Back to Government Affairs: Mobility and the U.S. Administration
January 16, 2017
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Dear Worldwide ERC® Member:
As we educate ourselves on the transition in the U.S. administration, we are aware of how interconnected we are. What happens in one part of the world impacts other countries and businesses, so understanding the changes that are happening before us is critical to our effectiveness as mobility professionals. Our Government Affairs Community Update will be provided to members on the second and fourth Monday of each month, and we hope that our reporting helps you position your work for a most successful year.
Peggy Smith, SCRP, SGMS-T
Worldwide ERC® President and CEO
Timing for tax reform is still unclear. Although House and Senate leaders are still planning to introduce comprehensive tax reform legislation within the first 100 days, Trump administration officials have signaled a preference for a strategy with two separate tax reform packages. The first would address business and international taxation, while individual tax changes would be delayed until later. There is some bipartisan support for elements of business tax reform, and individual tax reform is viewed as much more difficult. Worldwide ERC® has continued to plan for intervention as individual tax reform begins to be considered, reaching out to allied organizations such as the National Association of Realtors (NAR), and meeting with the American Moving and Storage Association (AMSA) to discuss strategy for defending the moving expense deduction.
On the business tax reform side, the House Republican “border adjustment” cash flow tax plan for business has begun to come under fire from several business sectors. Under that plan, exports would not be taxed, but imports would be. In addition to concerns about whether such a tax, which mimics a VAT but remains an income tax, would violate World Trade Organization (WTO) rules, it would favor some industries over others. For example, the oil and gas industry has complained that it would be disfavored, and recently a coalition of business groups who rely on global supply chains (such as retailers and auto manufacturers), expressed concern in a letter to House Ways and Means Committee leaders that the plan would lead to “reductions in employment, reduced capital investments, and higher prices for consumers.” It remains unclear how this type of change would affect companies primarily in a service business, such as relocation management companies, but most Worldwide ERC® corporate members would be impacted, some positively and others negatively.
In the meantime, Trump administration economic advisors have continued to suggest the possibility of a 10% tariff on imports.
States have begun to chime in with concerns about the effect of tax reform on state budgets. These concerns fall into three general areas:
- First is the dramatic impact on state revenues that might result from a large reduction in corporate tax rates (most states with an income tax follow the federal tax code), and the possibility that state corporate taxes might have to be replaced with some form of gross receipts taxes;
- Second is the effect of a possible repeal of the federal tax deduction for state taxes, which would put pressure on state tax rates and tax policies; and
- Third is the possible loss of tax exemption for interest on municipal bonds, although Trump administration incoming officials have attempted to reassure the states on that issue.
Other constituencies are also beginning to voice concerns. Charities are worried that the Trump proposal to cap itemized deductions at $100,000 ($200,000 married) would have an adverse effect on charitable giving. And a large coalition led by NAR has mobilized to defend the mortgage interest deduction, which is a key provision of interest to Worldwide ERC® as well.
Signaling where the partisan battle lines are likely to be drawn, on December 8, 2016, the Democratic tax staff of the Senate Finance Committee released a memorandum to Democratic members of the committee listing problems with Republican tax plans that should be emphasized by Democrats. Key problems listed: (1) the House Republican plan is “highly regressive and fiscally irresponsible;” (2) the plan “expands many tax breaks for the wealthy and cuts back many deductions and credits that are important to the poor and middle class;” and (3) the business destination-based cash flow plan “is confusing, untested, leads to bizarre results, and is possibly illegal under WTO [World Trade Organization] rules.” Look for these assertions to be debated at some volume during the next few months. Altogether, this adds up to a turbulent period for those concerned with tax policy, and great uncertainty going forward.
Affordable Care Act
House Republicans have voted numerous times to repeal the Affordable Care Act (ACA). However, they knew that President Obama would veto any repeal measure should it make it through the Senate. So a consensus by Republicans on a comprehensive replace piece was not fully fleshed out. With President-elect Trump, who ran on a platform which included repealing and replacing the ACA, taking office in less than a week, Congressional Republicans are working hard to figure out the ACA replacement, as well as the timing.
Since Senate Democrats have 48 votes and a 60-vote majority is necessary to pass legislation, Republicans plan to use the Budget Reconciliation process, which needs a simple majority to repeal the ACA. However, they first need to pass a FY2017 Budget, which the Senate did on January 11 by a vote of 51 to 48. The vote was largely along party lines with only Senator Rand Paul voting against the measure due to broader deficit concerns. On January 13, the House followed with passage of the measure. Passage of the budget measure is a necessarily initial formality with the actual vote for repeal of the ACA coming with the FY2017 Budget Reconciliation Bill.
The complicated part of the equation is the replacement of the ACA. While the individual mandate is not popular, many of the provisions which impact all health insurance plans—such as insurers not being able to turn people away for preexisting conditions, and children being able to stay on their parent’s health plan through the age of 26—are popular. It will be a delicate balance to time the effective dates of repeal and replacement as well as what provisions ultimately remain. Many of the replacement pieces of the ACA cannot be completed through budget reconciliation and will require the approval of a 60-vote majority in the Senate, which complicates the effort even further.
Finally, there is the issue of offsetting the cost of the repeal and replace. Congressional Democrats had included offsets in the ACA with the Congressional Budget Office determining that it would save money. One offset that Worldwide ERC® has been following closely is the additional Medicare tax on high-income earners.
