with a new trilogy of tax bills that they hope will resonate with their voters in November, while the Senate leadership sees no urgency.  What comprises this trilogy and what are its prospects? Fresh intel in ample detail below.

Good weekends, all…




Recent Legislative Developments

Chair Brady indicates that House Republicans are planning to divide the package into three separate bills: permanency, savings, and innovation.  Dividing the bills increases the chances that they are passed, if not all together, then separately, but creates a false illusion that they won’t aggressively try to pass all three.  Ways and Means is set to markup the bills in mid-September with the intention of passing them by the end of that month. In the Senate, the package is unlikely to be taken up before the lame duck session.

The Post-TCJA Economy

President Trump’s tax cuts, which permanently reduced the standard corporate rate from 35 to 21 percent, have already had a considerable negative economic effect, with the New York Times reporting this week that “the amount of corporate taxes collected by the federal government has plunged to historically low levels in the first six months of the year, pushing up the federal budget deficit much faster than economists had predicted.”

While corporate tax payments between January and June fell by 33 percent compared to the same period last year, corporate tax receipts as a share of the economy have fallen to 1.3 percent, nearing a 75-year low.

The Road to Hell is Paved with Permanence

Tax Reform 2.0 is a decisively political move by Republicans to make permanent the changes they enacted in 2017 that are set to expire at the end of 2025 and to introduce other tax changes.  Although there is still no bill language, the rhetoric around the release implies that Republican leadership wants to perpetuate all of the individual income tax changes in the TCJA. These changes include:

  • tax cuts for individuals and pass-through businesses
  • SALT deduction cap
  • Alternative Minimum Tax (AMT) cut
  • standard deduction and child tax credits

Republicans are working on the idea that it will be hard for Democrats to vote against making the individual tax cuts permanent. They believe it is harder for Democrats to vote against individual tax cuts than the corporate ones that were included in TCJA. They also include a variety of new proposals designed to appeal to Democrats.  

A Wolf in Sheep’s Clothing

The new proposals in Tax Reform 2.0 are meant to provide benefits to the middle class at a comparable significance to those in TCJA that clearly favored the wealthiest Americans. These proposals aimed at the middle class are divided into two categories — savings and innovation.


  • creating a Universal Savings Account (USA), which is basically a significantly improved Roth Individual Retirement Account (Roth-IRA), that individuals could contribute some of their after-tax income to annually — there is speculation on income contribution limits but nothing has been confirmed yet.  Withdrawals from the USA could be made at any time or for any reason without tax or penalty. Like a Roth-IRA, the USA’s earnings would not be subject to tax. The goal is to incentivize Americans to save more.
  • expanding the popular, tax-free 529 college savings accounts so it could also be used to pay for apprenticeship fees and home schooling expenses, as well as student debt.
  • allowing workers to tap into their retirement savings accounts without penalty to cover expenses from the birth of a child or an adoption.


So far there is only one clearly identified idea under this category:

  • permitting start-up businesses to write off more of their initial costs to remove barriers to growth.

Although these measures seem to help the middle class, they are unlikely to be sufficient to offset the higher interest rates. The middle class will be subject to these higher rates on mortgages and student and car loans as the result of the ballooning deficit due to TCJA’s tax cuts for corporations and the wealthy.

A Tax Cut Catastrophe

Some of the provisions in the Tax Reform 2.0 package would put a further strain on tax revenues at a time when social benefit systems are in dire need of assistance. The Congressional Budget Office (CBO) estimates that extending the individual tax cuts would increase deficits by an additional $650 billion—this at a time when social security had to dip into its trust fund for the first time in 36 years and the federal budget deficit is set to surpass $1 trillion two years earlier than estimated, by 2020.

The TJCA was clear in its “reverse Robin Hood” regressivity. Tax Reform 2.0 is not as blatant, but enacting more provisions that deprive the federal government of vital tax revenue that it needs to fund critical social services is socially irresponsible.

Tax Reform 2.0 also includes provisions that allow for more cuts to the deduction for owners of noncorporate businesses known as “pass-throughs” and larger exemptions to the estate tax and the alternative minimum tax for individuals. Given the predilection of the well-to-do for tax avoidance, this reform makes policies permanent that encourage such activities and suggest that gaming the system is not only good, but recommended. In fact, the lower the pass-through rate, the more attractive abusing the tax code becomes.

