Last night’s presidential debate was the last of the three events featuring the candidates together to discuss their respective visions for the future. As was the case with the first two debates, last night’s discussions covered both the candidates’ fitness to be president, and a list of substantive issues, including debt, entitlements, immigration, and foreign policy.

With the debates now in the background, and many ballots already cast in early voting states, there are only 19 days until the general election.

This election, regardless of the outcome, will result in significant changes. The White House will have a new resident, the control of the Senate may change parties, and the significant Republican majority in the House will likely be narrowed to a smaller margin.

Each of these possible developments will have serious repercussions for the policymaking agenda, which will impact industries in the US and abroad. The following alert is the third in a Steptoe series (the first two are available here and here) highlighting key public policy areas that will be affected by the upcoming election. In this alert, we explore the political ramifications of November 8 to the US Congress, as well as what a change in leadership may mean for healthcare policy, international trade policy, and international tax reform.

Please join us for a webinar on November 10 as we break down the election and offer our analysis on what it means for you and your industry.

Political Dynamics and Legislative Agenda for the 115th Congress

Predictions and prognostications are no more than a snapshot in time. If the election were to be held today, it would appear as if Secretary Hillary Clinton would be the next president of the United States, Republicans would maintain the House of Representatives, thereby setting up Rep. Paul Ryan (R-WI) to maintain his role of Speaker of the House, and the Democrats would capture the Senate, catapulting Senator Charles Schumer (D-NY) to the position of Majority Leader. While many like to complain about the dysfunction of government, this new triumvirate will have the opportunity to prove the naysayers wrong. While both parties will face pulls from elements within their caucuses – including the conservative “Freedom Caucus” in the House, and the progressive wing led by Senator Elizabeth Warren – these three leaders have expressed a desire to work across the aisle to craft and pass legislation.

Senator Schumer would most likely be joined in his leadership team by Senators Richard Durbin (D-IL), Patty Murray (D-WA), and Debbie Stabenow (D-MI). In the first 100 days of the 115th Congress, a Senate Democratic agenda would place an emphasis on the confirmation of President Clinton’s appointees to ensure the effective working of the Executive Branch. Included in this consideration may be a nominee to the Supreme Court, depending on the actions of the Senate during the lame duck session. More broadly speaking, expect an agenda to focus on areas of bipartisan consensus, such as international tax reform (on which Senator Schumer and Senator Rob Portman (R-OH) have worked together in the past, with support from Speaker Ryan), and immigration reform, which passed the Senate by a bipartisan margin this Congress. An infrastructure program initiative that could touch multiple interests will be pushed and likely tied to the tax reforms. Finally, initiatives to address the Voting Rights Act, cybersecurity, and several other prominent issues will also be emphasized early in the next Senate.

Senator Schumer has made clear his intent to work across the aisle and seek out common ground with Republicans should he become majority leader. He has shown a willingness to do so in the past (including the issues mentioned above) and while standing firm on Democratic principles, he would seek accomplishments that both sides can take back to their constituents. A consistent theme in his legislative efforts has been initiatives to address concerns of the middle class. As Senator Schumer recently said, “If we’re gridlocked for another four years, the anger and sourness in the land will make that of 2016 seem tame . . . So there’s a moral imperative to restore faith in government and restore faith in America.”

The House GOP leadership team is expected to remain the same heading into the next Congress, with Speaker Ryan leading the House and Kevin McCarthy (R-CA) remaining as majority leader. Should Republicans maintain the House of Representatives, they will likely have a narrower majority next Congress, with a more conservative caucus, making Speaker Ryan’s job more difficult. As Speaker, Ryan has shown a preference for legislating and making progress on many of the pressing issues facing the country. His negotiating hand, however, may be restrained by the more conservative elements of his caucus.

On the campaign trail this Fall, Speaker Ryan has emphasized the House GOP’s “Better Way” blueprint. This plan touches on a range of issues, including tax reform, health care, addressing poverty, and the growing the economy. Next Congress, the House GOP will likely spend considerable time on the priorities contained in the “Better Way” blueprint. Ultimately, it is too early to tell how Speaker Ryan and the House GOP will interact with Senator Schumer if he is the majority leader. They have worked well together in the past, but external forces beyond the two individuals may keep Congress in gridlock once again.

