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THE VAULT LOOKAHEAD

Warren on the Fed and the tax fight ahead

Lawmakers expect a bigger workload in a post-Chevron world

GOP lawmakers want more banks

Getting ready for Fraught Fed Fall

THE TOP

Warren on the Fed and the tax fight ahead

Happy Sunday afternoon. Programming note: Punchbowl News is off next week. We’ll be back Sept. 2 and the next Sunday Vault will arrive in your inbox Sept. 8.

Now onto news… Sen. Elizabeth Warren (D-Mass.) took the DNC stage in Chicago last week to give a passionate endorsement of Vice President Kamala Harris’ vision for the economy — and got a rousing reception. The Massachusetts senator is among the most influential Democrats on economic policy.

So we caught up with Warren this weekend to talk financial and tax policy. Here are the big takeaways.

News on a rate cut. We asked Warren about Federal Reserve Chair Jay Powell saying the “time has come” for the U.S. central bank to cut interest rates. Remember, that’s something Warren and her allies have been urging for a while.

Warren told us it’s time for “a significant cut in interest rates — at least 75 basis points.” That would be a much bigger cut than most economists expect.

Here’s Warren:

Warren didn’t mince words when criticizing how Powell has navigated monetary policy. She said he’s been “singing from only one page out of the hymnal” rather than considering both inflation and job protection, the Fed’s dual mandate. The unemployment rate has remained low but gradually climbed upward this year.

Taxes and the election. Warren said Democrats should highlight their plans on taxes ahead of the election. She framed the debate over the expiring Trump tax cuts as a “fight over the economic direction of the entire nation.”

“2025 is our chance to make the tax system fairer overall, to make those at the top pay a fair share, and to… cut taxes for those who need it most,” Warren said. “This is the sharpest possible contrast with Trump and the Republicans.”

Here’s more:

On the DNC stage and in our interview, Warren framed Harris as a fighter on economic issues and the right kind of leader for Democrats in the 2025 tax fight.

“She’s a tough negotiator, and she’s not afraid to walk away from a bad deal,” Warren said.

Hold the line. Warren and fellow progressives are working to get Democrats to take a hard line going into any tax negotiations with Republicans. They’re pushing the idea that it’s better for all the Trump tax cuts to expire next year than for Democrats to agree to something that doesn’t meaningfully change the tax system.

“A bad deal on taxes cripples our nation,” Warren said. “It runs up deficits, and at the same time, leaves us with no money for infrastructure and child care.”

When we asked about colleagues who might get antsy about letting all the tax cuts expire, Warren said:

Warren highlighted Democratic proposals to raise the top individual income tax rate and other taxes on the wealthiest Americans, address the carried interest “loophole,” continue “strong funding” for the IRS and adopt a 15% minimum tax on corporations’ foreign profits.

On Dems’ crypto embrace. Senate Majority Leader Chuck Schumer embraced the digital asset world at a “Crypto4Harris” event this month. When we asked Warren about that, she avoided commenting directly on Schumer’s crypto support.

Instead, Warren emphasized the need for guardrails and extending anti-money laundering protections to crypto. Of course, the industry hates that push. Warren argued political leaders generally agree the financial system shouldn’t “assist terrorists, drug traffickers and scam artists.”

“I have no problem with people who want to buy and sell crypto. My concern is law enforcement,” Warren said.

One more thing: Reps. Abigail Spanberger (D-Va.) and Garret Graves (R-La.) will announce tomorrow they’re filing a discharge petition to force the Social Security Fairness Act to the House floor. The bill would scrap the WEP and GPO, which limit retirement benefits for some public workers.

Discharge petitions force leadership’s hand and rarely succeed. But this bill has 325 cosponsors in the House, so it’s one to watch.

– Laura Weiss

COURTWATCH

Lawmakers expect a bigger workload in a post-Chevron world

The Supreme Court’s decision earlier this year to overturn the Chevron doctrine was one of the most consequential in the realm of federal policymaking in decades.

It will give agencies far less discretion in how they implement laws and will make the courts — not regulators — the arbiters of how legislative gray areas should be interpreted.