President-elect Trump has regularly promised to roll back federal regulation, which he views as stifling American business and contributing to underperformance by the economy. For example, he has promised that once in office, his administration will remove two regulations for each one it approves. Targets include environmental regulations, employment regulations, and many others. Moreover, observers expect that the Trump administration may simply stop defending some regulations that are currently being challenged.
A key to what may happen with federal rules is the incoming director of the Office of Management and Budget (OMB). That office oversees executive agencies and departments and reviews agency proposed regulations. Within OMB is the Office of Information and Regulatory Affairs (OIRA), to which agencies must provide an assessment of anticipated benefits and costs of regulations deemed significant. OIRA also determines whether a rule is a “major rule” with an annual effect on the economy of $100 million or more for purposes of the Congressional Review Act, which allows Congress to disapprove a rule deemed a major rule before it goes into effect. President-elect Trump has nominated Rep. Mick Mulvaney, R. SC, to lead OMB.
Representative Mulvaney, while in the House, was an original co-sponsor of far-reaching proposed legislation in 2016 (the “Separation of Powers Restoration Act”) that would have made many changes limiting the administration’s ability to promulgate regulations.
A resumption of that effort was one of the first orders of business for the incoming Congress. The House of Representatives on January 11, 2017, passed the “Regulatory Accountability Act of 2017” (H.R.5), this year’s version of the Separation of Powers act. H.R.5, among many other changes, would eliminate a judicial rule based on Supreme Court decisions that require courts to give “deference” to regulations adopted by federal agencies. Under that authority (generally referred to as the “Chevron rule”), if a statute is ambiguous, courts will not overrule an agency interpretation of the statute unless it is “arbitrary or capricious in substance, or manifestly contrary to the statute.” H.R.5 would eliminate that rule and charge the courts with independently interpreting the statute.
In addition, H.R.5 would require agencies to evaluate all reasonable alternatives and choose the lowest cost, as well as prevent high impact rules from taking effect until final disposition of all actions filed within 60 days seeking judicial review. A “high impact” rule is one with an annual impact on the economy of $1 billion or more. Also included in H.R.5 is a requirement that issuers of major rules, high impact rules, rules with a “negative impact on jobs and wages,” and rules that involve a “novel legal or policy issue arising out of statutory mandates” issue an advance notice of proposed rulemaking no later than 90 days before the actual proposed rule is published.
Senate action on H.R.5 is uncertain, and a good deal of it is strongly opposed by many Democrats. However, there is much the incoming director of OMB could accomplish along these lines even without new legislative authority, and it is likely that all existing and proposed federal regulations will face heightened scrutiny, at a minimum.
Trade agreements had become a hot button issue in Congress in 2015 and 2016, which quickly led to the issue being addressed by the presidential candidates. Congress approved fast-track trade negotiating authority for approval of the Trans Pacific Partnership (TPP) prior to many of the details being made public. When all the details became known it became a more controversial issue, with President-elect Trump stating that he would either nullify or renegotiate the agreement before sending to Congress.
Candidate Trump then stated his desire to either withdraw or renegotiate the North America Free Trade Act (NAFTA), as well as other trade agreements. Trump has not stated a position on the Transatlantic Trade and Investment Partnership (TTIP), but negotiations on the deal have been facing problems. As part of his plan for his first 100 days, President-elect Trump has stated that on day one of taking office he will withdraw from the TPP and initiate a renegotiation of NAFTA.
President-elect Trump has signaled his desire to repeal the Dodd-Frank Act. However, financial institutions, those involved with real estate transactions and other entities impacted by the law have expended significant time and resources to become compliant with it. Completely repealing Dodd-Frank could prove to be more burdensome then keeping it in place with modifications.
The likely path forward by the incoming Trump Administration and Republican Congress mirrors the Financial CHOICE Act passed by the House last Congress. Of particular note: the Financial CHOICE Act would restructure the leadership of the Consumer Financial Protection Bureau with the new Consumer Protection Opportunity Commission. Republicans in Congress have been critical of the CFPB regarding having too much power and a lack of congressional oversight. Currently, the CFPB Director holds a clear majority of the power, and the Bureau receives its funding from the Federal Reserve. The Financial CHOICE Act would also put the CFPB put under the congressional appropriations process to receive its funding.
Like with the ACA, Congressional Republicans will again face Senate Democrats who do not want to see a significant modification to a signature piece of legislation of President Obama. However, Republicans could see significant change at the CFPB should the D.C Court of Appeals decline to review the repeal by the CPFB that the President can remove the CFPB at will. If the court agrees to a review, the ruling may not occur for some time to come.
President-elect Trump made immigration a key platform of his campaign; from building a wall along the U.S. and Mexican border to more scrutiny and effective vetting mechanisms of visas. For international travelers, this could translate into delays in entering and exiting the U.S. With the nomination of Senator Jeff Sessions (R-AL) as U.S. Attorney General, we could see further restrictions in the use of work visas, including the H-1B, of which the Senator has been critical. During his confirmation hearings last week, Senator Sessions stated that he would take steps to curb misuse of the H-1B visa.
Congressional Republicans are discussing funding mechanisms for the building of a partial wall and additional fencing along portions of the U.S and Mexican border.
Our next Government Relations Community Update will be delivered to Worldwide ERC® members January 30, 2017.
Additional post-election information can be found in: