Back to Government Affairs: Mobility and the U.S. Administration
27 March 2017
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Dear Worldwide ERC® Member:
On Friday, the House Republican leadership pulled the American Health Care Act from floor consideration in the House due to a lack of support to pass the bill to repeal and reform the Affordable Care Act. House Republicans who didn’t reach consensus within their caucus on the legislation will have significant implications for other priorities of President Trump and congressional Republicans. The Trump Administration and the Republican-controlled Congress will likely now turn their attention to tax reform as they look for a win on a top issue. Tax reform presents its own unique challenges for passage, but the new administration and the House Republican leadership now have experience working together on a major initiative, and will be better prepared the next go-around.
You will find a section at the end of each issue area that summarizes how the activity since our last report would impact the workforce mobility industry. In this Government Affairs Community Update, we have outlined and explained this activity in the agenda of the new administration and Congress.
Our twice-monthly Government Affairs Community Updates continue to inform you of U.S. governmental activity, and give you an inside look at the impact of this activity on the mobility industry. Feel free to share this information within your company, and with your clients and colleagues, and we’ll be back with more essential 100 Days information and review on April 10.
Peggy Smith, SCRP, SGMS-T
Worldwide ERC® President and CEO
As discussed below, the Republican effort to repeal and replace the Affordable Care Act failed last week, and will not be revived, at least for this year. President Trump signaled his intention to move forward aggressively with tax reform, with a goal of moving legislation through the House by the August recess.
However, the failure of the ACA repeal effort also has ramifications for Republican tax reform plans, and further complicates them. Among other things, the ACA repeal bill would have eliminated the 3.8% tax on the investment income of high income taxpayers, and the 0.9% additional Medicare tax on those same taxpayers, as well as a number of other health-related tax impositions. Taken together, these provisions would have cut taxes by close to $1 trillion over the next ten years. Now those reductions will not take place.
As we have reported previously, Congressional and Administration officials have repeatedly promised that tax reform would be “revenue neutral,” meaning it will raise the same amount of revenue over the next ten years as the previous tax system. The repeal of the Medicare and other taxes in the ACA bill would have reduced the amount of revenue that the current system produces, in effect allowing around an additional $1 trillion of tax cuts as part of tax reform’s rate reductions and other changes. Now that reduction will not happen.
In addition, several observers of both political parties have suggested that the failure of the Republicans to come together on the health care issue may occur again as they confront the myriad trade-offs and tough decisions that will need to occur to enact tax reform. There is growing skepticism that tax reform can be accomplished within the time frame that has been the Republican goal, or even at all this year.
As yet, neither the Administration nor the House Republicans have moved to introduce tax reform legislation, and the Administration’s position on key issues, such as the business “border adjustment” provision of the House Republican Blue Print, remains unclear. Some outside groups continue to voice strong opposition to that feature of the plan. And a new study from the Mercatus Center at George Mason University suggests a number of unintended consequences might arise from the anticipated rise in value of the U.S. dollar over foreign currencies, including wealth loss for U.S. owners of foreign-currency-denominated assets, import tax evasion, and adverse effects on tourism.
Like the Medicare taxes discussed above, the border adjustment feature is an important driver of the revenue estimates for the Republican tax reform plan. The higher taxes on imports raise an estimated $1.1 trillion over ten years, which helps pay for the rate reductions and other features of the reform plan. Without it, tax reform becomes much more difficult from a revenue perspective.
Meanwhile, other changes suggested in the Blueprint continue to attract attention.
Although it is not specified in the Blueprint, it has been assumed from the plan statements that it would eliminate most deductions - except for mortgage interest and charitable deductions – and that the deduction for state and local taxes would no longer be allowed.
A recent report from the Tax Foundation supports that elimination. According to the report, the deduction disproportionately benefits higher income taxpayers, with 88% of the benefit realized by those earning more than $100,000. In addition, the deduction favors high-income, high-tax states, with more than 50% of the value going to only six states (California, New York, New Jersey, Illinois, Texas and Pennsylvania). The report favors elimination of the deduction.
Another feature of the Blueprint would eliminate interest deductibility for businesses, offset by a full deduction for capital investment. However, many in Congress believe this would unfairly affect small businesses who must borrow to finance investment. According to Ways and Means Committee Member Tom Rice, R-SC, the committee is actively working on several ways to exclude small businesses from the denial of interest deductibility.
Finally, the proposal to enact a reduced tax on repatriation of untaxed foreign business earnings in order to encourage companies to bring those earnings home has attracted new legislation. Representative Delaney (D-Md) introduced two bills on March 22, 2017 that would use reform of the international tax structure and the repatriation provision to create an “American Infrastructure Fund” to utilize the tax proceeds of the repatriation to fund infrastructure improvements nationwide. It has been estimated that the proceeds of the one-time repatriation provision would exceed $1 trillion. And again, as discussed above with other provisions, that money is earmarked under the Blueprint to fund other tax reform, not infrastructure.
