We are in the politically-charged time ahead of the mid-term election. The party that controls the White House generally takes a beating in Congressional mid-term elections. This election is no different. The more accurate inside-the-beltway election predictors say Democrats have a good chance to win a majority in the House of Representatives. House Democrats need to flip 24 Republican-held seats to regain power in the House of Representatives. The unexpected retirement of Speaker of the House Paul Ryan is a strong signal that it is likely the Democrats regain control of the House.
The Senate is a different story. The luck of the cycle may save the Republican majority in the Senate, which is a one-seat margin. Senate Republicans must defend 9 seats to maintain their majority. Democrats must defend 26 seats and win two new ones to take control of the Senate. Holding 26 seats and gaining two Republican-held seats is a daunting task for Democrats even though the political climate overwhelmingly favors them in the upcoming election.
What does it mean if Congress is divided—the House controlled by Democrats and the Senate controlled by Republicans in 2019-2020? Many would say gridlock through 2020. They are probably right. The legislative process would work as follows. House Democrats would pass a slew of bills ranging from taxes to spending including repealing many if not most of the new tax reform law. The House rules facilitate passage of legislation without input from the minority party. It was designed this way for efficiency by our founding fathers because there are 435 members of the House and consensus beyond a simple majority of the governing party would be nearly impossible. Assuming the Democrats capture the House of Representatives in 2019, they will send a stream of legislation to the Senate, where the Republicans (assuming they maintain their slim Senate majority) will hold them at the desk.
The Senate Majority Leader is vested with the authority by Senate rules to decide which bills will be held at the desk indefinitely and which ones will be brought to the Senate floor for debate and vote. Like the House, it is very difficult (nearly impossible) for the minority party in the Senate to force a vote on legislation against the wishes of the Majority Leader. Of course, the House will produce legislation funding the government and increasing the debt ceiling that Senate Republicans cannot ignore. Beyond that, it is unlikely little else gets done until after the next presidential election. The wild card in all this is the President, who is unpredictable at times and has expressed interest in working across the aisle. Another factor which could bring Congress to a standstill for the next two years is whether House Democrats pursue an aggressive agenda of White House investigations.
The current government funding bill signed by President Trump expires on September 30, 2019, the end of the federal government’s fiscal year. In an interesting twist of fate, conservative Republicans who voted for the massive government funding bill in March are now reeling because the Congressional Budget Office reports that current spending levels and the new tax cuts (which are projected to reduce tax collections and increase the deficit by about $1.5 trillion over the next decade) will cause the federal debt to grow to nearly 100% of GDP in 10 years. This would produce the largest debt (nearly $1 trillion) since World War II.
Ironically, Republicans who voted for the government funding bill and debt-financed tax cuts in November will be screaming for spending cuts in 2019 when Democrats offer their budget. House Republicans were considering legislation making the individual tax cuts in the Tax Cuts and Jobs Act permanent until they read the CBO report projecting huge deficits from Republican-approved spending and tax cuts. Most of the individual tax cuts in the new tax law expire at the end of 2025 and I doubt a divided Congress can reach a consensus on extending them before 2025.
In a rare bipartisan effort, the House Ways and Means Committee passed several IRS reform bills called the “Taxpayer First Act”. The bills would establish an independent appeals process, reform enforcement procedures, improve customer service, and change the Commissioner’s name to “Administrator of the Internal Revenue Service”. The legislation is expected to pass the full House in a few weeks. The Senate will consider the legislation later this summer.
Between the November election and the New Year, Congress is faced with a “lame duck” period where members from both parties will try to push relatively non-controversial legislation that has lingered. One bill that is prime for lame duck action is a retirement reform bill (“Retirement Enhancement and Security Act”) sponsored by Senators’ Orrin Hatch and Ron Wyden, the Chairman and Ranking Member, respectively, of the Senate Committee on Finance. This bill includes a number of sensible compliance reforms to 401(k) plans and creates a pooled plan where several employers can join a single 401(k) plan with reduced administration and investment costs.
In closing, I often hear people outside the beltway say that things in Washington move very quickly. I heard somebody say the other day, “in Washington everything moves very slowly until they don’t.” This seems a better description of how things happen on Capitol Hill. Summer is typically slow in Washington and this year will be no different. Keep your eye on lame ducks. I see things heating up quickly at year end.
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 2017. Doug is Director of Retirement Policy at the American Retirement Association and consults with businesses on Washington Strategies and Planning. In this role, Doug works with the ARA membership and other private companies 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).
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