1 / 24 The quickest and most obvious change when Sen. McConnell takes over will be the reappearance of ‘regular order.’ Bills will move through committees again, with Chairmen assured that they will be considered on the floor, and that House-Senate conferences to resolve differences on particular pieces of legislation will occur. If nothing else, this should increase feelings of accomplishment and thus cooperation among Senators. The election has changed the makeup of Congress in a consequential way. Divided government can work if there is a real desire by both sides to get things done. Action on Immigration, tax reform, energy, infrastructure investment is urgently needed to put our country back on track for more growth and better jobs! This election is a subtle game changer. It shifts the power of initiative in the Senate to the Republicans, but still forces them to consult the minority to get things done. It gives House Republicans a supermajority that allows them to move legislation. Most importantly, responsibility is now in the GOP court- they have to advance real legislative solutions or there will be a voter backlash next time. Sen. Robert Bennett Senior Policy Advisor Arent Fox LLP Sen. Byron Dorgan Co-Chair, Government Relations Practice Arent Fox LLP Rep. Philip S. English Co-Chair, Government Relations Practice Arent Fox LLP ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014
2 / 24 ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 As part of one of the most respected law firms in Washington, DC, we’re a bipartisan team of attorneys and policy professionals with experience at the highest levels of politics and government. Jon S. Bouker Partner Washington, DC 202.857.6183 firstname.lastname@example.org Dan H. Renberg Partner Washington, DC 202.857.6386 email@example.com Sen. Byron Dorgan Co-Chair, Government Relations Practice Washington, DC 202.857.6334 firstname.lastname@example.org Rep. Philip S. English Co-Chair, Government Relations Practice Washington, DC 202.857.6031 email@example.com Sen. Robert Bennett Senior Policy Advisor Washington, DC 202.715.8403 firstname.lastname@example.org W. Jackson Coleman Counsel Washington, DC 202.857.6192 email@example.com Norman F. Lent III Counsel Washington, DC 202.857.6247 firstname.lastname@example.org Amy J. Demske Senior Government Relations Director Washington, DC 202.857.6484 email@example.com Laura E. Doyle Government Relations Consultant Washington, DC 202.857.6343 firstname.lastname@example.org How Can We Help You Accomplish Your Goals?
3 / 24 2014 Election Overview The 2014 midterm Congressional elections have resulted in a significant wave of victories for the Republican Party that confers new majority status in the US Senate and expands the majority in the US House of Representatives. A new two-year era of divided government will begin on January 3, 2015 but there are reasons to believe that the election results could lead to new opportunities for Congressional action in the coming months on pressing issues. As of this writing, there will be 52 Republicans at a minimum in the Senate, with a Republican leading in Alaska, a Democrat leading in Virginia, and a runoff scheduled in Louisiana on December 6. Three incumbent Democratic Senators are known to have lost: Kay Hagan (NC), Mark Pryor (AR), and Mark Udall (CO). The House Republicans as of this writing had 242 seats to the 174 declared Democratic winners, with 19 seats still unclear, representing a net gain of 13 seats. The magic 218-seat majority firmly in hand, it appears that the Republican Party will have its largest majority in the House since 1949. According to exit polls, the economy was top of mind for voters, ranking above health care and foreign policy. Great frustration with President Barack Obama and his Administration appears to have been a significant motivator for many voters, but there is still a historically low Congressional approval rating as well. One might wonder why such a low approval rating did not displace more members of the House and Senate, but a key factor to the electoral success of so many House incumbents (only 15 House Members have lost their seats as of this writing) is that the electoral maps were drawn to favor incumbents quite substantially after the last Census and reduced the level of true competition in many districts. It is worth noting that the Democrats had to defend a number of Senate seats in states that the President lost in 2012, adding to the difficulty of their position. There are differing schools of thought on what the combined Republican majority will mean in terms of a legislative agenda. After two years of wheel spinning, it is possible that the anticipated Senate Majority Leader, Senator Mitch McConnell (R-KY), will manage the Senate in a style reminiscent of previous leaders who prioritized legislating over grandstanding. According to Arent Fox Senior Policy Adviser, former Senator Robert Bennett (R-UT) (who, as a Senator, was a close counsel to Senator McConnell within the Republican leadership), “The quickest and most obvious change when Senator McConnell ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
4 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 takes over will be the reappearance of ‘regular order.’ Bills will move through committees again, with Chairmen assured that they will be considered on the floor, and that House-Senate conferences to resolve differences on particular pieces of legislation will occur. If nothing else, this should increase feelings of accomplishment and thus cooperation among Senators.” Senator McConnell nonetheless will have to contend with members of his own party, such as Senator Ted Cruz (R-TX) and others, who either aspire to the Presidency or, for other reasons, desire greater confrontation with the Obama Administration. There is pent up demand among some of those Senate Republicans for aggressive oversight of the Administration now that they will hold gavels and they can be counted upon to press for legislation that is more hardline on immigration and that would repeal the Affordable Care Act. In addition, Senate rules in recent years have necessitated a 60-vote supermajority to move significant legislation because of the ability of any Senator to threaten a filibuster. The likely Senate Minority Leader, Senator Harry Reid (D-NV), will have ample parliamentary tools at his disposal to block initiatives that are objectionable to the Administration and Congressional Democrats, but he might be pressed by some in his Caucus to find ways to negotiate satisfactory compromises with Senate Republicans. One factor for Senator McConnell to consider as he sets the agenda will be that, in 2016, his party must defend 24 Senate seats, while the Democrats will have only 10 Senators up for re-election. It is worth noting that several of those Senate Republicans will be up for re-election in states that President Obama won twice—Florida, Iowa, Ohio, Pennsylvania, and Wisconsin—and two states Obama won once, North Carolina and Indiana. In the House of Representatives, we expect Speaker John Boehner (R-OH) and recently elected Majority Leader Representative Kevin McCarthy (R-CA) to continue in those roles and to press committee chairmen to develop active legislative agendas that take advantage of the fact that there is a Senate Republican majority. For some time, House and Senate Republicans have been meeting behind the scenes to map out the first few months of a joint majority status and we can expect coordination between the McConnell and Boehner-McCarthy operations during the next few weeks so that they hit the ground running on key agenda items. ***
5 / 24 What the 2014 Election Will Mean for the Federal Budget The two most significant and pressing fiscal issues confronting the new Congress will be the need to increase the federal debt limit again and contending with severe statutory budget constraints that will force absolutely flat federal funding in Fiscal Year 2016 unless another bipartisan budget deal is achieved. Debt Ceiling The brinksmanship associated with efforts to raise the statutory federal debt ceiling is a possibility early in the new Congress, since a February 2014 law suspending the debt limit will expire on March 15, 2015. Unlike an earlier episode that featured political acrimony and fears of significant downgrades in the US Government’s credit rating, the 2014 legislation moved fairly quickly in a split Congress. It is unclear how a Republican majority in both the House and Senate would approach the debt ceiling, but in the past, such legislation was used as a vehicle for other policy initiatives given its “must-pass” nature. The Treasury Department may be able to use what it calls “extraordinary measures” to get past the March 15 deadline, but those only last for a finite period, so some legislation will be necessary in the first half of 2015. Federal Appropriations Organizations that depend on federal funding for part of their budgets have much to be concerned about given the current federal spending picture. Unless a comprehensive bipartisan budget deal is achieved next year, federal appropriations are destined to be absolutely flat for the fiscal year that begins on October 1, 2015 (FY 2016). The problem with a nominally flat federal budget is that costs continue to rise and thus agencies will likely need to cut spending in some programs to offset increased costs associated with other budget line items. Setting the table for the FY 2016 budget debate is the Budget Control Act of 2011, which set statutory caps on federal discretionary spending (appropriations) for a 10-year period and provided for across-the-board sequestration of funds if the government looked to be spending above those caps. After the initial 2011 law, Congress soon found ways to modify the budget caps through the current fiscal year, which ends Sept. 30, 2015, by identifying ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
6 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 offsetting budget savings. For example, the Ryan-Murray 2013 budget deal helped avoid more than $60 billion in potential sequestration and set overall appropriations for FY 2014 and FY 2015 at just over $1 trillion. The budgetary wiggle room ends after the current fiscal year, so if Congress does not act, the original Budget Control Act discretionary spending caps will re-emerge for FY 2016 and defense spending will be limited to $523 billion next year and non-defense discretionary appropriations will be limited to $493 billion, which is essentially the expected FY 2015 spending rate. Favored programs such as National Institutes of Health (NIH), highway/transit, economic development, and defense procurement will need significant expressions of support from stakeholders in the private sector in order to remain stable or see modest growth in the coming budget process. A continued area of tension will be between defense spending interests and non-defense interests, as the 2011 budget law calls for a higher proportion of budget reductions from the defense spending category than non-defense. Given the continued escalation in the Middle East and other problems facing the military, one can expect an ongoing tussle not only on what the overall federal spending limit should be but also whether funds should be shifted from non-defense to defense categories. Entitlements We expect the new Congress to include multiple competing proposals for entitlement reform (which would provide far greater budget savings than tinkering with the annual appropriations process). Medicare and Medicaid spending are particularly attractive to budget hawks looking for ways to reduce the federal deficit and increases in the federal debt. If the House and Senate are under Republican majorities, we expect a strong push to use the annual budget process to achieve spending reductions in entitlement programs (see discussion below). One noteworthy development will be the likely ascension of Congressman Paul Ryan (R-WI) to chairman of the House Ways and Means Committee, which oversees Medicare and Social Security, among other programs. From his high profile perch as Budget Committee Chairman, Congressman Ryan has unveiled a series of budget proposals that advocated significant market-based reforms of the Medicare system in order to achieve substantial long term budget savings. Chairman Ryan has supported an approach described as “premium support” under which seniors turning 65 after 2023 would have a choice of private plans as well as the traditional Medicare