Capital Thinking Update ~ November 19, 2012

General Legislative
The Congress has recessed until next week due to the Thanksgiving holiday.

Agriculture & Food
LEGISLATIVE ACTIVITY

 Farm Bill. There is an increased likelihood that Congress will pass a five-year Farm Bill during the
lame duck session, although the option of a one-year extension remains on the table in the House.
This week, both Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) and House
Agriculture Committee Chairman Frank Lucas (R-OK) stated that they are considering the possibility
of making the Farm Bill part of a deficit-reduction package to help Congress avoid the impending
fiscal cliff. Both bills would provide significant cost savings, as the Congressional Budget Office
(CBO) has scored the Senate-passed Farm Bill at $23 billion and the House Agriculture Committee’s
Farm Bill at $35 billion. Chairwoman Stabenow, however, has voiced strong opposition to
incorporating the House Agriculture Committee’s Farm Bill in a deficit-reduction package because of
its $16 billion cut to the Supplemental Nutrition Assistance Program (SNAP), while the Senate-passed
bill cuts SNAP by $4 billion. Speaker of the House John Boehner (R-OH) has remained largely silent
on whether the House will consider a five-year Farm Bill.

Should Congress pass a five-year Farm Bill, Chairman Lucas has expressed his concerns about the
Department of Agriculture successfully implementing new programs (i.e., crop insurance) in a short
period of time, and thinks that a one-year extension would provide the Department with more time to
establish and implement new programs properly.

 Senate Agriculture Committee Leadership. This week, Senator Thad Cochran (R-MS) contacted
Republican members on the Senate Agriculture Committee to determine his prospects for unseating
Senator Pat Roberts (R-KS) as Ranking Member.

REGULATORY ACTIVITY

 Renewable Fuel Standard (RFS). On Friday, November 16, the Environmental Protection Agency
(EPA) denied Governors Beverly Perdue (D-NC) and Mike Beebe’s (D-AR) petitions requesting a
waiver to the RFS. In its decision, EPA stated that the Congressional requirements for a waiver to be
granted were not met, despite the Agency recognizing the “significant hardships” the drought created
in many sectors of the economy. The Agency also stated that waiving the RFS would have minimal
impact on ethanol demand or energy prices in 2013.

Patton Boggs Capital Thinking Weekly Update | November 19, 2012
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Budget, Appropriations

 Supplemental Appropriations for Disaster Aid. As the damage assessments from Hurricane
Sandy continue to rise, Congress is considering whether to take up a supplemental appropriations
package during the lame duck to provide emergency disaster relief funding or to wait until early 2013
when damage estimates will be more complete. While FEMA has indicated it has sufficient money in
its Disaster Relief Fund to handle near-term needs, other agencies, such as the Army Corps of
Engineers, the Department of Housing and Urban Development, and the Small Business
Administration have disaster aid programs that are in need of additional funds to help with recovery
efforts. A variety of disaster relief bills have been introduced in both chambers and, despite previous
efforts to require offsets for federal disaster recovery funding, conservative lawmakers signaled a
willingness last week to accept a straight aid package.

Cybersecurity

 Cybersecurity Legislation. After much discussion and debate over the issue, but very little progress
made during the short September work period on the Cybersecurity Act of 2012 (S. 3414), the Senate
quickly brought the bill back up this week. Based on the limited number of work days left in the lame
duck session, they first voted down a motion Wednesday night not to limit debate on the bill itself,
allowing a potential filibuster on the bill, which effectively served to kill the bill for this Congressional
session. The move by Senator Reid (D-NV) to bring the bill to the Senate floor was seen as a last
attempt to allow Members to break the stalemate that had occurred among the Senators to date. The
inability to negotiate a compromise will most likely result in the Administration issuing an Executive
Order in the near future.

EXECUTIVE BRANCH ACTIVITY

 Executive Order. Discussion about the need for an Executive Order (EO) will be heightened at this
juncture and while it appears as if it is still in inter-agency review, it is likely to be released before the
end of the year. The Administration has met with Congressional staff and members of the private
sector to discuss the concept of the EO, gather feedback and address stakeholder concerns.

 Presidential Policy Directive 20. In mid-October, the President signed a secret directive that
established a broad set of standards for federal agencies in confronting cyber threats. This directive
will enable the military to act in a more aggressive manner to prevent cyberattacks against
government and private computer networks. Although the document is classified, Administration
officials have shared some general details about the document, saying that the directive is the most

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extensive effort to date to address “offensive” and “defensive” actions in cyberwar and cyberterrorism
in order to guide officials that may have to make quick decisions if confronted with a cyber-threat.

 Homeland Security Presidential Directive (HSPD) 7. The Obama Administration is continuing
efforts to rewrite the 2003 presidential directive that addresses critical infrastructure and cybersecurity
issues. In its original form, HSPD 7 established a national policy for the federal departments and
agencies to identify and prioritize critical infrastructure. The Administration has been in the process of
rewriting the directive for the last year and hopes to finalize it by the end of the year.

Energy

 Energy Taxes. As work towards averting the looming “fiscal cliff” of steep spending cuts coupled with
income tax increases set to take effect on January 1 continues, Senate Finance Committee member
Chuck Grassley (R-IA) has said that consideration of the $205 billion “Family Business and Tax Cut
Certainty Act of 2012” (which includes short-term energy tax extenders) will await bipartisan
negotiations between President Obama and Congressional leaders. Democrats support extending
clean energy tax incentives while some Republicans have consistently called for an end to popular
incentives, such as the wind Production Tax Credit set to expire on December 31. Congressman Mike
Pompeo (R-KS) believes that all energy tax incentives should be repealed as the nation grapples with
mounting federal debts. Meanwhile, House Natural Resources Committee Democrats have requested
that a Republican-requested Government Accountability Office (GAO) study of energy subsidies be
expanded to include all forms of federal support – beginning with the oil and gas industry’s permanent
tax incentives created in 1916.

 Comprehensive Energy Legislation. On Thursday, Senator Ron Wyden (D-OR), the incoming
Chairman of the Senate Energy and Natural Resources Committee, and Senator Lisa Murkowski (R-
AK), the returning Ranking Member of the committee, announced that they would be producing a
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“transformative” energy bill in the 113 Congress that would focus on jobs and the environment.
Senator Wyden indicated that a provision, for example, that would share revenue from offshore
drilling with coastal states could help achieve a balance between supporting jobs locally while funding
environmental stewardship initiatives.

 Congressional Hearings. The House Energy and Commerce Committee will host a third, bipartisan
“Clean Air Act Forum” on November 29. Participants representing state, local and tribal governments
will speak.

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REGULATORY ACTIVITY

 Hydraulic Fracturing. The Environmental Protection Agency (EPA) has requested stakeholder data
and scientific literature to help inform the Agency's full life-cycle research of potential impacts on
drinking water resources. Comments – with a preference for peer-reviewed information – are due by
April 30.

 LNG Exports. The thrice-delayed Department of Energy (DOE) analysis of natural gas exports is
expected by year’s end. The public interest assessment will consider energy security, economic and
environmental impacts, job creation, and the nation's trade balance. DOE's proposed policy on
processes and timelines for considering individual project applications must then undergo public
review before being finalized.

 FERC Order No. 768. The Federal Energy Regulatory Commission (FERC) will host a December 12
conference to address how to satisfy Electric Quarterly Reports required under Order No. 768. The
conference is also being webcast.

 FERC Section 219. The Commission has also issued a policy statement on “Promoting Transmission
Investment Through Pricing Reform” to provide guidance regarding its evaluation of applications for
electric transmission incentives under the Federal Power Act.

 FCPA Guide. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)
have released a Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA), which outlines
the federal government’s approach to and enforcement of the FCPA, including for energy service
providers.