Healthcare Policy

Healthcare reform has been one of the signature substantive issues debated on the campaign trail. The Affordable Care Act (ACA), often referred to as “Obamacare,” has sharply divided the two candidates.

Secretary Hillary Clinton has focused on building on the current employer-based healthcare system and perfecting the ACA while Donald Trump – in tune with his party – champions repealing and replacing the ACA.

During the second debate, Secretary Clinton declared that “170 million of us get our health insurance through employer benefits” and “I want very much to save what works and is good about the ACA . . . but we've got to get costs down [and] we've got to provide additional help to small businesses so that they can afford to provide health insurance.”

Secretary Clinton proposes to accomplish these goals by –

  • Expanding the exchange tax credits to ensure that no American is required to pay more than 8.5% of his or her income for health insurance
  • Expanding small business tax credits for businesses that offer health insurance coverage to their employees
  • Expanding the mandatory “free” services health insurers must provide to include at least three free sick visits to doctors per year (in addition to the requisite “free” preventative care visits already required under current law)
  • Making some sort of undefined “public option” that likely would resemble Medicare available to compete with (or replace) the private insurance market for individuals

Secretary Clinton would also increase medical provider price transparency in an effort to better arm consumers to make intelligent health care purchases and she would implement (as yet undefined) policies to encourage more healthcare innovation and entrepreneurship.

Mr. Trump shares Secretary Clinton’s notion of increased price transparency and encouragement of more innovation and entrepreneurship objectives, but his policy proposals are as undefined in this space as Secretary Clinton’s. Additionally, Mr. Trump’s suggestions for replacing the ACA share one common feature with Secretary Clinton's healthcare reform agenda – they would be tremendously expensive – as he would:

  • Allow for the full tax deductibility of all healthcare insurance premiums for the first time
  • Expand the availability of Health Savings Accounts

The other key tenet of Mr. Trump’s healthcare reform platform also is a core feature of the healthcare reform blueprint House Speaker Paul Ryan released in June – permitting the sale of health insurance across state lines.

The healthcare reform debate comes at a perilous moment for the Obamacare Health Insurance Marketplaces (frequently referred to as ACA Exchanges), as premiums on those exchanges are skyrocketing and some insurers have begun pulling out of the exchanges completely, dramatically limiting consumer choice in many places. Some argue that the unraveling of the exchange options could be anchored in a failure to effectuate two core ACA provisions:

  • A requirement that the Department of Health and Human Services establish a single national benchmark plan that would be designed to be relatively simple and inexpensive, thereby eliminating many/most state mandate requirements (the proposal to sell health insurance across state lines also could effectively accomplish the same thing and this, therefore, is a provision many Republicans should champion)
  • The “risk corridor” subsidies that the Republican Congress – over strenuous Obama Administration objections – ultimately refused to fund but that were designed to compensate insurers whose patient populations are more expensive than anticipated as the new law requires them to take all comers with no medical underwriting at all

A near term solution to some of the problems plaguing the individual marketplaces could be grounded on linking these two requirements but the tenor of the debates to date has not allowed for the exploration of such potentially constructive compromises.

International Trade Policy

Unlike in past presidential campaigns, international trade has been a major issue in the campaign and featured in all three of the presidential debates. While both candidates oppose the Trans-Pacific Partnership (TPP), their approach and rhetoric on trade are quite different.

Donald Trump has made renegotiation of our major trade agreements a centerpiece of his campaign and jobs agenda. Not only is he opposed to TPP, he has called for renegotiation of the North American Free Trade Agreement (NAFTA) and even suggested withdrawal from the World Trade Organization (WTO) if his proposed retaliatory tariffs are challenged at the WTO.

His other major trade focus is China, where his plan calls for targeting Chinese trade practices using “every lawful presidential power.” He has proposed imposition of across-the-board tariffs on Chinese imports reaching up to 45%, which, if implemented, would violate US commitments under the WTO. Mr. Trump also plans to instruct the Treasury Department to name China as a currency manipulator, which would constitute a departure from recent US policy.

Secretary Clinton’s approach is more nuanced and premised on more robust enforcement of US trade agreements and trade laws. To that end, she plans to establish an Office of the Trade Prosecutor to report directly to the president. Another key element of her enforcement approach with respect to China is her intention to retain China’s nonmarket economy (NME) status, which allows the Department of Commerce to use special methods to determine the extent to which Chinese products are dumped into the United States.

Secretary Clinton has looked at trade agreements on a case-by-case approach – supporting some trade agreements, such as with Peru, while opposing others, such as the Central American Free Trade Agreement. She says she will evaluate future trade agreements by whether they lead to increased jobs and higher wages and will promote US national security.

International Tax Reform in 2017

While the prospects for passage of comprehensive tax reform in 2017 remain unclear, much groundwork has already been laid and substantial work is likely to be done on tax reform in Congress in 2017, regardless of who gets elected.

House Ways and Means Committee Chairman Kevin Brady (R-TX), has indicated his clear intention to move forward on the House blueprint for tax reform next year. This blueprint, part of House Speaker Paul Ryan’s broader 2016 policy agenda, provides the general outline of the House GOP’s vision for tax reform. (Click here for prior coverage.) Former Ways and Means Chairman Dave Camp (R-MI) also released a comprehensive tax reform package.

While the Senate has not been quite as univocal, the presumptive Democratic leader (and possible Majority Leader), Senator Charles Schumer (D-NY), has also indicated an interest in a tax reform package. In 2015, the Senate Finance Committee released detailed working group reports on various areas. In addition, Senate Finance Committee Chairman Orrin Hatch (R-UT) has been actively working on a corporate integration legislative proposal, and Ranking Member Ron Wyden (D-OR) has released detailed proposals on depreciation and financial products.

Even if comprehensive tax reform is not possible in 2017, there could be a renewed interest in international tax reform. In 2015, a proposal to tax overseas profits as part of international tax reform gained momentum to provide a funding source for the federal Highway Trust Fund. The proposal was contained in the report of the Senate Finance international tax working group co-chaired by Senate Finance Committee members Rob Portman (R-OH) and Charles Schumer, and was supported by then-House Ways and Means Committee Chairman Paul Ryan and the Obama Administration.

Several recent events, including the wave of corporate tax inversions along with the government’s far-reaching regulatory response, and the EU state aid investigations (click here for prior coverage), have breathed new life into discussions on international tax reform. The ever-growing accumulated untaxed foreign earnings (recently estimated at over $2 trillion) and the continued deterioration of our country’s infrastructure have increased calls to use a tax on overseas profits to fund infrastructure projects.

Both presidential candidates have indicated support for increased infrastructure spending, and Mr. Trump has even called for a 10% tax on the deemed repatriation of overseas profits. Senator Schumer has said that if the Democrats win a Senate majority in November, the Senate will make a repatriation tax a priority in 2017 to pay for new infrastructure investments.

A repatriation tax seems to be one of the many points of bi-partisan, bi-cameral agreement in the international tax reform discussion. In fact, there seems to be a remarkable consensus between the Democrats and Republicans on a general approach to international tax reform:

  • Territorial regime where active income earned by controlled foreign corporations is subject to little or no residual tax in the US
  • Base erosion rules to protect territorial taxation. These generally target mobile, passive income that is taxed at a low rate in the foreign jurisdiction and include a minimum tax on foreign earnings prevent companies from pushing income to low-taxed jurisdictions, limitations on excess interest deductions, and current taxation of foreign intangible income
  • Deemed repatriation tax, which is a one-time tax on accumulated untaxed foreign earnings held by foreign subsidiaries at a rate substantially below the US corporate statutory tax rate. The purpose of this tax is to place all earnings on equal ground to transition to a territorial regime

Recent efforts on international-only tax reform have raised concern among some about proceeding with international tax reform without other business tax reform. For example, the perception that Congress is working to reform taxes for large, multinational companies may be unpopular with smaller, domestic companies. In addition, a key component to international tax reform is a significantly reduced corporate statutory tax rate, which is not possible without significant revenue loss outside of comprehensive business tax reform.

The next big milestone on tax reform will likely be the release of legislative text of the House GOP blueprint, which is being drafted now. As with any legislative proposal, the devil will be in the details. Early and thoughtful engagement with Congress and the administration is important while the contours of tax reform in 2017 are still being discussed.