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May 25, 2023

Why corporate America isn’t freaking out over the debt limit

Credit: Washington Post

In today’s edition … What we’re watching: Fentanyl bill splits House Democrats … A glitchy start to the DeSantis campaign … The gifts Justice Thomas used to declare … but first …

On K Street
Why corporate America still isn’t freaking out over the debt limit

A view of the New York Stock Exchange on May 23. (Angela Weiss/AFP/Getty Images)
Washington might be transfixed by the debt limit standoff, but with only a week before the point Treasury Secretary Janet Yellen has said the government might not be able to meet its obligations, Wall Street and much of corporate America still aren’t panicking.

The S&P 500 stock market index fell by less than 1 percent on Wednesday. The VIX — a volatility index often known as Wall Street’s fear gauge — has risen over the past few days but remains lower than it was in the days after Silicon Valley Bank collapsed in March.

And half a dozen lobbyists said that while their clients have become increasingly concerned this week, they aren’t freaking out yet.

The relative sang-froid is rooted in regular assurances from President Biden and Speaker Kevin McCarthy (R-Calif.) that default is not an option as well as a sense that every dire Washington crisis in recent years has been resolved at the last minute.

“None of my clients are freaked out,” said Steve Elmendorf, a longtime Democratic lobbyist. “I think they are anxious, concerned. But I think they’ve been through this before.”
“We’ve normalized tough, fiercely negotiated last-minute deals” — or at least become accustomed to them, said Sage Eastman, a Republican lobbyist at Mehlman Consulting.
Weekend anxiety
All of that could change in the next few days, of course.

“If they don’t get to a deal by this weekend, I think then you’ll start to see that anxiety level move from maybe three out of 10 quickly up to a seven or eight out of 10 or higher,” said Andrew Rosenberg, a Democratic lobbyist at Thorn Run Partners.

Other lobbyists predicted that failing to strike a deal by Monday evening, as markets prepare to reopen Tuesday after Memorial Day weekend, could trigger fresh alarm.
There have already been warning signs of potential troubles to come.

Fitch Ratings, one of three major credit ratings agencies, changed its outlook for the federal government’s AAA credit rating on Wednesday evening to negative, a move that can presage a credit rating downgrade. (Another ratings agency, Standard & Poor’s, downgraded Washington’s rating to AA+ in 2011 after a previous debt limit standoff.)

And yields on short-term Treasury bills have risen higher than those of some blue-chip corporate bonds in a signal that investors see Treasurys — typically viewed as the safest investments out there — as riskier.
“They clearly reflect some concern that Treasury could miss a timely payment,” Michael Feroli, the chief U.S. economist at J.P. Morgan, wrote in an email to The Early. “However the still subdued implied default odds in the [credit default swap] market suggest investors think any default would be short lived.”

Several lobbyists said it would take a more seismic event — the Treasury Department missing a payment or a stock market plunge — for corporate America to feel true alarm.

“Until there’s a big stock market drop, I don’t think panic has set in or will set in,” said Andy Lewin, a Democratic lobbyist who leads BGR Group’s financial services practice.
Calls and texts
That’s not to say that lawmakers haven’t been getting anxious texts and calls.

Asked whether he’d heard from concerned chief executives or donors, Rep. Patrick McHenry (R-N.C.), the chairman of the House Financial Services Committee and one of McCarthy’s chief negotiators, told reporters Tuesday, “I would tell you that my texts are a dumpster fire.”

Several lobbyists said clients had been asking about the state of negotiations with increasing frequency, even if they weren’t panicking yet.

“No call in the past couple of weeks has occurred without a discussion about the debt limit,” said one Democratic lobbyist, who spoke on the condition of anonymity to discuss interactions with clients.

Rep. Pramila Jayapal (D-Wash.) and other Democrats have called for Wall Street to press Republicans to make a deal — but there are few indications of such a pressure campaign right now.

“They wouldn’t say that if Wall Street was calling and telling them that they needed to agree to reduce spending to get a deal to lift the debt limit,” said Neil Bradley, the U.S. Chamber of Commerce’s executive vice president. “Everyone thinks that everyone ought to weigh in on their side of the debate.”
Out of the frying pan?
While much of corporate America is confident Biden and McCarthy will strike a deal to avert a cataclysmic default, one lobbyist warned that any agreement was likely to cause more pain later this year.

Such a deal is likely to include spending caps for next year’s budget, but lawmakers will still need to pass spending bills making those cuts before government funding runs out on Sept. 30 — and agreeing on what to cut won’t be easy.
Even if many House Democrats vote for such a deal, “they’re making no commitments to vote for those [spending] bills when they come out of committee,” said Kevin O’Neill, a Republican lobbyist who chairs the legislative practice group at the law and lobbying firm Arnold & Porter. “And you’ve got dozens of moderate Republicans in the House who are going to be hard-pressed to stand before all these interest groups and tell them, ‘I had to vote to cut [your priorities].’”

What we’re watching
On the Hill
Another tough vote for Democrats: A significant number of House Democrats are expected to vote for a Republican-written bill today aimed at curbing fentanyl abuse.

The bill permanently adds fentanyl-related chemicals to schedule 1 of the Controlled Substance Act, the category for the most severe drugs, which would also increase criminal penalties for those substances. The categorization doesn’t allow for medical research on the drugs nor does it provide a rapid “off-ramp” if one of the chemicals is found to have an effective medical use.