Most of the attention has focused on how agencies will handle the fallout from the ruling.

But it will also have a big impact on how Congress writes laws, something members are just now trying to wrap their minds around.

In short, Congress may have to be much more prescriptive in how it writes bills if it doesn’t want the details hammered out in the courts.

Republicans love the Court’s decision while Democrats loathe the ruling. But now both parties will have to deal with its repercussions.

More work ahead: Senate Finance Committee Chair Ron Wyden (D-Ore.) said the panel has always emphasized being as explicit as possible when writing tax bills to make Congress’ intent clear. But in the wake of the Chevron decision, he told us staff will be working harder to be sure they’re specific and direct when crafting laws.

“We’re going to focus on trying to do even more,” Wyden said. His staff director, Joshua Sheinkman, nodded along in agreement as Wyden spoke about redoubling Finance’s efforts.

Sen. Bill Cassidy (R-La.), who cheered the Chevron decision, also said his aides on the HELP Committee, where he’s ranking member, are discussing how the ruling affects the process of drafting bills.

Cassidy said he hopes the ruling will impact how Congress writes tax laws.

Here’s more:

Sen. Kevin Cramer (R-N.D.) said lawmakers need to be prescriptive about what they intend. But he added they should also avoid falling into the “trap” of adding too much detail and dictating things where they don’t actually want regulators to intervene.

Here’s more from Cramer:

Meanwhile, lawmakers — both Democrats and Republicans — have designs on next legislative steps.

Some Democrats are hoping the Republican love affair with the Chevron ruling may fade in the coming years. Their message: Be careful what you wish for.

“What happens when it’s under a Republican administration and rules that they’ve promulgated start getting torn apart as well and getting challenged on the other side?” Sen. Ben Ray Luján (D-N.M.) said.

Banking corner: The stakes for financial services policy are distinct from some other areas of the law. But we still expect the ramifications of Chevron being overturned to be far-reaching.

Senate Banking Committee Chair Sherrod Brown (D-Ohio) told reporters: “There is real interest in what we do about Chevron.”

The immediate battle will be over financial regulations already tied up in court. Litigation from the financial industry has already had significant success stalling core elements of the Biden administration’s bank regulatory agenda. The Chevron ruling will give industry another legal weapon.

House Republicans, meanwhile, see an opportunity to build off the ruling and further restrain regulators.

“The decision overturning Chevron opens up massive opportunities for our committee to hold a hearing and do some of our own work here,” said Rep. Andy Barr (R-Ky.), a leading contender to be the next chair of the House Financial Services Committee.

– Laura Weiss, Brendan Pedersen and Dave Clarke

DE NOVOS

GOP lawmakers want more banks

There’s the financial policy you hear a lot about – capital reform, credit card reform, crypto, crypto, crypto – and then there’s the financial policy that’s been simmering in the background.

De novo banking is one of the latter, but it’s one Republicans have been talking about for years. “De novo” is a fancy legal term for a bank with a new bank charter – a vanishing phenomenon in financial policy going back decades.

A GOP trifecta in 2025 could give legislators the policy opening they need to make it easier for new banks to appear on the scene.

Personnel meet policy. When we interviewed the two of the frontrunners to be the next top Republican on the House Financial Services Committee earlier this summer, both Reps. French Hill (R-Ark.) and Andy Barr (R-Ky.) said more de novo banking was a priority.

For Hill, who helped launch Delta Trust & Bank based in Little Rock, Ark., in 1999 as its CEO, the decline in newly chartered banks has everything to do with Dodd-Frank policies after the 2008 financial crisis.

“It made it more challenging for citizens to do start-up banks,” Hill added. “The threshold of starting up an institution is substantially more costly and complex and higher than it was before Dodd-Frank.”

Barr echoed Hill when he told us: “What we need in this country is public policy that protects and promotes new bank formation.”

Policy breakdown. It’s worth taking a second to ask what de novo-friendly policy might actually look like. For now, Barr and Hill are keeping a lot of policy specifics of their would-be committee stewardship close to the chest.

But one of the general complaints about the current state of de novo banking is how the capital requirements function. Sound familiar?