How this will impact mobility: Fundamental tax reform will potentially affect every single business, and many of the provisions that companies rely upon in moving workers. Housing provisions that are important to mobility, such as the deductions for mortgage interest and property taxes, and the exclusion for home sale capital gain, are potentially at risk. Gross-ups would change. Also at risk is the deduction/exclusion for moving expenses. With failure of ACA repeal, it appears that tax reform will take the stage, and may move forward this year.
Mobile Workforce Act
The U.S. House Judiciary Committee approved the Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393) on March 22, 2017, by a 19-2 vote. The bill would specify that workers temporarily working in a state would not become taxable there until they had worked in the state for an aggregate of 30 days. The bill now moves forward to the full House, where it was approved last year.
How this will impact mobility: Companies are currently subject to a patchwork of individual state laws determining when a worker becomes taxable there, creating a great deal of work and uncertainty. Passage of the Act would create a beneficial nationwide standard.
Affordable Care Act
Since 2012, House Republicans have passed legislation to just repeal or also reform the Affordable Care Act (ACA) numerous times. However, they knew that then-President Obama would veto the legislation and thus had not developed a consensus on the specifics of the reform part, and rank and file members weren’t necessarily concerned about the finer details of the bill. President Trump had made repeal and reform of the ACA a major initiative of his campaign. With his election, Republicans now control the White House as well as the Congress, and planned to make good on their pledge to repeal and replace the ACA.
In February, House Republican leaders unveiled their legislation, the American Health Care Act (AHCA), to repeal and replace the ACA. In the first week of March, the legislation moved quickly through the House Committees on Energy & Commerce and Ways & Means with passage along party line votes. On March 13, the Congressional Budget Office (CBO) released its cost estimate on the AHCA, which concluded the bill would reduce the federal deficit by $337 billion over ten years, and increase the number of uninsured to 24 million by 2026.
The first true test of Republican support of the AHCA was on March 16, when the House Committee on the Budget met to combine the sections of the bill. Several members of the House Freedom Caucus, comprised of conservative Republicans who didn’t think the AHCA went far enough on the repeal part, sit on the Committee. The Committee approved the bill by a vote of 19 to 17 with three members of the Freedom Caucus voting with all Committee Democrats against the bill.
The White House and House Republican leaders agreed to make concessions to members of the Freedom Caucus by removing essential health benefits mandated under the ACA that all insurance policies cover. However, the changes weren’t sufficient enough for a majority of the members of the Freedom Caucus, and ended up dissatisfying a number of more moderate Republicans. Changes were also made to the bill to lessen the increase in cost under the bill to certain segments of the population that lowered the CBO cost estimate to $150 billion in savings over 10 years.
House congressional leaders postponed a vote scheduled for March 23 on the bill as they tried to round up votes. President Trump announced that day he would not negotiate further, and asked House Speaker Paul Ryan (R-WI) to schedule a vote for March 24. Over the course of the day, it became apparent to House Republican leaders that they did not have the votes to pass the bill, with 36 Republicans indicating they would oppose the bill, and an estimated dozen or more leaning toward not supporting it. Republican leaders could only lose 22 Republican votes on the bill, and thus pulled the AHCA from floor consideration.
President Trump and congressional leaders have stated that they plan to move on to other priorities with efforts on a repeal and replace of the ACA effectively dead for this year.
How this will impact mobility: The debate on repeal and reform of the Affordable Care Act impacts all Americans, as well as employers who provide health care coverage to their employees. As an industry that revolves around the workforce, changes to the ACA would affect our members and their clients and employees.
The President’s first proposed federal budget included a $239 million cut in IRS funding. Although this is a relatively modest cut compared to many other federal agencies, many involved in the tax system protested that the system could not sustain additional cuts at all. The proposed budget also stood in contrast to Treasury Secretary Mnuchin’s remarks at his confirmation hearing that the IRS needed more resources. It is not clear whether the budget proposal, which is preliminary ahead of a more detailed budget plan later, will be sustained.
How this will impact mobility: IRS ability to conduct audits has already declined to an all-time low. Consequently, the likelihood of audits affecting mobility issues, such as the tax treatment of home sales, would remain lower than in the past.
Consumer Financial Protection Bureau
On March 17, the Department of Justice filed a brief in support of PHH Corporation in its case against the Consumer Financial Protection Bureau (CFPB). The Department sided with PHH and the initial court ruling that the structure of the CFPB is unconstitutional. While somewhat unusual for the Department of Justice to side against an independent federal agency, the filing is not a surprise. The Department had requested the D.C. Circuit Court, which is rehearing the case, for an extension to the March 10 deadline for those entities seeking to file a brief in support of PHH positions. In its request for an extension, the Department of Justice noted an administration does not always agree with an independent agency as to its structure.
