Back to Government Affairs: Mobility and the U.S. Administration
8 May 2017
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Dear Worldwide ERC® Member:
In this Government Affairs Community Update, we are focusing on tax reform activity (that could affect some mobility deductions and exclusions), the May 4 passage of the American Health Care Act (AHCA) in the U.S. House of Representatives, and the outcome of the presidential election in France. A mobility impact statement accompanies each section. For easy reference, the sections (and the full report) are accessible here:
- Tax Reform
- Affordable Care Act
- France’s Presidential Election
Please feel free to share our Government Affairs Community Updates with others in your company, and with your clients and colleagues for the potential impact on your work. We’ll be back on May 22 with another Update.
Peggy Smith, SCRP, SGMS-T
Worldwide ERC® President and CEO
As discussed below, the House of Representatives on May 4 narrowly passed a replacement for the Affordable Care Act. Although that legislation faces a very uncertain path in the Senate, it does clear the decks in the House for work on tax reform to accelerate. It is expected that upon the return of members from a recess, hearings will begin to be held on various aspects of tax reform.
Also, on April 26 President Trump released a one-page summary of the Administration’s proposals on tax reform. That plan calls for a 15% business tax rate (which would presumably include taxing business income of pass-through entities such as partnerships, S-corporations, LLCs, and sole proprietorships at that rate) and a territorial system of business taxation. It does not, however, include the controversial “border adjustment” tax included in the House Republican plan, nor immediate deduction of capital expenses or denial of interest deductions, which are also controversial features of the House Republican plan. Untaxed profits of corporations held overseas would be allowed a one-time tax if brought home (which presumably would be lower than 15%, although it is unspecified; the Trump campaign tax plan proposed 10%).
For individuals, there would be three tax brackets, 10%, 25%, and 35%, and a doubling of the standard deduction to $12,000 for singles and $24,000 for married couples. Unlike his campaign tax plan, which would have retained all deductions but capped them at $100,000 for singles and $200,000 for married couples, the plan says it would eliminate “targeted tax breaks that mainly benefit wealthy taxpayers,” but would “protect the home ownership and charitable gift tax deductions.” The Alternative Minimum Tax would be repealed, and some form of relief would be offered for child and dependent care expenses.
Because the Trump plan lacks any details, it is quite difficult to assess. For example, the income levels at which the proposed three tax rates would apply is unspecified. As a result, outside organizations that commonly provide estimates of the revenue results of tax changes have not been able to provide reliable estimates of the plan’s cost, although all agree that the 15% business tax rate would cause revenue losses of trillions of dollars over the course of the usual 10-year budget window.
Both the Administration and congressional Republicans have responded to these concerns by backing away from pledges that tax reform would be “revenue neutral,” and arguing that economic growth would make up the difference. Many economists dispute that argument. This fundamental conflict will continue to color the tax reform debate as it moves forward.
The revenue argument is more than academic, since Republicans have planned to pass tax reform under so-called budget “reconciliation” rules in the Senate, which allow legislation to pass with only a majority vote rather than the 60-vote requirement for most Senate legislation. Reconciliation, however, requires that legislation not add to the deficit beyond a 10-year window following the legislation, and many observers believe that current versions of tax reform will fail that requirement. Moreover, the Congressional Joint Committee on Taxation, which is the official tax scorekeeper in Congress, has advised Speaker of the House Ryan that even a temporary corporate tax rate cut of the size being contemplated would not be allowed under reconciliation because it would add a “nonnegligible revenue loss” beyond the 10-year window.
As a result, the Administration’s plan has done little to clarify the eventual shape of tax reform, and it appears that uncertainty will continue for a considerable additional period. Although as noted, the House will now proceed to work actively on tax reform, the Senate is expected to be occupied for some considerable period with health care. Republicans plan to use reconciliation to pass health care changes first, which because of the elimination of some health care taxes (for example, the 3.8% additional tax on investment income of upper income taxpayers) would free up a trillion dollars or more for tax cuts. Consequently, most observers expect tax reform to be further delayed as the Senate works on health care.
Also on the back burner awaiting substantive tax reform are Republican proposals to restructure the Internal Revenue Service. House Republican leadership has suggested that IRS restructuring will be a separate bill to move after tax reform is passed.
Because both the House Republican and Administration tax plans call for elimination of all or many deductions and other tax breaks, close attention must be paid to the development of tax reform legislation by anyone who benefits from particular provisions. In the case of the mobility industry, this includes at least the moving expense deduction, the capital gains homesale exclusion, the deduction for mortgage interest, the deduction for state and local income and property taxes, and the foreign earned income exclusion.
How this will impact mobility
Tax changes would impact everyone engaged in the mobility industry, both personally and professionally, and could make moving employees considerably more expensive. In particular, the provisions noted above are important to supporting the housing industry and the mobility of labor, and will require the attention of the industry on an ongoing basis.
Affordable Care Act
American Health Care Act
On May 4, the U.S. House of Representatives passed the American Health Care Act (AHCA) by a vote of 217 to 213. The legislation to repeal and replace portions of the Affordable Care Act (ACA) now goes to the United States Senate for consideration. Senate Republican leaders have stated they plan to draft their own health care bill.
House Republican leaders had scheduled a vote on the AHCA for March 24 but postponed the vote due to a lack of votes to pass it. Over a two-week congressional recess in early April, Representative Mark Meadows (R-NC) as Chair of the conservative House Freedom Caucus and Representative Tom MacArthur (R-NJ) as Co-Chair of the centrist Tuesday Group negotiated an amendment to the bill. The amendment would allow states to seek a waiver to opt out of the minimum essential benefits a health plan must offer, community ratings requirements and the difference in the amount older Americans can be charged for coverage. The amendment secured the votes of a majority of Freedom Caucus members who had previously opposed the bill.
While the amendment secured votes from the more conservative members of the Republican caucus, members of the Tuesday Group were still either against the bill or undecided. Congressman Fred Upton (R-MI) and Billy Long (R-MO) were concerned about how the bill would change coverage of those individuals with pre-existing conditions, and stated they would vote against the bill. The two representatives crafted an amendment which would allocate an additional $8 billion for the high-risk pool established under the bill for those with pre-existing conditions. The amendment won over a majority of more moderate Republican members who had not decided how they would vote on the bill. The bill ultimately passed with 216 Republicans voting in favor and all 193 Democrats and 20 Republicans voting against the bill.
Senate passage of the bill is even more uncertain. The AHCA is being considered under the FY2017 budget reconciliation process - which requires only a simple majority in the Senate for passage - as opposed to the 60-vote threshold for other legislation. Republican leaders are using the process to overcome the slim 52 to 48 majority they hold in the Senate. Senate Republicans can lose only two Senators in their caucus to secure passage, and a number of Republican Senators have already voiced their concerns with the House bill.
How this will impact mobility
The AHCA as passed by the House would give individual states significant latitude in setting the parameters of minimum health care coverage within its borders. Insurance companies, however, would ultimately determine the minimum coverage of a plan. The minimum coverage adopted by a state, and how a state addresses high-risk pools for individuals with pre-existing conditions, could impact the decision of an employee to relocate to a particular state. Reductions in the minimum health care benefits and the different approach on individuals with pre-existing conditions could also impact the decision to be an employee of a company as opposed to a consultant or freelancer.
France’s Presidential Election
On May 7, garnering more than 65% of the vote, centrist candidate Emmanuel Macron was elected French president, easily defeating far-right candidate Marine Le Pen, who had pledged to remove France from the European Union. Macron’s win comes after a decades-long dominance of the two traditional main left-wing and right-wing parties. Macron’s business-friendly vision of European integration brings relief to European allies, who had feared another populist upheaval to follow Britain's vote to quit the EU and Donald Trump's election as U.S. president. French presidents serve a five-year term in office.
How this will impact mobility
Macron’s election brings some balance to worldwide nationalist tendencies, at a time when immigration is tightening and some countries are taking a more protectionist position with the job market to provide more opportunities for their own citizens. Nationalism limits the infusion of foreign talent, and the election of world leaders who embrace freer movement of workers supports global growth.
Our next Government Affairs Community Update will be delivered to Worldwide ERC® members May 22, 2017. Previous Updates can be found here.