The issue is splitting the party between members who warn that the bill is regressive and doesn’t provide new resources for scientific research, and Democrats in swing districts who could face a backlash for voting against a bill that aims to crack down on the dangerous drug.

A number of moderate and front-line members plan to vote for it, including Rep. Chris Pappas (D-N.H.), who said that while he has similar criminal justice and scientific-research-related reservations, it was an important step forward.

“I do know that this is the beginning and not the end of the legislative process,” Pappas said.
Perhaps giving Democrats the green light, Biden on Monday endorsed two central provisions of the legislation, frustrating some Democrats who think the bill will do little to deter fentanyl use and trafficking.

Rep. David Trone (D-Md.), the chair of the Bipartisan Mental Health & Substance Use Disorder Task Force and the criminal justice-focused Bipartisan Second Chance Task Force, sent a letter to his colleagues urging them to vote against the measure.
More than 150 mental health, criminal justice and advocacy organizations encouraged lawmakers to reject the measure.

Read our colleague Rachel Roubein in the Health 202 newsletter today for more on this.

In the courts
The Supreme Court is set to release more opinions today for cases it heard during the October 2022 term. The high court has already decided two major cases: Gonzalez v. Google and Twitter v. Taamneh, cases that challenged Big Tech’s liability protections.

The campaign
A glitchy start to the DeSantis campaign

An illustration shows Ron DeSantis’s live Twitter talk with Elon Musk as the governor announces his 2024 presidential run on Wednesday. (Chris Delmas/AFP/Getty Images)
Florida Gov. Ron DeSantis’s live presidential campaign launch on Twitter was beset by technical difficulties Wednesday evening, from glitches and echoes to hot mic moments, an awkward start for a candidate who might be former president Donald Trump’s most formidable primary challenger.

Even the best-laid plans … : “DeSantis and his allies worked to build momentum ahead of a long-expected presidential campaign launch on Wednesday — rolling out endorsements, sleek videos and the image of an alligator lurking just beneath the water on his campaign website,” our colleagues Hannah Knowles and Faiz Siddiqui write.

“But the novel ‘Twitter Spaces’ announcement with Elon Musk that the Florida governor’s team had hyped as the culmination of his big day was plagued by glitches in the evening. The live chat came to a halt after roughly 20 minutes of mostly silence; by the time it restarted and DeSantis began his remarks, hundreds of thousands of listeners had peeled off.”
As for Twitter’s billionaire chief executive, the technical problems “showed how Twitter is operating far from seamlessly, turning what was supposed to be a crowning event for Musk into something of an embarrassment,” the New York Times’s Ryan Mac writes.
From the courts
The gifts Justice Thomas used to declare

Supreme Court Justice Clarence Thomas attends the ceremonial swearing-in ceremony for Amy Coney Barrett on the South Lawn of the White House on Oct. 26, 2020. (Tasos Katopodis/Getty Images)
Newly resurfaced financial disclosure forms from the 1990s show that Supreme Court Justice Clarence Thomas, who is currently under fire for omitting information from his reports, once paid scrupulous attention to the items he reported, going as far as to report gifts worth less than $100 and clarify whether he received free travel on a private aircraft or a commercial one.

Thomas also disclosed the employment details of his wife, conservative activist Virginia “Ginni” Thomas, according to a review of documents from 1992 until 1999 that The Post obtained from Documented and Common Cause.

But Thomas stopped reporting the source of his wife’s income in 1997.

The justice is currently under fire for failing to disclose gifts, travel and real estate deals involving Dallas billionaire Harlan Crow.

Some of the gifts contained in the newly recovered forms, including a 1997 trip to the San Francisco area and stay at the Bohemian Grove, an exclusive all-male retreat in California, were paid for by Crow and previously reported by the Los Angeles Times in 2004.

The details
Private travel vs. commercial travel: Thomas reported receiving free plane trips and accommodations from various universities, associations and friends to deliver speeches and attend dinners, according to a review of disclosure forms during that seven-year period. At that time, he distinguished between private and commercial travel.

For example, Thomas reported receiving a free trip on a private jet to a Dallas Cowboys award dinner in 1994, according to the documents. He also reported traveling on a private plane to the 1999 Daytona 500. He served as grand marshal for the race during that year. All in all, Thomas reported accepting 15 private trips out of more than 70 total trips.
Ginni Thomas’s employer: Thomas is required to disclose the source of his spouse’s income under The Ethics in Government Act of 1978 and did so up until 1997. At that time, Ginni Thomas worked for House Majority Leader Dick Armey (R-Tex.) and then the Heritage Foundation beginning in 1999.

As our colleagues Shawn Boburg and Emma Brown reported last month, Thomas updated his financial disclosure forms in 2011 to include his wife’s employer after Common Cause raised red flags. “The justice said at the time that he had not understood the filing instructions.”
Gift reporting: During this seven-year period, Thomas reported receiving a wide range of gifts, including $100 in cigars from talk-show host Rush Limbaugh and a bust of British Prime Minister Winston Churchill worth $400 from The Claremont Institute.

The Los Angeles Times reported that from 1998 through 2003, Thomas received $42,200 in gifts — the most of any justice. Since then, however, Thomas has only reported accepting two gifts (both from Crow): a bronze bust of Frederick Douglass, valued at $6,484.12, and an award from Yale Law School, Thomas’s alma mater, that included a glass medallion and brass plaque valued at $530, per Emma and Shawn.