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May 18, 2023
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THE TOP
Happy Thursday morning.
Let’s start the day with a scoop on embattled Rep. George Santos (R-N.Y.).
The Justice Department has privately asked the House Ethics Committee to hold off on its own probe into the freshman lawmaker. Santos was indicted last week on 13 federal criminal charges in New York.
Traditionally, the Ethics Committee has deferred to the Justice Department in such matters.
But in the Santos case, the Ethics Committee has refused to comply with DOJ’s request, according to several sources close to the issues. Instead, the Ethics panel is pressing ahead with its own Santos investigation.
There’s two main reasons for this. First, Speaker Kevin McCarthy clearly wants the Ethics Committee to move forward on a Santos probe no matter what federal prosecutors are doing. And secondly, the sheer breadth of allegations against Santos leaves the Ethics Committee plenty of room to maneuver without interfering in DOJ’s case, the sources said.
While the federal criminal charges against Santos in New York include fraud, money laundering, theft of public funds and making false statements, there are other avenues for the Ethics Committee to pursue.
For instance, a former Santos aide has claimed that the freshman lawmaker engaged in sexual misconduct. This is clearly within the purview of the Ethics Committee and almost certainly isn’t something the feds will follow up on.
Santos also has failed to fully disclose the source of $705,000 he loaned his 2022 campaign committee. That issue wasn’t covered by the federal indictment.
And there are potentially false or inaccurate statements on Santos’ financial disclosure reports and other official documents that congressional investigators can dig into. This includes whether the New York Republican continued to be involved in the operations of private companies while serving in Congress.
On top of everything, the Ethics Committee can hit Santos with failing to abide by the Code of Official Conduct for members. That includes behaving “at all times in a manner that shall reflect creditably on the House.”
The Ethics Committee announced it was launching a formal investigation into Santos back on March 2. Reps. David Joyce (R-Ohio) and Susan Wild (D-Pa.) are the chair and ranking member of the special investigative subcommittee. Reps. John Rutherford (R-Fla.) and Glenn Ivey (D-Md.) fill out the four-member panel.
We asked Wild about the Justice Department request that the Ethics Committee stand aside on the Santos matter.
“We’re not required to yield to the Justice Department,” Wild told us on Wednesday, although she acknowledged “it has happened regularly” in the past.
McCarthy’s support for the Ethics Committee moving forward was clear on Wednesday as House Republicans voted to shelve an expulsion resolution for Santos by referring it to the Ethics Committee.
“I don’t want to wait around for how long the court case could go on,” McCarthy told our friend Manu Raju at CNN. “I would rather have Ethics look at it.”
Perhaps the most surprising part of Wednesday’s vote was that Joyce and the four other Republicans on the Ethics Committee — including Chair Michael Guest (R-Miss.) — voted “yes” on referral. Ethics Committee members normally abstain from such votes. Wild and the Democrats on Ethics voted “present.”
Wild told us that Joyce had indicated to her that the Ethics Committee Republicans would vote present as well:
For his part, Guest said, “I didn’t feel that it was a matter that of which myself or other Republican members necessitated us voting present.”
— John Bresnahan and Mica Soellner
THE DEBT LIMIT
14 days: The treacherous path, plus Senate Dems fret
There are two debt-limit dynamics we wanted to explore this morning.
No. 1: The tightrope that White House and congressional negotiators have to walk in crafting a debt-limit and spending deal.
No. 2: The mood among Hill Democrats about what these negotiations will result in.
Let’s start with the tightrope. The S&P 500 was up 1% Wednesday on hopes that there will be a breakthrough soon on a debt-limit deal. There might be, but there’s no guarantee it will happen. Lots of hurdles remain.
Consider this: Speaker Kevin McCarthy said he won’t accept a deal without increased work requirements for social safety-net programs. President Joe Biden expressed modest willingness to enact new work requirements. House Democrats are firmly opposed to any additional work requirements. The Congressional Black Caucus, the biggest and most powerful bloc of House Democrats, came out forcefully against any changes to TANF, Medicaid and SNAP.
