Legislative Update - February 8, 2018
As you probably heard, Congress is, once again, up against a deadline to extend funding for the federal government or face another shutdown. The continuing resolution (CR) that was passed on January 22, extends funding through February 8. At this point, it is uncertain as to whether Congress is going to find a way to reach a budget deal or if another short term extension will be necessary. Fortunately, we expect that one of these will be the case and do not expect to see a government shutdown on Friday.
On February 6, the House passed a continuing resolution to fund the government through March 23. However, this bill would face challenges in the Senate because, among other things, while it would only temporarily extend non-defense funding, it would increase military spending for the remainder of fiscal year 2018.
Leadership in the Senate has expressed some optimism that they may be able to come up with a two year budget plan to fund the government for the remainder of fiscal year 2018 and the entirety of fiscal year 2019, eliminating the need for expensive and contentious continuing resolutions.
Any short term or long term funding deal, may include a provision to increase the debt ceiling. Under current estimates, if Congress doesn't act, the country will be facing a potential default on its debts in early March. It remains to be seen whether Congress will try to address this at the same time as the budget or wait and address it separately.
As to other items that might be part of a budget deal - as you may remember, before the government shutdown at the end of January, there were efforts to include a deal on immigration, in particular, the treatment of undocumented immigrants who were brought into the country as children (known as "dreamers"), as part of the short term extension. While, in the January 22 continuing resolution, the Democrats ultimately got the extension of the Children's Health Insurance Program (CHIP) that they were also seeking, they only got reassurances that immigration would be addressed this year. In this latest round of negotiations, Senate Majority Leader Mitchell McConnell (R-KY) has agreed to open a debate on immigration. In response, the Democratic leadership appears content to not bring immigration into the latest round of budget talks, despite criticism from some its members about this decision. With so many different perspectives and interests in Congress surrounding this issue, not to mention outside influences, including the President's demand that any immigration deal include funding for the border wall, we expect to see immigration continue as a contentious and unresolved issue for the near future.
Where Are Things Going On Infrastructure?
During the State of the Union, the President called on Congress to produce a bill that "generates at least $1.5 trillion for new infrastructure investment." The White House has now announced that on Monday it will be releasing a framework that will set forth the President's principles and strategies on infrastructure.
The President has said that he wants an infrastructure deal to be bi-partisan. While members of both parties generally support the notion of investing in the nation's infrastructure, the cost and funding behind an infrastructure plan will likely present a big sticking point.
The President is expected to push for a plan that would provide incentives to states and localities to generate their own funding sources and shift responsibility down towards the local level. However, a number of governors and mayors have already expressed the concern that they are already doing what they can and that the need is for more dedicated federal funding.
Last year shortly after President Trump's inauguration, when talk had begun to turn to infrastructure (before Congress became consumed in the ACA debate), the Democrats put out their own plan for $1 trillion of infrastructure investment which remains on the table.
The biggest issue, particularly in light of the price tag attached to the recently passed tax reform overhaul, is how to pay for the needed investment. Republicans have long opposed increasing the gas tax, because they do not want to be seen as raising taxes. However, Congressman Bill Shuster (R-PA) who is the Chair of the House Transportation Committee recently began urging his colleagues to revisit their positions on increasing the gas tax (which hasn't been increased since 1993 and which could raise significant funds for infrastructure investment).
Monday's release of the President's framework will likely give us a better picture of what we will be looking at going forward. The Highway Trust Fund is set to run out of money in 2020 so some action on infrastructure will surely be necessary. However, many believe the chances of a deal being struck before the November elections are low.
DOL Proposes New Regulations on Association Health Plans
In January, the Department of Labor (DOL) issued proposed rules to change the regulations that govern association health plans (AHPs). These rules were initiated by an October 2017 Executive Order in which the President instructed the Secretary of Labor to "consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs."
The underlying principle behind AHPs is that multiple employers can come together as members of an association and the association can be treated as the employer for purposes of sponsoring a group health plan for all the covered employees. Thus, the association plan is able to qualify as a large group health plan and therefore not be subject to the same requirements as small group health plans.
If enacted as promulgated, the proposed regulations would, among other things:
-Broaden the definition of "employer" for purposes of determining which groups can sponsor an AHP and relax the requirement that previously prevented associations from being formed, and existing, solely for the purposes of offering a health plan.
-Allow sole proprietors who meet a new definition of "working owners" to join AHPs (both as employers and employees).
TIA is currently reviewing the proposed regulations for potential comment. Members who have an interest in the proposed regulations are encouraged to share their thoughts. The deadline for comments to be submitted on the proposed rules is March 6, 2018.
Delay in The ACA's Cadillac and Medical Device Taxes
In an interesting, and largely underreported, add on, the continuing resolution that was passed on January 22 to reopen the government included provisions to delay the so-called "Cadillac" and medical device taxes that were part of the Affordable Care Act (ACA).
The Cadillac tax, which would impose a 40% tax on premiums paid for high-cost employer health insurance that exceed certain limits, has been delayed until 2022. The Cadillac tax has been delayed multiple times already, reflecting the concerns that both parties have surrounding the provision.
The medical device tax, as well as the annual fees that are imposed on insurers, were delayed until 2020.
The estimate total cost of these delays is $31.3 billion. This is a big price tax, and particularly when added to the cost of the new tax reform bill, could factor into whether members on both sides of the aisle will be willing to commit to additional spending, such as on infrastructure.
Will A Reconciliation Bill Be Part Of the 2019 Budget Process?
The past year saw two efforts by the Republicans to pass legislation without 60 votes in the Senate by using the budget reconciliation process. First, there was the unsuccessful effort to use the fiscal year 2017 budget process to repeal the ACA. Then, there was the successful use of the fiscal year 2018 budget process to pass the tax code overhaul.
Now that the 2019 fiscal year budget process (for the federal fiscal year starting October 1, 2018) is coming around Republicans could try to take a third stab at passing legislation through reconciliation. However, the chances of this are looking increasingly unlikely.
First, the Republican members of both chambers, including members of the Freedom Caucus in the House which has long been a driving force behind the ACA repeal efforts, have broadly expressed little appetite to try to revive an ACA repeal this year. Members of both parties have indicated that they will be focusing their interests in the health insurance sphere this year on ways to strengthen the market and reduce premiums. However, as we've seen time and time again, while both parties agree that this needs to be done, that's about as far as the consensus goes.
Towards the end of last year Speaker of the House Paul Ryan (R-WI) expressed his hope that Congress would use the 2019 budget reconciliation to tackle entitlement reform. Similarly, last fall, the President stated that entitlement reform would be a top priority in 2018 after the passage of tax reform. However, Senate Majority Leader Mitchell McConnell (R-KY) has largely thrown cold water on these aspirations by expressing skepticism that an entitlement reform package could pass the Senate, even under reconciliation, and an extreme reservation to have his chamber wade into this issue in an election year.
Reconciliation is typically only used for large pieces of legislation that are contentious enough that they can't garner any bi-partisan support. With the mid-term elections closing in fast (meaning that leadership will be particularly cautious), it is doubtful that we will see any legislation that would merit the use of reconciliation, with the possible exception of using it for technical corrections to the recently passed tax bill where allowed under the rules. Because the Democrats were completely left out of the tax reform process, it's not hard to imagine that they would try to throw up road blocks when dealing with the technical corrections to this bill, which will be needed to fix the inadvertent mistakes that are being discovered now.
Extending Empowerment Zones
The House has sent a government funding bill to the Senate that includes a minor tax provision.
The inclusion of taxes opens the way for the Senate to amend the bill by adding thirty-three tax extenders, among them:
- retroactive reauthorization of Empowerment Zones and WOTC for zone residents, and
- retroactive reauthorization of Indian Employment Tax Credit.
Both EZ's and IETC would be extended from January 1, 2017, when they expired, through December 31, 2018.
Senate Leaders McConnell and Schumer have joined in supporting a Senate amendment to the House bill containing a major bi-partisan budget deal they sealed yesterday.
At the moment, no decision has been made on whether to add the thirty-three tax extenders to the Senate amendment, but we're getting close. Lobbyists representing a broad swath of the economy have been pressing hard for the extenders.
Senate Leaders are working to pass the government funding bill with the Senate amendment and send it to the House for passage before the midnight deadline for funding the government.
House Speaker Ryan says he'll support the bill if the President will sign it, and the President announced yesterday that he supports McConnell/Schumer and will sign it.
For some House Republicans, the large defense and civilian budget increases are "budget-busters" and they plan to vote against the bill. However, there are good odds enough Democrats will support the bill to pass it.
Tax Extenders Included In Senate Bill
Tax extenders have been added to the Senate budget deal (McConnell/Schumer bill) which will be voted on today.
The bill retroactively extends Empowerment Zone authority and WOTC credits for empowerment zone residents, as well as the Indian Employment Tax Credit, to December 31, 2018.
If the Senate is unable to proceed by unanimous consent, cloture must be invoked, delaying passage a couple days.
The House is prepared to vote on McConnell/Schumer after Senate passage. Speaker Ryan was party to the talks that led to the budget deal and fully supports the bill.
Up to 85 House Republicans are expected to vote against McConnell/Schumer because of the large increase in government spending. Democratic votes will be needed to pass the bill.
Democratic Leader Pelosi says she personally won't support the bill without a commitment from the Speaker to bring a bill to legitimize DACA immigrants. However, Pelosi released her members to vote as they wished when the bill comes to the floor.
A large majority of Democrats are pleased with the budget deal and prepared to vote for it.