 Gulf Lease Sales. Comments on the draft Supplemental Environmental Impact Statement for
proposed Western Gulf Lease Sale 233 (tentatively scheduled for 2013) and Central Gulf Lease Sale
231 (scheduled for 2014) are due by December 24. BOEM has scheduled public hearings to solicit
public comments December 3-6 in Houston, New Orleans, Gulfport and Mobile, respectively.

Environment

 Clean Air Act. On November 29, the House Energy and Commerce Committee, Subcommittee on
Energy and Power will hold a forum titled “State, Local and Federal Cooperation in the Clean Air Act.”
Participants representing state, local and tribal governments will provide their perspectives on
implementing the Clean Air Act.

 Weather Prediction. On November 28, the House Committee on Science, Space and Technology,
Subcommittee on Space and Aeronautics will hold a hearing on national priorities for solar and space
physics research and applications for space weather prediction. Charles Gay, Deputy Associate

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Administrator, Science Mission Directorate, National Aeronautics and Space Administration (NASA),
will testify.

REGULATORY ACTIVITY

 EPA Provides Fuel Waivers in Wake of Sandy. The Environmental Protection Agency (EPA) has
approved temporary fuel waivers to assist states impacted by Hurricane Sandy. EPA determined that
as a result of the hurricane, extreme and unusual supply circumstances exist, which may result in a
temporary shortage of gasoline compliant with federal regulations. The federal waiver is intended to
help ensure an adequate supply of fuels in the impacted states. The waiver allows the sale and
distribution of conventional gasoline in a number of Eastern states that are required to use
reformulated gasoline, and allows a number of additional states to mix reformulated gasoline and
conventional gasoline to alleviate barriers to the supply of gasoline to the region. The waivers were
granted by EPA in coordination with the Department of Energy (DOE). Using its authority under the
Clean Air Act, EPA temporarily waived certain federal clean gasoline requirements for gasoline sold
and distributed in Tennessee, North Carolina, South Carolina, Mississippi, Georgia, Alabama, the
District of Columbia, New York, Maryland, Connecticut, Delaware, Massachusetts, New Jersey,
Pennsylvania, Virginia, New Hampshire and Rhode Island. The EPA has also waived federal clean
diesel fuel requirements in New Jersey, Pennsylvania, and in and around New York City to allow the
use of home heating oil in highway vehicles, non-road vehicles and non-road equipment designated
by the states of New Jersey, Pennsylvania and New York for emergency response.

Financial Services

 Senators Consider Basel III. On Wednesday, November 14, 2012, the Senate Committee on
Banking, Housing, and Urban Affairs held a hearing titled “Oversight of Basel III: Impact of Proposed
Capital Rules.” The hearing focused on industry concerns regarding the complexity and burdens of
the inter-agency proposed rules on regulatory capital requirements related to risk weighting assets
and market discipline and disclosure. Witnesses included Michael Gibson of the Federal Reserve,
John Lyons of the Office of the Comptroller of the Currency, and George French of the FDIC.

 FDIC Leadership confirmed by Senate. On Thursday, November 15, Martin Gruenberg was
confirmed as Chairman of the Federal Deposit Insurance Corporation (FDIC). Thomas Hoenig was
confirmed as Vice Chairman. Mr. Gruenberg previously served as Vice Chairman of the Board,
assuming the role of Acting Chairman on July 8, 2011, upon Sheila Bair's departure as FDIC
Chairman. He previously served as Acting Chairman from November 15, 2005 to June 26, 2006.

REGULATORY ACTIVITY

 FSOC Addresses Money Market Funds. On Tuesday, November 13, the Financial Stability
Oversight Council (FSOC) met to discuss proposed recommendations regarding money market

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mutual funds (MMF) reform pursuant to its authority under Section 120 of the Dodd-Frank Act. Under
Section 120, the FSOC may provide for more stringent regulation of a financial activity by issuing
recommendations to the primary financial regulatory agencies to apply new or heightened standards
and safeguards. During the meeting, the FSOC used its authority to unanimously approve
recommendations to the Securities and Exchange Commission (SEC) on MMFs. The FSOC also
cautioned that once the SEC is able to move forward with its MMF reforms, the Council would
suspend its work to let the SEC process finish.

