New Congress, Same Old Politics
- Tax Planning
Last December I predicted the new Congress which started on January 3, 2019 would be gridlock plus. Well so far it is gridlock without the plus. The plus is my reference to a few policy areas that may attract bipartisan support despite the bitter budget battles in Washington.
The government funding battle is testing the resolve of both parties. Despite the acrimony, I don’t expect the hard feelings to cause total gridlock for the next two years. Two years is a long time for 535 politicians to stand around and stare at each other. Politicians are resilient and usually get over the hard feelings. It’s really part of the job these days. In addition, politicians get nervous if they have little to show for their efforts heading into a critical general election.
In December, I mentioned the possibility that House Democrats will launch a handful of oversight investigations involving the trump administration and some of its cabinet members. Recent reports estimate over 80 investigations are planned. Three House committees will lead the investigations:
- Representative Jerry Nadler, D-NY,
Chairman of the House Judiciary Committee
- Representative Elijah Cummings, D-MD,
Chairman of the House Oversight Committee
- Representative Adam Schiff, D-CL,
Chairman of the House Intelligence Committee
Democrats will be strategic regarding the timing and scope of their investigations. There is a risk that too many investigations too early in the new Congress may turn off voters ahead of a critical Presidential election.
Congressman Richard Neal (D-MA) assumed the chair of the House Ways and Means Committee as expected. Congressman Neal introduced his first tax bill of the new Congress on January 9, 2019. The bill addresses the severe underfunding of the union multiemployer pension plan system. There are hundreds of underfunded union pension plans on the brink of financial bankruptcy across the U.S. Neal’s bill calls for a new federal agency authorized to issue federal government bonds to the most underfunded and at risk plans. Under this bill, the Treasury department would issue low interest bonds to the most at risk pension plans to meet current and future pension promises. The Republican-led Senate is unlikely to go along with Neal’s loan proposal because it is estimated to cost about $38 billion and creates a new government agency. However, shoring up a teetering multiemployer pension system is a policy issue that can attract bipartisan support if the parties are willing to discuss other solutions.
In the area of retirement security Congressman Neal will likely seek House passage of legislation expanding retirement coverage. The percentage of workers covered by workplace retirement plans has remained relatively flat for years. Only 54% of workers participate in a workplace plan according to Department of Labor statistics. Neal’s solution is to require all employers with at least 10 employees to automatically enroll employees into a workplace 401(k) plan. Mandates or requirements like this on small employers will draw opposition by most Republicans. Neal will start the idea of mandatory retirement coverage rolling this Congress with the hope that the 2020 election produces a change in administration which improves the chances of passage by the next Congress.
In addition, Congressman Neal believes Democrats and Republicans can also find common ground on infrastructure improvements, managing prescription drug costs, and negotiating new trade agreements including a new North America Free Trade Agreement (NAFTA). Neal can spur Congressional action on these areas as Chair of the Ways and Means Committee. On the new trade agreement, the President will use ask Congress to use its “fast track” approval process to expedite Congressional approval. Under this procedure, the President can submit new trade agreements to Congress for an up or down vote without amendments or a filibuster. Congressional action on the new NAFTA could occur in 2019 especially if our economy slows.
Infrastructure legislation is on the back burner but could rise to the fore in 2020. It is a great candidate for Congressional action in 2020 for a couple of reasons. First, the President and Congress need to reach a more stable government funding process for fiscal year 2020 which begins October 1, 2019. And second, House Democrats who have not led the House appropriations process for eight years must find their sea legs, acclimate many new Committee members in the appropriations process, and establish their priorities. The current state of the federal deficit will loom large over the size and scope of the package. The fiscal 2019 federal budget deficit is expected to reach $1 trillion, slightly larger than last year which is projected to be close to $900 billion. Ironically, the parties will reverse roles when new spending bills hit the House and Senate floors in the summer. Many Democrats criticized the Republican-led tax reform law in 2017 - the Tax Cuts and Jobs Act - because it is expected to add an additional $1.5 trillion to the federal deficit. Now, Republicans will scream about the deficit when House Democrats produce their spending budget. Politics makes strange and convenient allies.
As with every new Congress, unexpected political and economic events occur which can quickly change the current political sentiment in Washington. We’ll continue to keep you updated as the year progresses.
Boston Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress in 2019. Doug is Director of Retirement Policy at the American Retirement Association. In this role, Doug works with the ARA membership to protect, advise and grow their businesses through ideation and advocacy in the benefits area. Before joining ARA, Doug led Fidelity's legislative policy and thought leadership development teams involving retirement, health and welfare benefit plans. Doug has advised many Fortune 1,000 companies on the impact of legislation and regulation on the design and delivery of benefits. Before joining Fidelity, Doug served as tax counsel to the U.S. Senate Finance Committee and was involved in writing the pension, health and insurance provisions of the Small Business Job Protection Act of 1996; the Balanced Budget Act of 1997, including the Roth IRA, Simple retirement plan, medical savings account (predecessor to the health savings account); and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
- Tax Planning
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The opinions expressed herein are those of the author and do not necessarily represent the views of Boston Private. Boston Private does not warrant the accuracy or completeness of information contained herein. Information is current as of the date appearing in the material only and is subject to change without notice.