Political Lens

With the 2018 midterm election looming, House Republicans are eager to make their individual tax cuts permanent before the Democrats take back control (knock on wood) and they are no longer able to.  Were that to happen, at the end of 2025, corporate tax breaks would remain in place and individual tax cuts would expire, making for very bad optics for the Republican party, if it exists then. So even though Chair Brady is planning to introduce the package as three separate bills, passing the permanency of individual tax cuts will be crucial for him and the future of his party.

Sen. McConnell seems to have hit upon a legislative strategy that serves both Senate and House Republicans regarding Tax Reform 2.0.  The House will pass the bills as a package and be able to pick up political capital; Republican senators (who are in un-gerrymandered and therefore more purple jurisdictions) won’t have to take a difficult vote on these bills before the midterms.  Sen. McConnell won’t take the GOP trilogy up until the lame duck session, enabling the House to have its cake (have its vote), but the Senate doesn’t have to eat it too (swallow a tough vote).

S. 2155: Critical Backward Glance (May 25)

Update 274 —  S. 2155: Critical Backward Glance

and a Sneak Peek Ahead on the Bill and Progeny

Whatever the merits of S. 2155, the current moment of good feeling surrounding 91 consecutive months of economic growth will not last forever.  If the (inevitable) downturn is sharp, the bill and its supporters may come under scrutiny for enacting the deepest and most comprehensive rollback of Dodd-Frank to date.

Opponents of the bill should take pride in holding the line in the Senate — in the five months between its introduction and the vote on final passage, the number of Democratic cosponsors went from 9 to 12.  The House Democratic leadership and whips cut support down to 17 percent of the caucus, half the amount in the Senate.

Hats off to the progressive groups who helped accomplish this result such as Americans for Financial Reform and Center for American Progress.

Good long weekends and recesses and Memorial Day all.




Counter-Intuitive, Countercyclical Economics

The regulatory rollback codified by S. 2155 is reckless from an economic standpoint. Since the Dodd-Frank Act (DFA)’s passage, the US economy has mounted an impressive recovery from the depths of the great recession. Still, the economy has not yet completed a full business cycle since DFA became law.  The protections put in place after the crisis have yet to be tested in a downturn. While it is rational to re-examine regulatory rules, it could easily turn out to be premature to begin chipping away at DFA’s foundation without sufficient time to review its total impact.

Since regulators and industry did not see warning signs in the lead-up to the great recession, giving them discretion to find the right approach to regulation after the great recession is unwise. Tailoring is dangerous when systemic risks go unseen. Beyond weakening rules for the biggest banks, expect more bad mortgages on bank portfolios with the rollbacks in qualified mortgage (QM) rules, appraisals, escrow and manufactured housing.  Additionally, the Volcker Rule change, community bank provisions, and Home Mortgage Disclosure Act (HMDA) exemptions substantially reduce disclosure. All of these factors could work together to produce the recipe for another crash.

Big Banks Win, Small Banks Stiffed

2155’s proponents argued that these rollbacks are desperately needed to help community banks that are struggling with undue compliance costs. While it might be true that community banks are closing their doors, a closer look at the legislation makes it hard to see how S. 2155 addresses these concerns.   Community banks will see some benefit to their bottom lines thanks to exemptions from Basel III rules, the Volcker rule, and the HMDA reporting requirements.

The big winners in S. 2155 are the big banks with assets between $50 and $250 billion. These big banks stand to benefit substantially from rollbacks on enhanced supervisory standards including stress tests, living wills, and capital ratios.  This is likely to set off a wave of consolidation in the industry. Historically, no factor has impacted M&A activity in the banking sector more than de-regulation, and S. 2155 is one of the most significant deregulatory bills to become law in 20 years. S. 2155 might be good for the community bankers who stand to cash out, but it will only hasten the demise of the institutions they manage.