 CFTC to Appeal Position Limits Decision. On Thursday, November 15, the Commodity Futures
Trading Commission (CFTC) voted three to two to appeal a decision by the U.S. District Court for the
District of Columbia to vacate the position limits rule promulgated by the CFTC in January 2012.
When the announcement was made, Commissioner Bart Chilton, a supporter of the rule, called for
the CFTC to “provide a belt and suspenders approach to this important issue” and “concurrently
propose and finalize yet another position limits rule.”

Health Care

 Fiscal Cliff Negotiations. President Obama met with Congressional leaders on Friday to address
ongoing negotiations on deficit reduction. The President reiterated his support for extending tax rates
to lower income Americans, and Congressional Democrats will look to protect Medicare and Medicaid
benefits while Republicans seek changes in entitlement spending. With the Senate is out of session
until after Thanksgiving, negotiations are expected to resume in earnest in December.

REGULATORY ACTIVITY

 Exchange Deadline. The Department of Health and Human Services (HHS) announced this week
they will extend the deadline for states to declare their intent on exchanges, and whether they will
establish a state-based exchange, partnership exchange or allow for a federally-facilitated exchange
created and operated by the federal government. With little guidance coming from the Administration
on what a federal exchange might look like, states have clamored for additional time and more
information. States now have until December 14, 2012 to declare their intentions and exchange
applications. At the time of the announcement, 17 states planned for a state-based exchange, five
states chose the partnership exchange, 19 would have a federal exchange and 10 were undeclared.
Some states may alter their plans, however, with the extended deadline and additional guidance
expected from the Agency in the coming weeks.

 Regulations Under Review. With the election behind us, HHS and Centers for Medicare and
Medicaid Services (CMS) have returned to the business of promulgating regulations. The following
regulations are currently under review at the Office of Management and Budget (OMB): Exchanges
Rule Part II (Proposed Rule) that includes standards related to Essential Health Benefits,
requirements for insurance issuers in exchanges, and standards for actuarial value, accreditation and

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certification of health insurance issuers in exchanges; Provisions To Promote Program Efficiency,
Transparency, and Burden Reduction Part II (Proposed Rule) that may eliminate or modify duplicative
rules relating to providers (hospitals, SNFs, rehab hospitals, etc); ACA Health Insurance Market
Rules (Proposed Rule), that likely relates to 2014 private insurance market reforms, which could
include guaranteed issue and guarantee renewability, coverage of preexisting health conditions,
nondiscrimination based on health status, nondiscrimination regarding clinical trial participation, rating
restrictions, and waiting period limitation; Wellness Programs (Proposed Rule); and Health Care
Quality White Paper: Health Care Quality Provisions in the Affordable Care Act: Questions for
Stakeholders (RFI).

OTHER HEALTH NEWS

 GAO Medicaid Report. The Government Accountability Office (GAO) released a report titled “States
Made Multiple Program Changes, and Beneficiaries Generally Reported Access Comparable to
Private Insurance.” GAO found that from 2008 to 2011, more than half of states reported maintaining
or decreasing their average Medicaid application processing times--the average number of calendar
days between the receipt of a new application and the final determination of eligibility. The average
processing times reported by 39 states ranged from 11 to 45 calendar days. States reported making
numerous changes to provider payments, provider taxes and beneficiary services since 2008. While
more states reported provider-rate and supplemental payment increases each year from 2008
through 2011, the number reporting payment reductions and increased provider taxes also grew.
More states reported increasing services than limiting them. More than two-thirds of states reported
challenges to ensuring enough Medicaid providers to serve beneficiaries--including dental and
specialty care providers. States cited Medicaid payment rates and a general shortage of providers as
adding to the challenge. To attract new providers, more than half the states reported simplifying
administrative requirements or increasing payment rates.