The position of the Department of Justice under the Trump Administration has changed from its position under the Obama Administration which helped create the CFPB. Under the Obama Administration, the Department had supported the request of the CFPB for the D.C. District Court to rehear the case. Congressional Republicans and the Trump Administration have been critical of the CFPB and the power its director has in managing the agency, and the lack of congressional oversight.
In October, the D.C. District Court ruled in favor of PHH on several key points. In particular, the court determined that the structure of the CFPB is unconstitutional, with its director only being removed by the President for cause. The Court determined the President could remove the director at will. The CFPB appealed the decision for the Court to rehear the case and the request was granted. The Court is scheduled to hear oral arguments on May 24.
How this will impact mobility: The relocation of a transferee often involves the sale and/or purchase of a home, hence the policies and practices involving real estate are of enormous direct impact to Worldwide ERC® members. The CFPB Director has enormous powers with little oversight from Congress or the Administration and thus the policy positions of a specific individual as director determines the direction of the Bureau. Having a director appointed by a Republican President would very likely take the Bureau in a different direction.
According to an article dated March 23 in Politico, the Trump Administration has prepared the necessary documentation to notify Congress that the administration plans to renegotiate the North Atlantic Free Trade Agreement (NAFTA). To open the trade deal to new negotiations, the Trump Administration needs to provide Congress with a 90-day consultation period before it enters into negotiations. On the same date, Mexico Foreign Minister Luis Videgaray told Bloomberg TV that Mexico was willing to dissolve NAFTA, but negotiations would likely be constructive and a renegotiated agreement would be reached.
How this will impact mobility: Trade agreements have a significant impact on the business relationships between countries and the need to relocate individuals between U.S. and foreign operations of employers. A renegotiation of NAFTA could result in U.S. and Mexican businesses making shifts in the locations of their operations and facilities.
New Suspension Executive Order
The Department of Justice has appealed the ruling of a federal judge in Maryland to temporarily block the new executive order denying U.S. visas for certain nationals of six countries. The Department is also purportedly preparing to appeal a broader restraining order issued the day before by a federal judge in Hawaii. The executive order was scheduled to take effect on March 16.
The appeal to the ruling by a federal judge in Maryland will be heard by the Federal Court of Appeals for the 4th District in Richmond, Virginia. On Friday, a federal judge in Virginia issued an opposing ruling in favor of the Administration, stating the executive order was justified. The restraining order temporary blocking the executive order still stands, with the Appeals Court scheduled to hear the case on May 8.
On March 6, President Trump signed a new order suspending certain nationals of six countries from entering the U.S. The order reinstitutes a temporary 90-day ban from entering the U.S. those foreign nationals from Iran, Libya, Somalia, Sudan, Syria and Yemen and a 120-day suspension for the Refugee Admission Program on refugees from those countries. Iraq is no longer on the list of countries subject to the suspension.
The executive order is a revised version of the initial executive order (EO 13769) issued on January 27. The revised order signed on March 9 includes exemptions and clarifications to the suspension that were not included in the initial order. The order would apply to foreign nationals who did not have a valid visa when the first executive order was issued, and do not have a valid visa and are outside of the U.S. on the effective date of the revised order. A waiver would be granted to those foreign nationals who meet several conditions including but not limited to being a lawful permanent resident of the U.S., are a dual national traveling on a passport of a non-affected country, have a green card and are seeking to reenter the U.S. or entering the U.S. for business purposes which would be significantly hampered by being denied entry.
The revised executive order includes exemptions and clarifications to the suspension that were not included in the initial executive order (EO 13769). The order applies to those foreign nationals who did not have a valid visa when the first executive order was issued, and do not have a valid visa and are outside of the U.S. on the effective date of the revised order. A waiver is granted to those foreign nationals who meet several conditions including but not limited to being a lawful permanent resident of the U.S., are a dual national traveling on a passport of a non-affected country, have a green card and are seeking to reenter the U.S., or entering the U.S. for business purposes which would be significantly hampered by being denied entry.
On March 9, the Trump Administration filed a motion with the U.S. Court of Appeals for the 9th Circuit to dismiss its appeal in the case of the initial executive order suspending foreign nationals from seven countries.
How this will impact mobility: The ability to move employees around the U.S. and the world is the foundation of our industry. Actions that suspend or prevent that movement have the ability to undermine a key tool for employers to ensure they have the appropriate employees in positions vital to their operations. Other nations could take similar actions in response to U.S. immigration policies and make it more difficult for U.S. citizens to enter their countries.
Our next Government Affairs Community Update/First 100 Days will be delivered to Worldwide ERC® members April 10, 2017.
Additional First 100 Days information can be found here: