CFM Federal Affairs Team

Congress Nears Approval of Bipartisan Retirement Savings Legislation

Congress is on the verge of approving bipartisan legislation to make employer-sponsored retirement saving plans more attractive to small businesses. The legislation, which passed the House last week, has the strong support of the financial service industry and is in response to stunning data showing many Americans have little to no retirement savings. It also is a response to a growing number of state-sponsored retirement savings plans such as OregonSaves.

Congress is on the verge of approving bipartisan legislation to make employer-sponsored retirement saving plans more attractive to small businesses. The legislation, which passed the House last week, has the strong support of the financial service industry and is in response to stunning data showing many Americans have little to no retirement savings. It also is a response to a growing number of state-sponsored retirement savings plans such as OregonSaves.

Congress is on the verge of approving significant and bipartisan retirement savings legislation. The House passed its version last week by a 417-3 margin. The Senate is expected to act on its version in the next few weeks. A reconciled measure should pass and go to the White House by year’s end.

The SECURE Act in the House and the RESA Act in the Senate aim to make employer-sponsored retirement savings plans more attractive. The congressional bills, which enjoy broad financial industry and small business support, are in many ways a response to state-sponsored retirement savings plans such as OregonSaves.

The SECURE Act provides incentives for small businesses to set up their own 401(k) plans or join other businesses in multiple-employer plans (MEPs). It also increases opportunities for workers to save through automatic enrollment and escalation, access to plans by long-term part-time workers and portability of accounts. The employee features roughly parallel the key selling points of state-sponsored retirement saving plans.

Additional provisions would raise the age to 72 when savers must take minimum required distributions from their 401(k) accounts, prohibit distribution plan loans by credit card and allow withdrawals of up to $10,000 to repay student loans and up to $5,000 to cover adoption-related expenses.

There are numerous types of retirement savings plans, with a mix of advantages and drawbacks. Nerdwallet offers a review of options.  https://www.nerdwallet.com/blog/investing/best-retirement-plans-for-you/

There are numerous types of retirement savings plans, with a mix of advantages and drawbacks. Nerdwallet offers a review of options. https://www.nerdwallet.com/blog/investing/best-retirement-plans-for-you/

There was minor grumbling among Republicans during the House floor debate about a committee amendment that disallowed plan withdrawals to pay for K-12 school tuition, including at private and religious schools.

The SECURE Act ventures into the territory of offering in-plan investment vehicles such as annuities by creating a safe harbor for employer liability in the selection of an annuity provider. In-plan annuities also would be portable.

Critics of state-sponsored retirement savings plans have complained about competition with private-sector plan options. Congressional legislation will provide useful sales tools to financial advisers, especially in marketing to small businesses.

However, removing regulatory and liability obstacles may not change employer resistance to assuming the role of a retirement savings plan fiduciary. They may be content with a well-run government-savings plan that can provide easy access for employees and limited responsibilities for them. 

The rise of government-sponsored retirement savings plans and bipartisan congressional action to make employer-sponsored plans more viable for small businesses are reflections of shared concern about the existing and projected number of Americans who will enter retirement with few financial resources. 

Data indicates one quarter of adults have no retirement savings and one third of Baby Boomers have between nothing and $25,000 tucked away for retirement. Older adults are avoiding medical care because they lack money to pay for it.

 

‘America First’ Policies Raise Questions about US Leadership

President Trump’s ‘America First’ policies have played well with his political base, but not so well with global leaders as tensions are growing over the specter of spiraling trade war with consumers at home and abroad likely to pay the price.

President Trump’s ‘America First’ policies have played well with his political base, but not so well with global leaders as tensions are growing over the specter of spiraling trade war with consumers at home and abroad likely to pay the price.

One of the unintended successes of President Trump’s ‘America First’ policies has been to galvanize the European Union, Japan and China to preserve and bolster multilateral trade, regulatory and security arrangements Trump disdains.

“After months of denialangerbargaining and depression, Europe and other parts of the world have accepted that Mr. Trump and his mission of disruption are not going away,” reports The New York Times.

Accounts suggest foreign leaders are stunned by Trump’s continuing attacks on traditional allies, cozy relations with Russian President Vladimir Putin and seeming disavowal of America’s role as the leading advocate of a liberal world order.

EU leaders are especially astonished at being referred to as “foes.” In June, 29 EU ambassadors to the United States sent an open letter to Trump in defense of free trade and investment policies.

“Together, the US and EU have created the largest and wealthiest market in the world. The transatlantic economy accounts for half of the global gross domestic product by value, which directly supports more than 15 million high-quality jobs and $5.5 trillion in commercial sales. And nearly one-third of the world’s trade in goods occurs between the EU and United States alone,” the letter said. The ambassadors added that EU investment in the United States exceeds US investment in Europe.

EU leaders, despite qualms about Chinese trade practices that mirror Trump’s, have met with Chinese leaders without US involvement. According to the Times, the “summit meeting produced an unusual joint declaration and a common commitment to keep the global system strong.”

The EU then signed what has been described as the largest free-trade agreement in history with Japan, again with no US involvement.

Now, the EU is preparing “whopping tariffs” in response to proposed Trump tariffs on items such as German-made cars, noting that 45 out of 50 US states export more goods and services to Europe than China, totaling around $500 billion in 2016.

GOP Senator Ben Sasse from Nebraska may have spoken for the wave of critics who think Trump’s tariffs are undermining US exports that have taken years to cultivate and who believe his proposed $12 billion package of one-time financial aid to farmers won’t come close to co vering the long-term damage done by the tariffs.

GOP Senator Ben Sasse from Nebraska may have spoken for the wave of critics who think Trump’s tariffs are undermining US exports that have taken years to cultivate and who believe his proposed $12 billion package of one-time financial aid to farmers won’t come close to co vering the long-term damage done by the tariffs.

On the regulatory front, the EU fined Google $5.1 billion for antitrust behavior, which drew a sharp rebuke from Trump. Google plans to appeal the EU ruling, but it may be forced to reckon with it in the marketplace in the meantime.

Interestingly, the basis for the fine echoed an unusually American-sounding rationale. “Google has used Android as a vehicle to cement the dominance of its search engine,” Margrethe Vestager, Europe’s antitrust chief, told the Times. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.” 

European Commission President Jean-Claude Juncker travels to DC this week to discuss the deteriorating EU trading relationship with Trump officials.

Meanwhile, the impact of tariffs is beginning to be felt. The Associated Press carried a story last week about the stress felt by US soybean farmers, who are a target of retaliatory Chinese tariffs. One soybean farmer said he already has lost $250,000 in value for his current crop. Soybeans on the Chicago Board of trade have dropped $2 per bushel in value. Farmers interviewed say they still support Trump, but want to know what the end game is.

The Oregonian posted a story last week listing five Oregon exports at risk in a spiraling trade war with China. Noting Oregon exported $3.5 billion worth of goods to China in 2017, the article said the most vulnerable are:

  • Computer and electronic products ($2.1 billion)
  • Machinery ($435 million)
  • Chemicals ($363 million)
  • Transportation equipment ($262 million)
  • Agricultural products ($235 million)

Oregonian reporter Mike Rogoway provided a more comprehensive look at Oregon exports in a piece published in June. Among the interesting statistics Rogoway uncovered: 87,000 Fords produced in the United States were exported through the Port of Portland, 90 percent of which headed to China.

US business interests also remain frustrated at Trump efforts to negotiate changes in the North American Free Trade Agreement, which appear to have stalled and made more difficult by the election of a leftist president in Mexico.

Global tensions are growing over the budding trade war, as reflected by a statement coming out of the G20 meeting held in Argentina over the weekend. US Treasury Secretary Steven Mnuchin attended the meeting and agreed to sign the joint statement.

Mnuchin acknowledged what he called “micro impacts” caused by the Trump tariffs, but defended them as a pathway to freer trade that is fair to the United States. News reports said Mnuchin and Chinese finance officials conversed during the 2-day meeting, but only engaged in “chitchat,” not serious negotiations.

There are harsher judgments of Trump’s policies. WorldPost editor Nathan Gardels. wrote, “The ‘American First’ president who denigrates democratic allies as foes is no longer the leader of the free world….Trump appears to be not even the leader of the United States.”

 

What Lurks in the 479-Page Senate Tax Cut?

New Yorker Magazine’s Andy Borowitz spoofed that a child’s scribbled drawing accidentally was included in the Senate GOP tax-cut legislation. With time to read the actual 479-page bill that the Senate passed, the buried provisions might be more disturbing than a scribbled drawing.]

New Yorker Magazine’s Andy Borowitz spoofed that a child’s scribbled drawing accidentally was included in the Senate GOP tax-cut legislation. With time to read the actual 479-page bill that the Senate passed, the buried provisions might be more disturbing than a scribbled drawing.]

New Yorker Magazine’s Andy Borowitz spoofed that a scribbled drawing by one of Senate Majority Leader Mitch McConnell’s grandchildren made its way into the GOP-backed tax cut bill approved late last week. With time to read the bill this week, people may uncover a lot worse than scribbling tucked away in the Senate measure’s 477 pages.

Nothing will be final until a House-Senate conference committee resolves differences in their tax cuts and the compromise goes back to both chambers for final passage. Media coverage will focus on the size of the corporate tax rate decrease, the number of individual taxpayer brackets, the impact on the federal deficit, benefits accruing to wealthy taxpayers and the fate of the Obamacare individual health care mandate.

There also will be stories searching the shadier corners of the tax bill and how they got there.

Wielding a copy of the Senate tax bill with what appeared to be margin notes as amendments, independent Maine Senator Angus King told Face the Nation that a bill to cut corporate and individual tax rates would take, at most, 50 pages. He wondered aloud on camera what the remaining 420 or so pages contain. “We’re going to find some really stinky stuff,” King predicted, pointing to provisions dealing with oil and gas extraction.

One of the clear winners in the GOP tax-cut legislation, according to Tony Nitti writing for Forbes, are tax attorneys and CPAs. “As an American taxpayer, I’m saddened by the way the process played out. As a tax adviser, I’m downright giddy. The eventual signing of the Senate bill into law, regardless how it is ultimately married with the House bill, will signal the start of hunting season for tax professionals who…will find ample opportunity to game the system and minimize their clients’ tax liability.”

“Business owners or managers that plan well and pay for good advice will be able to achieve much more favorable rates,” Adam Looney, a senior fellow at the Brookings Institution and a former Treasury Department official, told The New York Times. “I’m not sure if that is a loophole or the intent of the legislation.”

So much for a simple tax code. But who benefits from all the complexity? Nitti offers one example. The Senate version reduces the depreciation period for rental property from 27.5 years to 25 years and excludes landlords from a limitation on mortgage interest deductions. The House version piles on landlord benefits by capping pass-through taxation at 25 percent, as opposed to the current law 39.6 percent.

Another headscratcher was a decision by Senate Republicans to retain “bonus depreciation” for corporations at the expense of retaining the corporate minimum tax.

The eventual tax bill could have unintentional effects. The Hill.com ran a story saying, “Preemptively removing private activity bonds as a financing tool for infrastructure projects would undermine the stated goal of Congress to leverage a $1 trillion investment in our nation’s infrastructure.” Eliminating the tax deduction on private activity bonds was included in the House GOP tax cut bill to save $40 billion over the next decade.

Published stories in the last few days have pointed out other buried provisions in the House and Senate tax measures:

  • Elimination of a tax credit for pharmaceutical companies to develop drugs for so-called orphan medical conditions;
  • Elimination of a tax credit to small businesses who provide accommodations for workers or customers with disabilities;
  • Elimination of the New Markets Tax Credit intended to spur investment in communities with high unemployment or poverty rates;
  • Eliminates deduction for student loan interest;
  • Eliminates deduction for sexual harassment settlements with gag orders;
  • Allows unborn children to qualify for college savings accounts;
  • Reduces taxes on beer and wine;
  • Lowers taxes on storing and staffing private jets;
  • Retains ability by banks to avoid taxes by making payments to offshore subsidiaries;
  • Allows up to $10,000 per year from 529 college savings plans to pay for religious schools and some home schooling;
  • Excludes car dealers from any limitation on interest deductions; and
  • Provides an employee credit for paid family and medical leave, except for employees in states that require paid family and medical leave.

While the merits and demerits will be discussed ad nauseam in the days ahead, the evidence is pretty clear that the legislation billed by Republicans as a middle-class tax cut is at once a whole lot more – and less – than that.

So Much Work, So Little Time

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

With only a dozen or so working days before the holiday break and the end of the year, Congress faces a daunting agenda that keeps growing longer and more challenging.

Based on published schedules, the Senate has 15 and the House 12 working days left in 2017. In that time, GOP congressional leaders want to pass tax-cut legislation and need to take action on a spending and debt ceiling bill to prevent a government shutdown.

Mixed in the politics of all that is the Dreamer’s Act and extension of funding for the Children’s Health Insurance Program (CHIP) that expired September 30, which has created a budgetary challenge for states trying to keep the popular insurance in place until Congress acts.

Then there are the series of subplots that fill headlines and color the policies and politics on Capitol Hill:

  • The intensifying investigation into Russian election meddling;
  • The Roy Moore scandal and Senate race in Alabama;
  • Unfolding disclosures about sexual behavior by Members of Congress;
  • An attempt by the Senate to repeal the Obamacare individual health care mandate as part of tax legislation; and
  • The Federal Communication Commission’s decision to end net neutrality.

Lurking in the wings are stalled talks over revisions to the North American Free Trade Agreement (NAFTA), continuing tensions over North Korea’s nuclear capabilities and the hope for an infrastructure investment package.

Dealing with all that is more like a year’s agenda, not one for a short month.

Egged on by President Trump, Republicans want to deliver tax legislation to the White House before heading home for Christmas. While GOP leaders continue to sell the tax cut as a boon for the middle class, the push to pass it quickly is aimed at satisfying the expectations of Republican donors.

When the Senate returns to work this week, it will try to pass its version of tax legislation under special rules that prevent a Democratic filibuster. It can only lose two Republican votes. It also will vote on the bill under a cloud of criticism from economists across the ideological spectrum who say it will do little for the middle class and compromise the nation’s ability to deal with an economic downturn by sharply increasing the federal budget deficit.

If the Senate passes a tax measure, it then faces a House-Senate conference committee to iron out differences, which could highlight contentious and regionally divisive issues such as home mortgage and state and local tax deductibility.

Even though Republicans are trying to pass their tax legislation without any Democratic support, they need Democratic votes to pass a spending measure and increase the debt ceiling. The tight time frames before the holiday break amplify Democratic leverage. CHIP funding, which provides coverage for 9 million children, is one enticement the GOP is trying to use. The Dreamer’s Act could be another, but it could backfire and drive away some conservative GOP votes.

The troubled Moore Senate campaign to fill the seat formerly held by Jeff Sessions comes at an especially awkward political moment on December 12. If Moore, who faces accusations of sexual misconduct with minors, loses to Democrat Doug Jones, it will make GOP control of the Senate razor thin, which could be a factor if tax legislation gets pushed into next year.

Congress is also getting some pushback on the tax plan from corporations that have become more concerned about Trump objectives in NAFTA negotiations. A fifth round of talks among Canada, Mexico and the United States failed to produce agreement, which leaves open the possibility that Trump may unilaterally pull out of the trade deal. A business coalition led by the U.S. Chamber of Commerce has lobbied Capitol Hill in opposition to radical changes to NAFTA, warning they could lead to US job losses and ironically lead to more US manufacturing moved offshore.

The special prosecutor investigation into Russian election meddling and possible collusion by the Trump campaign has taken another ominous turn. Former National Security Advisor Michael Flynn has broken off contact with the Trump defense team, signaling a possible plea deal that involves cooperating with the special prosecutor on other targets. There have been signs Special Prosecutor Robert Mueller and his team have expanded their scope to include financial dealings by the Trump Organization with Russian oligarchs associated with money laundering.

The FCC decision to end net neutrality has stirred up a wide range of opponents who fear it will hand too much power to telecommunications companies. Supporters downplay that concern, saying it will lead to more investment in digital technology. But this isn’t just a garden-variety policy issue. Net neutrality supporters have taken to social media to voice their concerns, galvanizing many people who ordinarily shun politics. Those activated voters could make a difference in the looming 2018 mid-term election.

Budget Expert Calls Tax Plan ‘Economic Insanity’

Stan Collender is widely regarded as a congressional budget guru. He says the GOP-backed tax cut legislation moving through Congress equates to ‘economic insanity.’

Stan Collender is widely regarded as a congressional budget guru. He says the GOP-backed tax cut legislation moving through Congress equates to ‘economic insanity.’

It’s not every day that Forbes publishes an op-ed, as it did over the weekend, proclaiming a pending congressional tax cut is the “end of all economic sanity.”

Written by veteran congressional budget analyst Stan Collender, the op-ed says Republican leaders are forging ahead on tax-cut legislation “without having any idea of what this policy will actually do to the economy.” Collender says it won’t be pretty.

Collender predicts the tax cuts will provide little economic stimulus to an already thriving economy, increase structural US deficits, raise interest rates and limit the ability of Congress to deal with economic downturns. “They [GOP congressional leaders] have wishes, hopes and prayers, but in reality nothing beyond the economic equivalent of pagan superstition.” Did we mention this op-ed was published in Forbes?

This makes Paul Krugman’s criticism of tax cuts seem timid.

Tax cut zealots may dismiss Collender as a kook. He isn’t. He has been around Congress for years, with his nose stuck under piles of congressional budgets. If you want to criticize Collender, call him a congressional budget nerd, which is what he is.

Collender’s context – the US economy, which may not be groovy for everybody, is humming along with an expanding gross domestic product, unemployment at around 4 percent and corporate profits at record levels. If there is an economic concern, it centers on lagging wage growth relative to inflation and growing income inequality. The tax measures that have passed the House and are pending in the Senate don’t address wage growth or income inequality and, in fact, may exacerbate both.

Republican leaders says Americans want a tax cut, but polling doesn’t bear that out. Even if Americans did want a broad-based tax cut, the GOP plans may not meet the mark. Benefits appear slanted toward corporations and wealthy individuals. That may not be the intent of GOP lawmakers working on the tax cuts, but impartial analysts say that would be the result.

Collender cuts even deeper. He says even though the House tax cut measure is scored as raising the US budget deficit $1.4 trillion over 10 years, the likely impact is even larger, perhaps as much as $2 trillion. That’s a byproduct of modified scoring decisions dictated by GOP political leaders.

Adding $2 trillion to the US deficit when the economy is solid doesn’t leave a lot of room for a President or Congress to stimulate the economy during an inevitable downtown, Collender says.“The federal government will have far less ability to respond to economic downturns unless previously unimaginable and politically intolerable deficits, tax increases or spending cuts suddenly become acceptable,” he predicts.

The ultimate victim, Collender says, will be programs such as Medicare, Medicaid, Social Security and even military spending. American’s ability to invest in infrastructure and research will also be severely limited. Collender labels this “economic insanity.”

If a foreign adversary proposed a strategy to strangulate the US economy, politicians would call it an act of aggression. On Capitol Hill, passing this tax policy is viewed as essential before Christmas.