The House Republican Conference is in retreat to central Virginia through the weekend to gather itself and devise a plan to move forward in the 113th Congress. Notably, Rep. Paul Ryan (R-WI) addressed the conference today stressing the significance of the debt ceiling as a negotiating tool while reminding the more precocious Members of the conference about the consequences of treating it as a casual matter.

 

The upshot from this retreat is that the intent is to devise a robust proposal that reforms entitlements (chained CPI for Social Security and Medicare eligibility age), specifies spending cuts and identifies revenue sources (closing loopholes and limiting deductions for higher income earners).

All of this cannot happen in two months. Therefore along with this proposal would be a short-term increase in the debt ceiling (six months, as three months is inadequate to expect action out of the Senate) to hammer out an agreement with the White House. House Republicans seem finally to be taking President Obama at his word that he will not negotiate under threat of default so this proposal is an attempt to find negotiating leverage using the debt ceiling without bearing responsibility for a default. However, this is the exactly the scenario the President doesn’t want and the White House will bristle at its introduction.

Within the House there is a desire to return to regular order rather than bake-n-vote deals fashioned by a handful of leaders (e.g. the Fiscal Cliff negotiation that resulted in the American Taxpayer Relief Act of 2012). Members want committee hearings and input; which really means many rank and file GOPers do not trust their leadership but also rightly want to do their jobs. Another reason for a six month repreive on the debt ceiling.

 

What the GOP House retreat yields is yet to be seen. As of now it appears Speaker Boehner (R-OH) and Minority Leader Cantor (R-VA) want to bring order to their conference after having to pass the Fiscal Cliff bill and Hurricane Sandy relief with less than a majority of the majority. Passing bills with less than a majority of the majority makes for more minority influence than would make any House Speaker comfortable. The next two months are do or die time for Speaker Boehner if he wants to retain his leadership into the second session of the 113th, which candidly is a shame but is the reality for a conservative considered to be moderate by many of his newest conference colleagues.

 

Defense:

Among the defense issues that will get notice in this new Congress will be (other than the immediate sequestration) Foreign Military Sales. The last four years the average FMS has been two and a half times what it was in the previous decade ($30 billion v. $12 billion). This growth is reflective of the Defense Department’s strategy of pivot (to Asia) and partnership (largely everywhere else). This is obviously very good for the US defense sector as FMS reached over $60 billion in 2012.

Energy:
On the Senate side expect the Committee on Energy and Natural Resources to run smoothly as Sen. Ron Wyden (R-OR) and Senator Lisa Murkowski (D-AK) have constructed a productive working relationship. If sequestration does go into effect the Department of Energy will see an eight percent budget reduction, which will trigger a fight between Republicans and Democrats over clean energy research. Watch for conflict over production and investment tax credits for the renewable energy sector.

This is a small slice of what to look for in both of these sectors; more tomorrow on these and others.