Recent events have turned the conversation among business owners to what last week’s inauguration means for them and their organizations.
Venable LLP recently hosted a summit to examine this issue, highlighting the following. These are thoughts for consideration, not predictions, and do not represent an exhaustive list by any means.
Congress, the Cabinet and Deregulation
Despite the attention on the Republican-led House and Senate, congressional leadership didn’t experience any dramatic change post-election.
The composition of the Senate remains narrowly divided with 52 Republicans and 48 Democrats. A total of 60 votes is necessary to defeat a filibuster, but Democrats with an eye on midterm elections may side with Republicans on signature legislation.
Trump has emphasized a desire to reduce government regulation and the cost of doing business. The Financial Services Committee will face the question of deregulation which, generally speaking, Republicans support and Democrats oppose. We can be certain the parties will clash over this issue.
The House Ways and Means Committee has a new ranking member: Democrat Richard Neal of Massachusetts. Considered more moderate than his predecessor, his presence increases the odds of tax reform making its way to the Congress floor.
Trump’s selections for his cabinet—a mixture of insiders, former adversaries and successful business people—are expected to be confirmed by the Senate. A full, interactive list of his nominees is available at the New York Times. Among the appointments not subject to Senate approval is the position of Regulatory Czar. Carl Icahn, Trump’s choice for the role, has unapologetically stated he wants to repeal two regulations every time a new regulation is set.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
While Trump has been difficult to read in terms of his plans, he has been vocal about immediately repealing Dodd-Frank. Such a repeal is not a one-man job. It will require a long process, the House Financial Services Committee, the Senate Banking Committee and a 60-vote majority in the Senate.
Financial Choice Act
Many of the desired revisions to Dodd-Frank would be accomplished through the Financial Choice Act. These revisions, which would impact middle-market businesses and their owners, provide relief from various registration requirements and make it easier to raise capital and run funds. As these revisions are apt to change throughout the legislative process, middle-market participants are in a unique position to voice their opinions to help shape the policy.
While corporate and individual tax reforms are likely to pass in 2017, they will most likely be done in the budget reconciliation process. This will require budget resolution, a time-consuming process that sets the most optimistic timetable just before August. With Congress focused on repealing Obamacare, however, tax reform is likely to slide into the latter half of the year. The proposed reforms include:
- A 15 percent corporate tax rate
- A tax cap of 15 percent on pass-through business income
- Allowing full expensing (but limiting interest deductibility)
- Enacting a one-time deemed repatriation tax of 10 percent
- Eliminating all corporate tax expenditures/corporate AMT
If these reforms pass, whether they will be retroactively applied to 2017 or look forward to 2018 remains to be seen.
Repealing major parts of the Affordable Care Act does not require the 60-vote majority if it’s done as part of the same budget reconciliation process that was used to enact it. This process can remove aspects such as:
- The individual and employer mandates
- Federal subsidies which reduce the cost of healthcare purchased through the online exchanges
- Taxes built into the act such as the medical device tax, the tax on “Cadillac” health plans and the high-income earner Medicare surtax
Non-revenue aspects of the act would be untouched by the process. These include the requirement that health insurance providers issue coverage regardless of pre-existing conditions and the mandate allowing children to remain on their parents’ health insurance up to age 26.
The repeal will likely be delayed by two to three years while the Senate focuses on creating Obamacare’s replacement.
In summary, the first 100 days of Trump’s presidency will not be lacking in activity, but the results of that activity remain to be seen. While this high-level roadmap is based on current expectations, Venable emphasized that the only thing we can be certain of is the uncertainty ahead.