Bank regulators, who grant de novo charters, often give new institutions higher capital requirements than like-sized older banks. Banking is hard, and trusting an untested team to do it without incurring serious losses can be harder!

There are clues about how Republicans would approach this policy. Barr introduced the Promoting Access to Capital in Underbanked Communities Act in 2023. That bill would phase-in certain capital standards for de novos over a three-year period. It would also lower a key leverage ratio for community banks in rural communities from 9% to 8% in those three years.

Barr’s bill cleared the House Financial Services Committee in May but along strictly partisan lines. As long as the Senate filibuster persists, Republicans are going to need some kind of Democratic buy-in on financial services reform.

– Brendan Pedersen

CENTRAL BANKLANDIA

Getting ready for Fraught Fed Fall

Tired of brat summer? Unclear on what that actually means? You’re in luck! A new season is right around the corner, and it only peripherally has anything to do with pumpkin spice lattes.

Get ready for Fraught Fed Fall!!

The Federal Reserve has charted a new course in the weeks ahead with significant stakes for the U.S. and global economy. It may also put the central bank on a collision course with politics, though the Fed appears to have made peace with that.

On Friday, Fed Chair Jay Powell announced that it was “time” for the Fed to start cutting interest rates. The Federal Open Market Committee will announce its next interest rate move on Sept. 18, the last time the panel is scheduled to convene before the 2024 general election.

This is, for all intents and purposes, good economic news. Lower rates will slowly lead to cheaper credit and more favorable economic conditions for businesses and consumers. To all the Hill staffers (and reporters) who have asked us over the last six months whether mortgages will get cheaper soon, the answer is now yes! Probably!

The Fed has been wary about declaring victory over inflation. A lot of lawmakers and economists have said the Fed has, in fact, been too wary and now risks triggering a recession.

The data points. Economists and the Fed have a few key indicators coming up that will give them their last broad looks at the economy before the cuts start coming. These figures will determine just how sharply the Fed cuts.

While some officials have suggested the U.S. central bank should cut “gradually” — likely in increments of 25 basis points — Powell himself didn’t use the word on Friday. The greater the signs of the economic cooling, the more likely we see sharper cuts.

The big data releases between now and mid-September will be:

Aug. 30: Personal consumption expenditures price index, published by the Commerce Department.

Sept. 4: Job openings and labor turnover survey, or JOLTS, from the Bureau of Labor Statistics.

Sept. 6: The employment situation, including the headline unemployment rate, from BLS.

Sept. 11: The consumer price index, also from BLS.

– Brendan Pedersen

… AND THERE’S MORE

Environmentalists, life insurers staff up. Plus, ad hits taxes on tips.

Downtown download: The major environmental advocacy group, the Natural Resources Defense Council, brought on Arnold & Porter’s David Skillman and Paul Waters to lobby on taxes. The hire is focused on “[i]ssues related to Treasury regulations re: tech-neutral tax credits.”

The American Council of Life Insurers hired Hollier & Associates’ William Hollier, Senate Finance Committee ranking Republican Mike Crapo’s (Idaho) former chief of staff and legislative director, to lobby on taxes. That includes “legislation to repeal capital tax treatment for debt investments in favor of ordinary treatment” and reauthorization of the Trump tax cuts.

The National Corn Growers Association hired Akin’s Jeff McMillen and Zachary Rudisill to lobby on taxes, specifically “[t]ax issues regarding renewable fuels.”

On the airwaves: Who doesn’t hate taxes on tips these days?! Sen. Jacky Rosen’s (D-Nev.) campaign started airing an ad this week in Spanish to tell voters she’s working across the aisle to make sure tipped wages are tax-free. The ad argues it’s time for big corporations to pay more in taxes and give workers a break.

“¡cero! $0 impuestos” flashes across the screen, as the ad shows restaurant workers intercut with footage of Rosen.

Getting rid of taxes on tips has blown up politically, with both presidential candidates now embracing the idea as they vie for Nevada voters. The Trump campaign is up with its own ads hammering the issue.

– Laura Weiss

MOMENTS

CLIPS