House Democrats have told us they are against budget caps that revert spending to 2022 levels — another McCarthy demand.
This deal, should it come together, is going to require the support of dozens of House Democrats — if not more than 100 — and a healthy number of Senate Democrats.
So let’s be realistic about how likely it is that a bipartisan agreement can be crafted and pass muster with majorities in both parties in the short timeframe that negotiators face.
Which brings us to Senate Democrats’ fears. There’s a growing sense within the Senate Democratic Caucus that Biden may have made a serious mistake by entering into direct negotiations with McCarthy. And based on our conversations with them, many Senate Democrats seem in denial that they would, in this scenario, have to swallow a deal that has been tilted toward House Republicans — all to avoid a default.
The question some Democrats are pondering — Did they already lose?
“We don’t flirt with debt ceilings. The other guys do,” Sen. Tim Kaine (D-Va.) told us. “It’s not a matter of winning. It’s a matter of upholding the full faith and credit of the U.S., and it’s what we take an oath to do.”
Biden is now facing increased pressure from progressives to invoke the 14th Amendment — which isn’t likely to happen and may not be legal anyway — as they express deep concern over what the Biden-McCarthy negotiations could produce. This, of course, is based on McCarthy’s red lines for work requirements, which are a must for Republicans, and opposition to any tax hikes, which are off the table for the GOP.
“Use the 14th Amendment. That’s the solution to this crisis,” Sen. Bernie Sanders (I-Vt.) told us. “You do not, at this moment in history, balance the budget, if you like, on the backs of the most vulnerable people, and leave billionaires untouched. That’s wrong.”
Here’s Sen. Elizabeth Warren (D-Mass.), who also backs the 14th Amendment strategy:
In many ways, Democrats haven’t yet come to grips with the fact that they may be forced to accept a Biden-McCarthy proposal that limits or reduces spending while imposing some new work requirements for safety-net programs.
Sanders and other staunch progressives likely wouldn’t vote for this type of deal anyway, but it’s going to take a sizable chunk of Democratic support to get this deal through both chambers.
Some Democrats are pressing the White House to put revenues on the table in the form of tax increases for the wealthy. That’s at least partly to show that McCarthy isn’t serious about dealing with the national debt and Biden should therefore act alone to avoid a default.
Biden did raise the issue of tax hikes — including closing some loopholes — in the last Big Four meeting, but this was rejected once again by Republicans, sources close to the talks said.
“I can understand the perspective, which is, ‘These people are nuts and let’s move on,’” Sen. Brian Schatz (D-Hawaii) said of the 14th Amendment push. “But I want to give the president and his team some room to try to find another pathway… I get that we’re going to have to land this. But I want us to all linger on how nutty these people are.”
Sen. Chris Murphy (D-Conn.) said Democrats “made a horrible mistake” by negotiating over the debt limit in 2011, which produced the Budget Control Act. He suggested that Democrats should simply try to run out the clock and force Republicans to accept a clean debt-limit hike or a default.
“I ultimately think that we’re better off forcing these guys to recognize that the only path is a clean increase,” Murphy said. “At some point you have to gauge whether a negotiation is possible based on your partner. And our partner here is in a daily meltdown.”
Just a note: House Democrats have 210 signatures on their discharge petition that could, if executed correctly, push a clean debt limit bill onto the floor. In order for this effort to be successful and get to 218 members, Democrats need moderate House Republicans to sign on. That’s not happening as of now.
— Jake Sherman and Andrew Desiderio
DIGITAL DOWNLOAD
House hunts for common ground on stablecoins
A crypto-focused panel on the House Financial Services Committee meets today to discuss reforms for the stablecoin sector.
As we’ve written recently, the two parties have been drifting apart on the effort to legislate on stablecoins, a type of crypto product that tries to maintain a steady value in order to be used in other digital transactions.
Lawmakers were closing in on a deal during the 117th Congress that was blown apart by the collapse of crypto exchange FTX last fall. Fast forward to now, and the bipartisan effort once dubbed an “ugly baby” by Rep. Patrick McHenry (R-N.C.) has been replaced by separate draft discussion draft bills from each party.
Both drafts, which will be discussed at length during today’s hearing, stem from those earlier negotiations. Democrats have a stablecoin bill that’s slightly bulkier than before, while Republicans opted for a slimmed down product.
Don’t mistake discord for dysfunction, though. The fact that Democrats introduced a proposal after Republicans went their own way suggests senior lawmakers like Rep. Maxine Waters (D-Calif.) are still open to some kind of deal. Even in the majority, Republicans know they need bipartisan buy-in if a stablecoin bill is going to pass the Senate anytime soon.
Some of the differences between the drafts are subtle. The bills’ definitions of “digital asset” are nearly identical — “any digital representation of value which is recorded on a cryptographically-secured distributed ledger” — but the Democrats’ bill tacks on a line including “any similar technology” at the end.
The Democrats’ bill also includes a new section that prohibits the “commingling” of customer funds and other assets owned by a stablecoin issuer — a phenomenon that played a key role in FTX’s collapse and subsequent investigations.
The Republicans’ proposal, meanwhile, does more to preserve a role for state governments in stablecoin supervision. State-licensed stablecoin companies would not need to register with the Federal Reserve in the GOP framework, though the Fed would retain some ability to oversee such companies in “exigent circumstances.”
These are significant differences, but we don’t think they’re irreconcilable. We’ll be listening closely for any sign that the two parties might close the gap this year and land on something that’s meaningfully bipartisan.
— Brendan Pedersen
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PUNCHBOWL NEWS EVENTS
NEW: We’re excited to announce our lineup of June events! Be sure to RSVP to join us in-person or on the livestream for these can’t-miss conversations.
Thursday, June 8 at 9 a.m. ET: Sen. Susan Collins (R-Maine) will join us at The Roost to discuss national security and foreign relations. Jill Albertelli, president, military engines for Pratt & Whitney, will join Punchbowl News founder and CEO Anna Palmer afterward for a fireside chat. RSVP now.
Tuesday, June 13 at 9 a.m. ET: Rep. Steny Hoyer (D-Md.) will take the Punchbowl News stage at The Roost to discuss digital equity and opportunity. Afterward, Broderick Johnson, EVP, public policy & EVP, digital equity at Comcast, will join Punchbowl News founder Jake Sherman for a fireside chat. RSVP here.
Thursday, June 15 at 9 a.m. ET: We’re sitting down with Rep. John Joyce, M.D. (R-Pa.) at Hawk ‘N’ Dove to discuss the future of healthcare innovation. The conversation will also focus on the future of cancer research following the Inflation Reduction Act. Dave Fredrickson, EVP of oncology for AstraZeneca, will join Punchbowl News managing editor Heather Caygle afterward for a fireside chat. RSVP!
ICYMI: Missed our conversation with Rep. Nancy Mace (R-S.C.) on Wednesday? Catch up on the full event here.
AND THERE’S MORE…
Rep. Elissa Slotkin (D-Mich.) is picking up two new endorsements — from VoteVets and Foreign Policy for America — in her campaign for Senate. Slotkin is the clear frontrunner in the Democratic primary to succeed retiring Sen. Debbie Stabenow (D-Mich.).
Rep. Eric Sorensen (D-Ill.) is leading a New Democrat Coalition effort calling on House Republicans to increase funding for the FBI, Bureau of Alcohol, Tobacco, Firearms and Explosives and U.S. Attorney offices. This, of course, comes during National Police Week and amid declining support among Republicans for federal law enforcement agencies.
We reported Wednesday on GOP tweaks to single out “local law enforcement” in a resolution opposing the defund the police movement.
— Max Cohen
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