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The US Congress can walk and chew gum

By Michael Knox - posted Thursday, 13 July 2017


One could be forgiven for thinking that all that has been happening during the Trump administration is that Trump has been running away from Russian enquiries or running to them.

In fact, a lot has been happening and it has been happening in the US Congress. Under the US constitution, Speaker of the House Paul Ryan is in a position which is similar but not identical to that of our Prime Minister. Like our PM, Paul Ryan is the most powerful person in the House of Representatives. He is elected by the party in the US House of Representatives which commands the most seats.

Under the US constitution, the House of Representatives holds the authority over money bills. What is different about the US system is that the Executive (that is to say the White House) has control over relations with foreign States.

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Under the Obama Administration, the White House developed considerable power over the domestic economy as well. This power was developed and exercised through regulation. We should remember that Barack Obama was a highly qualified academic lawyer, who lectured in constitutional law for many years before entering politics. His understanding of the law and how to govern by regulation was unsurpassed in recent US history. The result of this is that the White House developed a large administrative bureaucracy which governed through regulation.

The style of the Trump administration is entirely different. As a businessman, Trump ran a very large organisation with a very small administrative staff. He tended to delegate decisions to operational roles in a fairly flat and non-bureaucratic organisational style. Trump, unlike Obama, has a majority in both the House of Representatives and the US Senate. He has chosen to put much greater emphasis on the House of Representatives as a source of policy formation and decision making. This means that what is happening in the Trump administration becomes very much a question of what is happening in the US Congress.

What has been happening in the US Congress?

In a speech on 30 June, the Speaker of the House Paul Ryan attempted to detail what the US Congress had achieved in the first half year of the Trump Administration. As well as undertaking enquiries, the US Congress is also passing important legislation. As Paul Ryan has said "the Congress can walk and chew gum at the same time".

The major items that have already been signed by President Trump and already passed into law include:

Land mark veterans reforms: The Department of Veterans Affairs, which administers services provided to former military personnel has seen the largest reforms since 2013. This legislation boosts accountability, improves services and leads to better care for US veterans and their families.

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Record regulatory relief: The House of Representatives has passed 14 Bills, striking down regulations enacted under the Obama Administration. These bills have been signed by President Trump. Paul Ryan notes that according to the American Action Forum, the repeal of these 14 rules eliminated $3.7 billion in total costs to US taxpayers. It eliminated $1.1 billion in administrative burdens and 4.2 million paperwork burden hours.

Stronger border security: The House of Representatives has provided and the President has signed an extra $US1.5 billion in resources for border security. This means more agents, enhanced technology and updated infrastructure.

More Defence Funding:The House of Representatives has delivered a $US21 billion increase in Defence spending.

Fighting the Opioid Epidemic: The US is in the grips of a new illegal drug epidemic based on opioids (new heroin-like addictive drugs). The House of Representatives provided a $US781 million in funds to fight this epidemic. These include grants, treatment and prevention and support for law enforcement.

More School Choice: The House of Representatives has expanded support for charter school organisations and expanded scholar opportunity scholarship programs to put better education in the reach of more children.

Passed by the House of Representatives but not yet law

There are also a number of major initiatives which have been passed by the House of Representatives are now being considered by the US Senate. These major items include:

1. The American Healthcare Act: The American Healthcare Act was the first of three Bills that was necessary to amend US healthcare legislation. This Bill is a financial Bill or Budget Reconciliation Bill that reduces the future growth of health expenditure to a sustainable level within the budget.

Obamacare was subject to market failure because it was designed upon competition within States rather than competition between States (try to imagine a competitive healthcare market entirely within the State of Tasmania). This would not work and it would break down. This is what is happening to Obamacare.

There are two other necessary reforms. These reforms produce national competition in US concessional healthcare insurance and would reduce the cost of US healthcare insurance to American consumers. Both of these Bills would need the assistance of Democratic senators to pass.

The first makes concessional healthcare insurance provision into a national market which can operate across State lines. The second changes Obamacare's requirement that all plans cover 10 basic categories of benefits. The problem is that this generates a one-size-fits-all policy that reduces the possibility for competition between providers. Changes to these Obamacare categories would also need the assistance of Democratic senators to pass the Bill.

Republicans wish to subsidise pre-existing conditions with Federal government funding. They believe that national markets will then provide much lower cost insurance pools for the majority of consumers of healthcare insurance.

2. Financial Choice Act: The House of Representatives passed this Act to replace the Dodd-Frank Act. The Dodd-Frank Act was passed by the US Congress after the financial crisis. Dodd was the name of the Democratic Senator and Frank was the name of a Democratic Congressman.

The objective of this law was to re-regulate the financial sector, so as to prevent another financial crisis. The problem in the law was one of defining the necessary regulations.

Many of these regulations were left at the discretion of agencies which had oversight of the financial sector. The problem then was a growth of a complex regulation. This web of complex regulations provided a significant administrative burden to small financial institutions.

This administrative burden acted to reduce the provision of capital to small firms in the non-financial sector. These small firms create jobs in Middle America. So the result was that the Dodd-Frank Act acted to damage job creation in small businesses in the Republican heartland. Something had to be done and the House of Representatives replaced the Dodd-Frank Act.

3. The 'Reins' Act. The House of Representatives has passed the 'Reins' Act to make any regulation subject to a vote of Congress before taking effect. The Bill would require Congressional approval of any rule or regulation that would impose compliance costs of more than $100 million per year. Should Congress fail to approve the rule in 70 days after its promulgation, then that regulation would be null and void.

I believe that in operation, this legislation would have a major effect on how the US constitution operates. The case would have to be made to the House of Representatives for every major regulation provided by the White House. This effectively moves the ability to approve these regulations from the President to the House of Representatives.

This would move power back to the US Congress in a way that has not been seen since the emergence of "the modern presidency" with Theodore Roosevelt at the beginning of the 20th century. The current President supports this legislation. This may be because Presidential advisor Stephen K Bannon sees this legislation as a way of reducing a bureaucratic power or in his words the power of "The Deep State".

Conclusion

In a speech on 30 June, Speaker of the US House of Representatives Paul Ryan outlined the considerable legislation program that the House of Representatives has already passed this year. There is clearly a lot more going on during the period of the Trump Administration than inquiries into Russia.

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Disclaimer

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for USe by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.



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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

Other articles by this Author

All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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