 MedPAC Meeting. The Medicare Payment Advisory Commission (MedPAC) has scheduled their
next public meeting for December 6 and 7, 2012. Agenda details will be provided when available.

International, Defense, Homeland Security

 Russia/Moldova PNTR Developments. On Friday, the House of Representatives voted 365-43 in
favor of a legislative package granting Permanent Normal Trade Relations (PNTR) status, formerly
known as Most Favored Nation status, to Russia and Moldova. The Senate Finance Committee and
the House Ways and Means Committee both reported out PNTR bills over the summer as Russia
joined the World Trade Organization, and the U.S. business community has sought to repeal Cold
War-era Jackson-Vanik bilateral trade restrictions to take advantage of reduced tariffs for the Russian
export market. However, final action stalled on the floor of both chambers in the early fall, largely due

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to disagreements about how to address Russia’s human rights record as part of the final legislative
package.

Many House Democrats and some Republicans have voiced support for a more stringent, more
globalized version of the “Magnitsky” Russian human rights legislation that the Republican
Leadership plans to attach to the PNTR bill. However, the House Leadership’s version of the
legislation will pass. Senate human rights advocates, such as Senator Ben Cardin (D-MD), then are
considered likely to accept the House bill as a significant improvement over the status quo. Barring
last-minute complications, the Senate will then likely vote in favor of PNTR by the end of the year.

 Benghazi Hearings. In closed testimony before the Senate and House Intelligence Committees on
Friday, former Central Intelligence Agency (CIA) Director David Petraeus and his Congressional
inquisitors reportedly kept their discussions focused on the Benghazi, Libya attack and not the
circumstances surrounding the former general’s departure from the CIA. Petraeus apparently
emphasized that the CIA believed from the outset that the attack of the U.S. Consulate in Benghazi
was an act of terrorism and not the result of a spontaneous demonstration, although some Members
of Congress, such as outgoing House Homeland Security Chairman Peter King (R-NY), said they
questioned whether the Agency has been consistent in that message. The House Foreign Affairs
Committee also examined the attack in Benghazi on Friday. Additional Congressional Committees
are expected to follow suit in the coming weeks.

REGULATORY ACTIVITY

 Personnel Decisions. In the weeks ahead, the Obama Administration should make several high-
profile personnel decisions regarding its second-term national security team. Most experts predict that
Secretary of Defense Leon Panetta will step down, following a highly respected career in Washington.
Michelle Flournoy, the former Under Secretary of Defense for Policy, whom most Pentagon watchers
consider to be the leading candidate to succeed Secretary Panetta, likely would play an aggressive
role in tackling force structure and defense budget issues in the near term. Other leading candidates
to be Secretary of Defense include Senate Armed Services Committee Member Jack Reed (D-RI),
Deputy Secretary of Defense Ash Carter, and former Clinton Secretary of the Navy Richard Danzig.

Secretary of State Hillary Clinton will depart as President Obama’s second term begins, having
burnished her formidable political legacy following her highly regarded tenure at Foggy Bottom.
Senate Foreign Relations Committee Chairman John Kerry (D-MA) is a candidate to succeed
Secretary Clinton, but he might stay in the Senate given the chance that outgoing Senator Scott
Brown (R-MA) could win the special election to fill his seat. Senator Kerry has served as an ardent
and articulate defender of the Obama Administration’s foreign policy record and is a longtime
confidant of Vice President Biden. U.S. Ambassador to the United Nations Susan Rice also will
receive strong consideration, as befitting her rapid rise through the Democratic foreign policy
establishment. However, she would face a more arduous nomination process. Additional candidates
include Senator Richard Lugar (R-IN) and Representative Howard Berman (D-CA), both of whom lost
their bids to return to Congress.