Weak Polling in Every Region

2155 polls dismally among the voters that Democrats are relying on to take back the House in November. 67 percent of voters oppose loosening bank regulations, and a full 78 percent think that big banks have too much influence on Congress.  Possessing great instincts, Minority Leader Nancy Pelosi and House Financial Services Committee Ranking Member Maxine Waters worked hard to whip votes against the bill. With polling numbers so bad, it is little wonder that experienced Democratic leadership took pains to dissuade members from supporting the bill. On the eve of such an important election season, Wall Street campaign funding is not worth the risk of alienating a public that has little sympathy for historically profitable banks.

Lies, Damn Lies

The public has been badly misled about S. 2155’s impact, which proponents have artfully branded the “community bank bill.”  How lacking was the public information about it? In a New York Times bold call out, the paper referred this week to the legislation as “a bill to lift strict rules on small and medium banks.” Banks with between $50 billion and $250 billion are not small or medium sized. They include 25 of the 38 largest banks in the country that together hold $3.5 trillion in industry assets.

Will the GOP seem a 2155 2.0?  The bill’s champions like to say this is as far as they would ever go in rolling back DFA, but the GOP has already set its sights on the next chance to do even more damage to systemic risk rules.  The House appropriations package released just this week includes numerous riders that cut DFA further, including handicapping the SIFI designation process, mandating fewer living wills, providing stress test relief for non-banks, and directing tailoring for similarly-situated banks.

Once again, a big bank de-regulation bill has passed during improved economic times under the guise of helping the little guy.  A few years down the road, when big banks need another bailout, it will be the little guy who ends up footing the bill, he believes.. While the President calls DFA a disaster, it is S.2155-style deregulation that often becomes history’s culprit.  We not address the effect of headlines reporting campaign contributions in big dollars from the financial firms benefiting from the bill to incumbents who voted for it.

Inside/Outside Politics (May 23)

Update 273— Inside/Outside Politics: Texas Draw; History in Georgia

Last night’s primary replicated an emerging pattern: contests in which the two top vote-getters are one establishment or party-backed candidate and one insurgent.

In Georgia, Stacey Abrams won 76.5 to 23.5 percent, a 54 point margin, and made history by becoming the first black woman to win a gubernatorial nomination of a major political party. She is a graduate of Yale Law School and the author of several romance novels.

More on yesterday’s primaries below.






Update on the Senate race: Rep. O’Rourke easily won his primary with 62 percent of the vote and will face of against Sen. Ted Cruz for his seat in November. While O’Rourke remains somewhat unknown to many Texans, an assertive fundraising and advertising campaign is underway to change that. In a recent conversation, Beto identified health care as the issue that Texas voters tell him is the most important economic policy issue facing them today.

TX-23: Ortiz Jones vs. Rep Hurd

    • 2016 Pres. Election Results: Clinton 50/Trump 46
    • 2012 Pres. Election Results: Romney 51/Obama 48
    • 2016 House Results: Hurd (R) 48/Gallego (D) 47
    • Cook PVI: R+1

In TX-23, Gina Ortiz Jones was victorious against Rick Treviño, endorsed by Bernie Sanders, coasting to an easy 68 to 32 percent win. Next, Ortiz Jones will face Republican Rep. Will Hurd in a district that is the Democrats’ best chance to flip a House seat in Texas. She faces a tough but winnable fight against a two-term incumbent opponent who holds a substantial fundraising advantage.

Ortiz Jones’ economic policy platform focuses on job creation, affordable education, and the protection of Social Security and Medicare. As the first lesbian, first Iraq War veteran, and first Filipina-American to represent Texas in Congress, Ortiz Jones would be transformational should she win in November. This race will be down to the wire, but Democrats will need to win this seat to retake the House.

TX-32: Allred vs. Rep. Sessions

    • 2016 Pres. Election Results: Clinton 49/Trump 47
    • 2012 Pres. Election Results: Romney 57/Obama 41.5
    • 2016 House Results: Sessions (R) 71/Rankin (D) 19
    • Cook PVI: R+5

Civil rights attorney and former NFL player Colin Allred won handedly against entrepreneur and attorney Lillian Salerno in yesterday’s TX-32 runoff contest, 70 to 30 percent. Allred will now face 10-term incumbent Rep. Pete Sessions in what stands to be a tight race in northern Dallas.

Allred relied on a progressive economic platform that includes infrastructure spending, increasing the minimum wage to 15 dollars, and paid family leave. Now he will turn this message against the conservative Sessions, who supports a balanced budget amendment and wants to audit the Fed. Given this matchup, TX-32 might serve as a bellwether for economic preferences in Texas.

TX-07: Pannill Fletcher vs. Rep. Culberson

    • 2016 Pres. Election Results: Clinton 49/Trump 47
    • 2012 Pres. Election Results: Romney 60/Obama 39
    • 2016 House Results: Culberson (R) 56/Cargas (D) 44
    • Cook PVI: R+7

After a first round of primary voting in March, TX-07 concluded its runoff voting yesterday, handing an easy 67 to 33 percent win to attorney Lizzie Pannill Fletcher against insurgent candidate Laura Moser. The Emily’s List-backed Pannill Fletcher’s moderate economic platform focuses on the promotion of green technology, investment in STEM education, and the creation of vocational schools.

Observers see the rapidly changing 7th district as an in-play district for Democrats.  While the district has produced Republican stalwarts George H.W. Bush and Bill Archer, Hillary Clinton beat Trump in the Houston-area district by one point in 2016 and recent polling saw incumbent Rep. Culberson trailing the Democrat in a generic ballot.

TX- 21: Kopser vs. Roy

  • 2016 Pres. Election Results: Trump 52/Clinton 42
  • 2012 Pres. Election Results: Romney 60/Obama 38
  • 2016 House Results: Smith (R) 57/Wakely (D) 36
  • Cook PVI: R+10

In TX-21, Democrat Joseph Kopser, an entrepreneur, Army veteran and former Republican, is pitted against Chip Roy, a former Chief of Staff to Sen. Ted Cruz in this Republican haven. In spite of his conservative past, Kosper has led with progressive economic issues, primarily paid family leave, ending the capital gains preference, the creation of a financial transaction tax, and restructured public school funding. While he is far from Bernie Sanders, he is running on an economic platform that has unmistakable populist overtones.

TX-22: Kulkarni vs. Rep. Olson

    • 2016 Pres. Election Results: Trump 52/Clinton 44
    • 2012 Pres. Election Results: Romney 62/Obama 36
    • 2016 House Results: Olson (R) 59/Gibson (D) 41
    • Cook PVI: R+10

Sri Preston Kulkarni, one of the more progressive Democrats in the field of candidates for TX-22, will face off against incumbent Rep. Pete Olson for the southern Houston district. Sri was commissioned as a Foreign Service Officer following college and served for 14 years, with overseas tours in five different countries. A PCCC candidate and an outspoken advocate for addressing economic inequality, Kulkarni has railed against the Tax Cuts and Jobs Act as a giveaway to corporations and the wealthy and as a fiscally irresponsible bill that will hurt entitlements going forward.


The most important result from last night’s Georgia primary lies outside of our usual focus on House races. Stacey Abrams, Georgia State House Minority Leader, won a landslide victory in the Georgia gubernatorial race. Abrams campaigned on the principle that voters in urban areas of the state need to be enfranchised into the political process. Her more moderate Democratic opponent campaigned on reaching out to voters in suburban and rural parts of the state.

This November, Abrams can make history as the first female governor in Georgia’s history and the first black female governor in US history. Abrams’ vision on economic mobility includes the establishment of a state earned income tax credit, expanding childcare tax credits, protecting workers from abusive on-call scheduling, and creating programs to encourage saving.

GA-06: McBath and Abel Head to a Runoff

    • 2016 Pres. Election: Trump 48/Clinton 47
    • 2012 Pres. Election: Romney 61/Clinton 38
    • 2016 House: Price (R) 62/Stooksbury (D) 38
    • Cook PVI: R+8

In GA-06, where Democrat Jon Ossoff lost a close special election race to replace Tom Price last year, prominent gun-control activist Lucy McBath is heading to a runoff with local businessman Kevin Abel. McBath claimed the top spot with 36 percent of the vote to Abel’s 30. McBath is pushing to increase the minimum wage and expand the federal earned income tax credit. Abel pledges to apply his experience leading an IT consulting company to improve conditions for workers. The runoff will take place on July 24.


House Votes Tuesday on S.2155 (May 18)

Update 272: House Votes Tuesday on S. 2155; Big Bank Bill Carries More Than Systemic Risk

News came this week that the Senate has prevailed on the House GOP leadership to let S. 2155, the largest rollback of Dodd-Frank to date, to schedule a vote on the bill, which is now slated for next Tuesday.

It is all over but the voting, with the bill expected to pass the House by a comfortable margin.  How comfortable, and for whom? The political implications and risks for Aye votes here in a populist cycle may not be worth the headlines, despite the contributions.  See more below.

Good weekends all,



S. 2155 House Vote

Next Tuesday, the House is expected to vote on S.2155, The Economic Growth, Regulatory Relief and Consumer Protection Act. Thanks to significant Democratic support in March, the bill passed the Senate with a final vote total of 67-31.

Posturing for future employment opportunities, soon-to-retire Financial Services Committee Chairman Jeb Hensarling has since stalled the bill, pushing for even more deregulatory measures in line with recently passed House bills. Having made his point, Hensarling relented last week, and House Speaker Paul Ryan signaled that the chamber would take up S. 2155 as written.

In exchange, Senate Majority Leader Mitch McConnell agreed to take up a package of HFSC banking bills that have passed committee with bipartisan support. Initial reports suggest that the legislation might not get floor time, and might instead be attached to must-pass bills later in the year. According to Rep. Luetkemeyer, the package of House bills that will be considered by the Senate will focus on capital markets, securities, insurance, and banking.

Revisiting S. 2155 and Systemic Risk

Section 401: This provision would damage the Dodd-Frank Act’s regulatory architecture for some of the largest banks in the country. It increases the threshold for the automatic application of enhanced prudential standards from $50 billion to $250 billion in consolidated assets. These standards include stress testing, living will submissions, and a modified liquidity coverage ratio.

Proponents of the bill express comfort in the Fed’s ability to tailor the application of these standards based on the size, complexity, and risk profile of these institutions. Critics of the bill do not believe tailoring can be effective given the failure of regulators and industry actors to spot systemically sensitive parts of the sector in the lead up to financial crises.

Section 402: Under this provision, custody banks would no longer have to hold capital against funds deposited at certain central banks to meet the Supplementary Leverage Ratio (SLR). The bill defines a custody bank that would reduce capital requirements for two of the most systemically important custodial banks in the world, State Street and BNY Mellon, and would pressure Congress to expand the exclusion to even larger banks in the future.

The provision was roundly criticized by former regulators. Former Fed Chair Paul Volcker, former Fed Governor Daniel Tarullo, and former FDIC Chair Sheila Bair all raised concerns about section 402 specifically before it passed the Senate.

Fed Ready to Run with Discretion

S.2155’s defenders insist the legislation is not deregulatory, and instead supports regulatory recalibration by giving the Fed discretion to apply enhanced prudential standards to banks between $100 billion and $250 billion. Since it passed the Senate, however, Trump-era Federal Reserve rule proposals offer a glimpse into their deregulatory approach to supervisory standards, including proposals to:

  • reduce enhanced supplementary leverage ratio (ESLR) capital rules applied to Globally Systemically Important Banks (G-SIBs) and their subsidiaries.
  • alter the Stress Capital Buffer by loosening stress testing assumptions, reducing aggregate capital at the largest 34 banks by $30 billion.

Governor Brainard and FDIC Chair Gruenberg each oppose the ESLR rule proposal, which would result in the GSIB subsidiaries holding $121 billion less in capital at their FDIC-insured subsidiaries. These regulators understand what the nominees Trump has trotted out do not: neither the sector nor regulators are able to get regulations right without a structure in place to ensure systemic stability. S.2155 undermines the structure that has been in place for banks between $50 billion and $250 billion.

Vice Chair Randal Quarles as well as Fed Governor nominees Richard Clarida and Michelle Bowman appear to be of one mind when it comes to passing S.2155. Each has advocated for tailoring supervisory standards on the basis of the “size, complexity, and risk-profile” of financial institutions. While they insist they will be able to make the right choices on supervisory standards, it is hard to imagine that they or their successors will be right in every case.

Just a decade ago, regulators and industry alike fell asleep at the wheel and lead the country to crisis. In response, Congress passed the Dodd-Frank Act to prevent the system from coming apart again. Now, just as the economy is getting back to stable footing, Republicans, Trump-appointed regulators, and even some Democrats are ready to ease standards for some of the largest banks in the country.

Democrats in Support: Not Just Systemic Risk

Americans this cycle have been especially clear  about their discontent with the appearance and reality corruption in national politics,  Supportive Democrats — incumbents this year — supported S. 2155 and took a gamble..and got scorched with banner front-page headlines and embarrassing stories in some of their largest in-state papers.

With the midterms looming, indications are that Democratic support for the bill is waning relative to support it received in the Senate only two months ago.   Minority Leader Pelosi and Ranking Member on HFSC Maxine Waters are actively rallying Democrats in opposition to the bill.While a number of House Democrats appear ready to add their names to the bill, observers predict Democratic support in the House will fall below 70 votes.


Women Big Winners in PA (May 16)

Update 271 – Women Big Winners in PA
Voters Focused on Health Costs, not Tax Cuts

Democrats in Pennsylvania came away from yesterday’s primary elections confident of gaining at least five U.S. House seats in November.  That would move the Commonwealth’s delegation from a GOP 13-5 advantage into a 10-8 Democratic majority. The delegation will likely include four women, up from none currently.

Below we drill down into the flippable races in PA and the other states voting yesterday — Idaho, Nebraska, and Oregon with a view to economic policy issues and candidates to watch in the general.




PA-17: Rep. Lamb (D) v. Rep. Rothfus (R)

• 2016 Pres. Election: Trump 49/Clinton 47
• 2012 Pres. Election: Romney 52/Obama 47
• 2016 House: *District Lines Changed
• Cook PVI: R+3

Yesterday, the newly-created PA-17 held uncontested primaries to set up a general election race between Rep. Connor Lamb and Rep. Keith Rothfus.  The result of Pennsylvania’s recently redrawn district lines, this clash of incumbents gives Democrats a realistic opportunity to add a pickup.

While the race is technically “lean Republican,” Rep. Lamb lines up well against Rep. Rothfus. Relative to the R+11 Cook PVI that Lamb overcame in his March PA-18 victory, PA-17’s R+3 rating will feel like friendly territory, especially given Lamb’s opposition to the conservative Rothfus, a three-term Trump Republican from PA-12 who is expected to struggle in the more moderate district.  Lamb will use a pragmatic approach similar to his last campaign, focusing on infrastructure spending, job training, protecting medicare and social security, and strengthening unions.

PA-07: Wild (D) v. Nothstein (R)

• 2016 Pres. Election: Clinton 57/Trump 38
• 2012 Pres. Election: Obama 56/Romney 42
• 2016 House: *District Lines Changed
• Cook PVI: D+7

With 33 percent of the vote, Allentown attorney Susan Wild won the Democratic Primary in the Lehigh Valley, where the moderate Republican Rep. Dent is retiring.  She defeated an anti-immigrant, anti-choice, Trump sympathizer John Morganelli, the district attorney of Northampton County. Wild’s campaign is centered around protecting medicare and social security, strengthening union bargaining power, and investing in job training programs.  She also advocates for the defense of the Earned Income Tax Credit and promotes investing in rural infrastructure development.

Her win signifies a victory over the old guard where conservative Democrats are still active. Backed by Emily’s List, Wild would be the first woman to represent the Lehigh Valley in Congress.  Her opponent in November will be former Olympian Marty Nothstein, who narrowly won his nomination on a conventional GOP platform of border security, repealing obamacare, and protecting gun rights.  The general election will be hotly contested in this purple district, a bellwether for an impending progressive wave.


