If only life were as simple as Schoolhouse Rock. One of the more famous songs of the now defunct Saturday morning cartoon taught children (and probably any parent within earshot) how a bill becomes a law—from the initial idea to the presidential signature.
The song was about 90 seconds, but the actual legislative process is a bit longer. It goes something like this…
- A bill (or resolution) is proposed by a member in one chamber of Congress, either House or Senate.
- It's sent to a full committee in that chamber, then likely to a subcommittee for further consideration, then back to the full committee. Example: The House Committee on Ways and Means was established in 1802 and is responsible for all taxation and revenue-raising measures—it currently has six subcommittees of its own.
- A bill can be killed at any time if any members of these groups choose not to move forward.
- If a bill is approved by the full committee, it's written up—often hundreds or thousands of pages that may or may not be read—then recommended to the floor.
- It's then scheduled on the legislative calendar,
- Debated by the full membership,
- And finally voted on.
Oh, and did I mention that's the process in just one of the chambers? That whole procedure is repeated in the other chamber too. And if those other guys pass the bill at all, it's likely to be dissimilar than the original. So then those two different versions have to be negotiated and reconciled…and then VOTED ON ALL OVER AGAIN in BOTH CHAMBERS. A bill can easily die or lose momentum at any of these steps. (And that's not to mention all the little stuff that can disrupt the process, like the Senate often needing 60 votes for cloture to fend off a filibuster.)
And then, if all that happens, the bill can finally go to the president, who can veto the whole thing if he doesn't like it. After all that!
It's amazing anything ever gets done. (And probably pretty shrewd of our forefathers to set it up that way.)
Aside from the obvious procedural hurdles, what else can delay the process? Politics itself. Remember, lawmakers are elected officials, and from the day after their election (we'll give ‘em that one night to celebrate), they're constantly focused on re-election. Sounds a bit sinister, doesn't it? Maybe a touch cynical? No way. Congress is like an incubator of Machiavellian conduct. The nature of our hotly contested two-party political system dictates the importance of re-election—the party in control has an easier time pushing their legislative agenda. One of the more important roles of senior members of Congress is helping freshmen representatives and senators get re-elected. With that first re-election under their belt, they become a lot harder to replace, as multi-term incumbents have it somewhat easier due to familiarity. This often leaves lawmakers focused more on what's effective and popular to sway swing voters than personal or party beliefs.
Compromise is the name of the game. With 435 house representatives and 100 senators each fighting for their own piece of the pie, it takes a long time to eke out a finished product, even if they are playing for the same team on the surface. But it isn't necessarily the spirit of compromise that brings our government's hallmark values of moderation and balance into play—rather, it's that re-election drive forcing representatives and senators alike to appear less radical, on the right or left, to their independent voters back home. Over the course of consideration, bills are typically chipped away at until many of the most controversial aspects—the ones that could most alarm moderate voters—are often left on the committee room floor.
The ongoing battle for health care reform is a prime example of the inherent obstacles of the legislative process. President Obama announced his goal of reform during his campaign, and now—nearly 10 months since he took office and despite an August deadline—the bill just saw its first full-chamber vote. It only narrowly passed the House, setting the stage for further debate in the Senate—and if it passes there as well, a potential showdown over controversial amendments when the two chambers must agree on a compromise version.
However, this protracted process isn't necessarily a negative—especially for investors. Stocks tend to favor the status quo. Political changes, especially those that disrupt free markets and impose unnecessary intervention can often lead to negative, unintended consequences, leaving stocks spooked. And this year, concern over legislative impact isn't surprising. With health care, climate change, and financial regulation, there's no shortage of major issues on the legislative docket. Regardless of your political preference, the implications for investors remain the same: The longer the legislative process, the less stocks have to worry about. 2010 is already around the corner and a legislative decision on any of these major issues—most of which were planned to be wrapped up by now—has yet to reach the president's desk.
It looks increasingly likely stocks' current bullish trajectory won't be pushed off course by any bills on Capitol Hill—at least through the next midterms.