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President Obama might nominate Tom Donilon to serve as Secretary of State, but his relatively lower
public profile and longtime advisory roles in Democratic Administrations make it more likely he will
remain in place as National Security Adviser. If Donilon does leave the West Wing, Ambassador Rice
and Deputy National Security Advisor Denis McDonough likely would be favorites for the post. Former
Deputy Secretary of State and Deputy National Security Adviser Jim Steinberg also may be
considered.

Most observers expect Ron Kirk to leave his post as U.S. Trade Representative as President
Obama’s first term comes to a close. Many experts view Michael Froman, who heads the National
Security Council’s international economic team, as the most likely choice to succeed Ambassador
Kirk. Froman has developed many allies in Washington’s trade policy community. Ambassador Kirk’s
two Washington deputies, Miriam Sapiro and Demetrios Marantis, also have cultivated strong
support. If President Obama seeks to bring in someone from outside his current Administration to
serve as USTR, he might tap Representative Berman, who is an expert on intellectual property issues
and has compiled a pro-trade voting record. If the President wishes to cross party lines with his
choice, retiring House Rules Committee Chairman David Dreier (R-CA) is an ardent trade advocate
with a history of bipartisan cooperation.

Homeland Security Secretary Janet Napolitano may well remain in place if Attorney General Eric
Holder does not leave the Department of Justice (DOJ) or President Obama does not nominate
Secretary Napolitano to replace him. If Secretary Napolitano were to leave the Department of
Homeland Security (DHS), several former or retiring Members of Congress and local law enforcement
officials, along with former Coast Guard Commandant Thad Allen, likely would be at the top of the list
to take her place.

Sequestration
To offset the required increase in the debt ceiling, the Budget Control Act of 2011 (BCA / P.L. 112-25)
mandated that a sequestration process would commence on January 2, 2013 if the Joint Select
Committee on Deficit Reduction and / or Congress failed to craft a $1.2 trillion deficit reduction plan.
The sequestration process will include automatic, across-the-board reductions in defense and non-
defense discretionary spending. For FY 2013, non-exempt federal agencies and programs would be
reduced by $109 billion: discretionary domestic (non-defense) programs by 8.2 percent;
mandatory/direct domestic (non-defense) programs by 7.6 percent; discretionary defense programs
by 9.4 percent; and mandatory/direct defense programs by 10 percent. Overall, the sequestration
process would cut spending across more than 1,200 non-exempt federal accounts—$54.67 billion
from defense programs; $38 billion from domestic discretionary programs; $11 billion from Medicare
(no beneficiary cuts); and $5 billion from other mandatory spending programs.

The year-end confluence of sequestration and the expiration of numerous tax provisions is referred to
as the “fiscal cliff.”

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 “Fiscal Cliff” Negotiations Begin. Post-election overtures of cooperation were heard from the
President and Congressional leaders of both parties, although these were quickly followed with
reiterations of their divergent tax policy positions. The President and Democrats remain committed to
increasing tax rates for the wealthy and House Speaker John Boehner (R-OH), while open to tax
revenue options, insists that this will not be accomplished through any increase in tax rates.

Last week President Obama held a press conference outlining his position on deficit reduction and
held a series of meetings with labor, union and business leaders in an effort to garner support for his
plan. On Friday, in what the President said he hoped would be the “beginning of a fruitful process,” he
met with Administration and Congressional leaders to present his opening position and kick off the
negotiations. In keeping with the deficit reduction plan he put forth in his FY 2013 Budget Proposal,
the President called for $1.6 trillion in new tax revenues during the next 10 years and urged Congress
to immediately pass legislation extending the current tax rates for household income up to $250,000.
Speaker Boehner also presented a framework for a plan including tax code and spending reform
strategies, noting that Republicans were willing to put revenue on the table, but only if it was coupled
with “significant spending cuts.” Following the meeting, Speaker Boehner, Senate Majority Leader
Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY) and House Minority Leader
Nancy Pelosi (D-CA) agreed that the meeting was “constructive” and felt confident they could move
forward with a compromise plan. Congressional leaders will continue discussions during the
Thanksgiving recess and meet again with the President after the holiday.

Tax

 Fiscal Cliff Talks Underway with President Obama Holding a Series of Meetings. In contrast to
the immediate aftermath of the election, which was notable for immediately changing the tone of both
House Republicans and the Administration with respect to bridging differences on tax policy,
differences between the parties have seemed to harden a bit over the last several days. The
President held a series of meetings and a press conference this week, focusing much of his attention
on the looming fiscal cliff. In meetings with labor and union leaders, President Obama called for
support in urging Congressional leaders to pass legislation extending the current tax rates for
households earning $250,000 a year or less, and took a strong position against extending the current
rates for higher earners, citing the recent election as evidence that voters support higher taxes for
higher earners.

The President held an opening round meeting with Congressional leaders on Friday at the White
House to discuss fiscal cliff options. At the meeting, House Speaker John Boehner presented a
framework for reform, including both tax revenue increases and significant spending cuts. Leaders
will continue to develop the framework over the Thanksgiving recess and plan to meet with President
Obama again the first week of December. Consistent with the President’s previous proposals, the
Administration’s opening position calls for $1.6 trillion in new tax revenues over the next ten years.

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Although the President heads to Asia this weekend, look for rhetoric on tax reform to continue from
both parties.

 Senate Finance Committee Conducts Fiscal Cliff Negotiations. The Senate Finance Committee
met November 15 concerning the fiscal cliff, and considered ideas beyond either extending all current
rates for a year or extending the current rates only for households earning less than $250,000. Other
ideas included raising the top rate to 37 percent (rather than the scheduled increase to 39.6 percent),
capping deductions while exempting charitable contributions, changing the way inflation adjustments
are made to Social Security benefits, and having a one-to-one ratio on revenue increases and
spending cuts.

 Ways and Means Chairman Camp Offers Fiscal Cliff Policy Statement. Chairman Dave Camp
(R-MI) released a statement on November 14 criticizing President Obama for failing to compromise
as time continues to run out with respect to the fiscal cliff. Chairman Camp noted that Speaker
Boehner offered a compromise position that included tax revenues in exchange for entitlement
reforms. He also criticized the President for continuing to back a policy that will raise rates on small
businesses.

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Chairman Camp reiterated his points when he spoke at the Tax Foundation’s 75 Anniversary Dinner
on November 15, and stressed the importance of comprehensive tax reform. In his remarks, he
stated that the Ways and Means Committee intends to move a comprehensive tax reform bill in 2013,
“no matter what.”

REGULATORY ACTIVITY

 FATCA Model II Agreement Published. On November 14, Treasury published its archetype for
FACTA Model II Agreements as part of its effort to continue to provide guidance under the Foreign
Account Tax Compliance Act (FACTA), which is intended to prevent U.S. taxpayers from evading
U.S. tax by holding funds in offshore accounts in foreign financial institutions (FFIs). The archetype
published this week is the second of two such intergovernmental model agreements. While a Model I
Agreement would require FFIs in partner countries to report U.S. taxpayer information to their home
tax authorities, which would then transmit the information to the U.S., this Model II Agreement would
allow FFIs in a partner country to report information concerning U.S. taxpayer accounts directly to the
U.S. under an agreed upon standard. The Model II agreement released on November 14 is based on
the Joint Statements the U.S. released on June 21, 2012, with Japan and Switzerland. The impetus
behind the Model II agreement is to allow FFIs in these countries to comply with FATCA through
direct reporting without violating their home country rules.

