House GOP spending bill is a wish list of deregulation

The appropriations bill has numerous riders designed to stop the SEC's climate rule, Consolidated Audit Trail, and other regulations.

House Republicans this week put forth an almost surely dead-on-arrival spending bill aimed at blocking IRS enforcement and several SEC rules disfavored by the party.

The appropriations bill, which is now in committee and would need to be marked up by the full House, proposes funding 20 percent lower than President Joe Biden’s request and 10 percent below current levels. It also contains numerous riders for different government agencies, ranging from restrictions on federal funds around abortion to preventing the Securities and Exchange Commission from implementing its climate-disclosure rule for public companies.

Even as the federal budgeting process has become increasingly contentious and politicized, the strategy of disarming regulators through funding cuts has had little success – and few if any riders in the spending bill might ultimately be considering in the wider Congress.

“This is the first step in the House GOP’s appropriation [process]. They clearly didn’t make an effort to make it bipartisan,” said Bonnie Johnston, senior policy counsel at LXR Group. “This bill is very much likely dead on arrival.”

Largely that is because of a debt-ceiling agreement between House Republicans and the president that started with former Speaker Kevin McCarthy, R-Calif., that limits the size of spending cuts, Johnston noted.

Along with restrictions on the SEC’s climate-disclosure rule, Consolidated Audit Trail rule, proposed swing-pricing rule, and requirements for digital assets custody, the bill seeks to cut $2 billion from the Internal Revenue Service for its enforcement funding and block spending for the agency to build publicly available tax preparation software. Additionally, the bill would bring the Consumer Financial Protection Bureau into the appropriations process and reduce its funding.

The latter is surprising, given a decision by the US Supreme Court last month that affirmed the CFPB’s funding structure, Johnston said.

Regardless, House Republicans may stick to a couple of the riders during the budget process, potentially focused on the SEC’s climate rule, digital assets custody guidance, and Consolidated Audit Trail, she said. On the Consolidated Audit Trail, the party has attacked the regulator over privacy and data security concerns that go along with its vast collection of trading data under the rule that is slated to go into effect in July.

A spending bill in the Senate will likely be more bipartisan, and there will almost certainly be big differences between that and the House version, Johnston said.

“Appropriating the SEC with almost $600 million less than the SEC has requested would likely have a significantly negative [effect] on the agency. It would likely undermine the SEC’s ability to fully examine and enforce the securities laws, protect investors, and hold wrongdoers accountable,” said Micah Hauptman, director of investor protection at the Consumer Federation of America, in an email. “These policy riders largely represent a political wish list rather than policies that respect investor interests.”

Most of the attempts to block agency rules through funding will be scrapped in negotiations with the Senate, but a few could get through in the process, said Milan Dalal, managing partner at Tiger Hill Partners and former staff director in the Senate Banking Committee’s securities subcommittee, in an email.

“Attempting to block agency rulemakings via appropriations has become a perennial exercise, especially with respect to the SEC. Given the breadth of Chair Gensler’s agenda, it is not surprising to see so many rules targeted in the House process by Republicans,” Dalal said. “Earlier this year, but for the last-minute intervention of a handful of conscientious Democratic senators, the Consolidated Audit Trail would have been defunded. Additionally, Sen. [Mitch] McConnell frequently secures a prohibition on appropriated funds being used to finalize a rule requiring disclosure of corporate political spending.”

The numerous riders in the spending proposal hint at what could be prioritized in a second Trump administration, should the former president regain office, said Dan Crowley, partner at K&L Gates, in an email. But in the current Congress, the bill represents a starting point, and it is likely that federal agencies will get level or increased funding, he said.

“Both sides have a vested interest in maintaining well-regulated capital markets,” he said. “Investor confidence, which is sine qua non for capital formation, depends on it.”