PA-01: Wallace (D) v. Rep. Fitzpatrick (R)

• 2016 Pres. Election: Trump 49/Clinton 47
• 2012 Pres. Election: Romney 50/Obama 48
• 2016 House: *District Lines Changed
• Cook PVI: R+1

Scott Wallace, a philanthropist, public interest lawyer, and one-time capitol hill staffer, will face incumbent Republican Rep. Fitzpatrick in PA-01.  He is a descendant of Henry Wallace, an architect of Social Security as FDR’s trusted cabinet member and Vice President. Scott Wallace is campaigning to strengthen the program his grandfather designed, and is also promoting a serious agenda to revitalize the nation’s community colleges and vocational programs.

Unseating a Republican incumbent in Bucks county will not be easy, but this is the year to do it.  Wallace has substantial campaign funds and runs in a district that went blue from 2007 to 2011.


PA-06: Houlihan (D) v. McCauley (R)

• 2016 Pres. Election: Clinton 52/Trump 43
• 2012 Pres. Election: Romney 51/Obama 48
• 2016 House: *District Lines Changed
• Cook PVI: D+2

Chrissy Houlihan, an Air Force veteran with business experience as the COO of a popular footwear and apparel company, will face off against a little-known Republican attorney in a new district whose precincts heavily favored Clinton against Trump in 2016.  While the district is close on the Cook PVI scale, most expect it to go the Democrats’ way in a wave year. Houlihan is campaigning on giving workers a living wage, increasing worker bargaining power, and closing the gender pay gap.


PA-04: Dean (D) v. David (R)

• 2016 Pres. Election: Clinton 57/Trump 38
• 2012 Pres. Election: Obama 56/Romney 42
• 2016 House: *District Lines Changed
• Cook PVI: D+7

State Rep. Madeleine Dean defeated both her primary opponents convincingly to take the Democratic nomination in this brand new, “lean D” district.  Dean would be one of several women to take office in a state that is currently the largest to send an all-male delegation to the US House. Dean is campaigning on infrastructure modernization, increasing the bargaining power of organized labor, and repairing the Tax Cuts and Jobs Act to increase support for low and middle-income workers and increase taxes on the richest.


PA-05: Scanlon (D) v. Kim (R)

• 2016 Pres. Election: Clinton 62/Trump 34
• 2012 Pres. Election: Obama 63/Romney 35
• 2016 House: *District Lines Changed
• Cook PVI: D+13

Attorney Mary Gay Scanlon emerged from a field of ten Democratic candidates to easily win the nomination.  A nonprofit lawyer, Scanlon is poised to flip this redistricted seat in the Delaware County suburbs just southwest of Philadelphia.  Scanlon is likely to turn to education reform when approaching long term solutions to economic issues. She has particularly emphasized student loan reform and debt relief and making community college and public university attendance free for families earning less than $150,000.

NE-02: Eastman (D) v. Bacon (R)

• 2016 Pres. Election: Trump 48/Clinton 46
• 2012 Pres. Election: Romney 53/Obama 46
• 2016 House: Bacon (R) 49/Ashford (D) 48
• Cook PVI: R+2

One of the biggest upsets of the primary season thus far came out of the Cornhusker State as Kara Eastman, an Omaha nonprofit president, beat out former Rep. Brad Ashford.  In a near three point victory, NE-02 Democrats narrowly nominated Eastman to take on incumbent Rep. Don Bacon, a Trumpian Republican who has voted with the president 97 percent of the time.  Although many saw Ashford as the more viable candidate, don’t count Eastman out in the general election, NE-02 is still amongst the most flippable districts this cycle and is a key district to win if Democrats hope to take back the house.

Eastman advocates Medicare-for-all as her main policy platform, but also relies on strong progressive economic policy ideas.  She supports raising the minimum wage, tax reform that raise taxes on the wealthy and corporations, and raising the taxable maximum on social security.
All’s Quiet on the Western Front:

Two western states – Idaho and Oregon – also held primary contests yesterday.  In Oregon, all five incumbents won their primaries easily and are expected to cruise to victory in the general election.  In Idaho’s first district, Christina McNeil will face off against Russ Fulcher in a seat that former Rep. Raúl Labrador vacated to (unsuccessfully) run for governor.  In ID-02, incumbent Rep. Mike Simpson will face Democrat Aaron Swisher.  As in Oregon, neither race is expected to be competitive.