 Treasury Intergovernmental Agreement Negotiations Continue. The U.S. Treasury has
continued to meet this week with representatives from potential partner countries concerning
agreements under FACTA to share information about bank account holders in their respective
countries. Among the countries reportedly in negotiations with the U.S. Department of the Treasury
are Russia, China, India, Australia and South Africa. Expect to see negotiations continue in the
coming weeks as countries look to secure an agreement with the U.S. and bypass onerous
withholding charges.

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TechComm

 Safe Web Act. The Senate on November 14 voted to pass a House bill that would expand the
ability of the Federal Trade Commission (FTC) to stop Internet fraud and online scammers. The
U.S. Safe Web Act would permit the FTC to share information about cross-border fraud with
foreign law enforcement agencies and broaden the type of fraud that the Agency can take legal
action against. The bill was first passed in 2006 and the latest reauthorization bill is now headed
to the President's desk to be signed into law. “The U.S. Safe Web Act provides critically
important consumer protections, allowing the Commission to combat cross-border fraud, spam
and spyware,” said Congresswoman Mary Bono Mack (R-CA), the bill’s lead co-sponsor along
with Congressman G.K. Butterfield (D-NC).

 Web Streaming. The House Judiciary Subcommittee on Intellectual Property, Competition and
the Internet is poised to hold a hearing on November 29 on music royalty rates and the Internet
Radio Fairness Act, which was introduced by Representative Jason Chaffetz (R-UT). No witness
list has been announced yet. The Internet Radio Fairness Act would require the Copyright
Royalty Board to set the per-song royalty rates for Internet radio equal to the lower rates paid by
cable and satellite services. Pandora leads the Internet Radio Fairness Coalition, which also
includes Clear Channel and the Consumer Electronics Association, which supports the bill.
Opponents of the legislation include record labels and the Recording Industry Association of
America, which would rather see cable and satellite brought in line with higher rates that Internet
radio services are paying. They support a discussion draft introduced earlier this year by
Representative Jerrold Nadler (D-NY) that would require webcasters to pay a new performance
tax for terrestrial air play. A companion to the Chaffetz bill was introduced on the Senate side by
Ron Wyden (D-OR). "There is no functioning market here," Wyden said on November 13 during
a Future of Music Summit in Washington. "Webcasters pay five times the royalties paid by other
digital broadcasters."

 ECPA. On November 29, the Senate Judiciary Committee will mark up legislation that would
require police to obtain a warrant before reading people's emails, Facebook messages or other
forms of electronic communication. Committee Chairman Patrick Leahy (D-VT), attached the
warrant requirement as an amendment to H.R. 2471, a House bill that would ease video privacy
protections. H.R. 2471 would amend the Video Privacy Protection Act, which bans the sharing of
rental information with a consumer’s written consent. H.R. 2471 would allow users to opt in to
automatically share their viewing habits on social networks, in the same way that users can
already share on Facebook which songs they listen to and which articles they read. Leahy has
argued that his warrant requirement is necessary so that federal privacy laws keep pace with
changes in technology. Under the Electronic Communications Privacy Act (ECPA) of 1986,
police only need a subpoena, not a warrant, to read emails that have been opened and are more
than 180 days old.

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 Spectrum Auctions. The House Energy and Commerce Committee Subcommittee on
Communications and Technology will hold an oversight hearing on the broadcast incentive
auctions on December 12 in which all five FCC commissioners are expected to testify.
Subcommittee Chairman Greg Walden (R-OR) also has expressed his desire to hold a hearing
on receiver standards during the lame-duck session, although no date has been set yet.

REGULATORY ACTIVITY

 FCC Incentive Auction. The FCC plans to consider an Order regarding implementation of the
Local Community Radio Act at the Agency's November 30 open meeting. The Order would
address final procedures to approve more than 6,000 pending FM translator radio applications.
According to the FCC, “[t]he consideration of these items will represent the final steps toward
enabling nonprofit groups nationwide to apply for low power radio licenses to further expand the
diversity of local voices in the media landscape.” No other items are currently scheduled for the
November 30 agenda.

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Capital Thinking Update ~ November 19, 2012

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