Washington: What to Watch Now

The Senate Banking Committee is set to meet May 14 to consider the CLARITY Act, a bill to create a regulatory framework for cryptocurrency. Among other things, the bill would clarify when crypto tokens are securities and when they are commodities. It would give primary regulatory authority to the Commodity Futures Trading Commission (CFTC), with a secondary role for the Securities and Exchange Commission (SEC). A version of the legislation was approved by the House last summer.

The bill also attempts to resolve a months-long dispute between crypto companies and traditional banks over the payment of "rewards" on customer holdings of stablecoins, a type of cryptocurrency pegged to the U.S. dollar. Banks have argued that the rewards act like interest on bank deposits but without any of the regulatory structure that banks must comply with. Revisions to the legislation would ban rewards on stablecoin holdings but would permit them on other stablecoin activities, like payments or transfers. Banks continue to object to that and other provisions and have mounted a lobbying campaign in hopes of derailing this week's committee vote.

If the vote goes forward, a key will be whether any Democrats will support it, despite months of bipartisan negotiations. Bipartisan support is critical because the bill will eventually need Democrats to reach the 60-vote supermajority necessary for passage on the Senate floor. But Democrats are pushing for ethics provisions that target administration officials' ties to crypto businesses and a promise from the White House to nominate commissioners to fill the two vacant seats reserved for Democrats at the SEC and the CFTC. Republicans have been resistant but will need to make compromises to ensure the bill can pass the Senate floor later this summer.

The president will arrive in China on May 13, his first visit since 2017. Face-to-face meetings with China President Xi Jinping are set for May 14 and 15. Trade and tariffs are expected to be at the top of the agenda, but there will also be tricky discussions on Iran, Russia, Taiwan, artificial intelligence, and more. Trump will be bringing a group of 17 CEOs with him, including the heads of BlackRock, Citigroup, and Goldman Sachs. Tim Cook of Apple, Elon Musk of Tesla and SpaceX, and Kelly Ortberg of Boeing are among the other executives on the trip.

With gas prices averaging around $4.50 a gallon nationally (according to the American Automobile Association, or AAA) and considerably higher in some states, some lawmakers have been floating the idea of a temporary pause on the $0.18 per gallon federal gas tax as a way to bring prices down.

That possibility gained an important endorsement on May 11, when President Trump said in a CBS News interview, "We're going to take off the gas tax for a period of time, and when gas goes down, we'll let it phase back in." Only Congress can change the gas tax, but Trump's comments are already sparking action on Capitol Hill, where Republicans in both chambers are planning to introduce legislation for a temporary pause on the gas tax. Some Democrats have been calling for a gas tax moratorium as well. Whether such a plan could garner the broad support necessary for passage in both chambers isn't clear yet.

The Supreme Court's April 29 decision to strike down a major section of the 1965 Voting Rights Act has spurred several Southern states to try to redraw their congressional maps for this year's midterms. Then the Virginia Supreme Court decided on May 8 to invalidate that state's new congressional map, which had just been approved by voters on April 21. Both decisions will have a direct impact on the fight for control of the House of Representatives this November, where Democrats are hoping to win enough seats to flip the majority. The House currently has 217 Republicans, 212 Democrats, one independent, and five vacancies. Here's an update on the latest in the gerrymandering wars.

• Texas and California. The gerrymandering effort started last year when the Texas legislature redrew its congressional map to give Republicans as many as five new seats in the House. California voters passed a new map earlier this year that could give the state five more Democrats. Those maps will be in effect for this fall's election.
• Virginia: Voters approved a redrawn map that could have given Democrats four additional seats in the House. But the state court decision last week means that voters will be using the old map this fall, which currently has produced a 6-5 margin for Democrats.
• Florida: On May 4, the governor signed into law a new map that could net Republicans as many as four more seats in the House. Legal challenges were immediately filed, but it's unclear whether those will impact this fall's election.
• Southern states: The recent Supreme Court ruling has spurred several states to redraw their congressional lines. Tennessee moved the quickest, approving a new map on May 7 that effectively eliminates the state's only Democrat in Congress. Louisiana delayed its House primaries, which had been scheduled for May 19, so that it could draw new maps that may eliminate one or both of the state's Democrats in Congress. South Carolina and Alabama are also considering quick action on new maps. South Carolina has one Democrat in its House delegation, while Alabama has two.

The bottom line is that what initially seemed like a wash, with neither party coming out of the gerrymandering wars with much of an advantage, has now tilted decidedly in favor of Republicans. Some analysts think the outcome of all these redrawn districts could be a net of eight to 10 Republican seats.

But the important thing to remember is that voters still have to vote. Not every redrawn district will vote the way pundits and party leaders think. And Republicans were already at a significant disadvantage going into this November. Midterm elections are historically terrible for the sitting president's party. Since 1906, the president's party has gained seats in the House in only three midterm elections. The president's approval rating is low, which is typically another warning sign for his party's chances in the midterms. Elevated gas prices are another headwind for Republicans.

Much can and will change between now and November. Two weeks ago, Democrats were strong favorites to recapture the majority in the House this fall. Today, they remain a slight favorite, but the battle is likely to be much closer now.

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