fee-for-service program. Medicare would provide a premium support payment to pay for or offset the cost of the plan chosen by each enrolled senior. A Senate Republican Majority means that Orrin Hatch (R-UT) would chair the Finance Committee and would be Chairman Ryan’s primary counterpart on entitlements. Sen. Hatch has previously offered a series of Medicare and Medicaid reforms that drew in part from bipartisan reform proposals. Accordingly, if there is a political will by the new majority to engage in serious contemplation of entitlement program reforms, the two new chairmen have a history of trying to address such issues. Budget Reconciliation The gridlock that has seized Congress in recent years relates especially to the cloture rules in the Senate. If the minority has 41 votes, it can typically stymie the majority in the Senate. That is a different circumstance than in the House, where there is no opportunity for unlimited debate. Because of that, the issue of “budget reconciliation” will likely become a major rallying point for forcing movement on legislationdue to the change of control in the Senate. “Budget reconciliation” is a type of budget legislation that enjoys parliamentary 7 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 protections that can render a filibuster meaningless and requires a simple majority vote to be approved instead of a 60 vote supermajority. Congress has used budget reconciliation procedures in the past to enact reform legislation affecting Medicare, Medicaid, food stamps, unemployment benefits, welfare payments, and other programs in the “mandatory spending” category. Note that a budget reconciliation bill can also be a vehicle for tax reform, making the process attractive to some Republicans who favor a comprehensive approach on fiscal policy. For example, Senator Orrin Hatch recently indicated that he would favor using budget reconciliation for entitlement reforms and tax reform jointly. While budget reconciliation may have a lower Congressional approval hurdle, at the end of the day the President must still sign the bill for it to become law. The President could view a budget bill of this nature as a chance to have more of a legislative legacy in his final two years and could work with Congress on such reforms. Or, politics as usual may prevail and veto threats will be the order of the day and the spending issues will again be deferred for a new President and the Congress elected in 2016. ***
8 / 24 What the Election Means for the Health Care Industry Affordable Care Act Unlike the 2012 presidential election, when health care reform became a central campaign issue, the Affordable Care Act (ACA) faded into the background during the 2014 midterm election. The botched rollout of the federal health exchange contributed to negative headlines, which undoubtedly bled onto the campaign trail. However, national exit polling on Election Day showed that 44 percent of voters listed the economy as the most important issue facing our country, while only 25 percent listed health care. With Republicans controlling both the US House and Senate, we expect that there will be efforts by some members of the party to achieve a full repeal of the ACA. Prominent members such as Sen. Ted Cruz (R-TX) already have called for Congress to send a repeal bill to the President’s desk. Nonetheless, while countless repeal bills will be introduced (and might move in committee), we believe that full repeal is off the table, and it is more likely that the GOP will instead focus on incremental improvements such as rolling back the employer mandate provision in the ACA. The requirement that employers provide health insurance coverage to their full-time workers or pay a penalty takes effect in January, 2015. The GOP answer would be to redefine the definition of full-time employment. Earlier this year, President Barack Obama delayed the employer mandate for businesses with fewer than 100 workers. This could be an opportunity for negotiations between the White House and Congress. The Department of Health and Human Services (HHS) hopes the 2015 ACA open enrollment will go more smoothly than the first time around. The continued success and growth of the health exchange private insurance market depends on whether health plans can keep down premium increases for consumers. Medicare Sustainable Growth Rate (“Doc Fix”) Could this be the year that Congress repeals the Sustainable Growth Rate (SGR) formula used to pay physicians under Medicare? Earlier this year, House Republicans announced plans to bring physician payment reform to the floor but the budgetary offset, a 10 year ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
9 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 delay of the individual mandate, didn’t have the support of the current Senate Democratic leadership. A “doc fix” has been unachievable for almost 15 years, and each year the temporary extensions to preserve physician payments gets more expensive. In the event that the doc fix is not resolved in the lame duck session starting next week, the incoming chairmen of the Ways and Means Committee, Rep. Paul Ryan (R-WI) and the Senate Finance Committee, Sen. Orrin Hatch (R-UT), may well make this a high priority early next year and chart a new course to eliminating this Medicare payment policy, ensuring that payments to providers are tied to quality measures. CHIP Reauthorization Democratic leadership had hoped to reauthorize the Children’s Health Insurance Program (CHIP) before Senator Jay Rockefeller (D-WV) retires at the end of this year. CHIP has been a bipartisan success story, providing health coverage for approximately 8.4 million low-income children and pregnant women. With the Republicans assuming the gavel, reauthorization is going to have to wait. It is rare for Congress to act legislatively well in advance of a statutory expiration and the CHIP program doesn’t expire until October 1, 2015. Approving CHIP legislation in this Congress would deprive the Republicans of negotiating power during consideration of other high priority items on their agenda, such as other health care policy initiatives related to the ACA and Medicare, not to mention tax policy or other unrelated matters. Medical Device Tax Based upon the overwhelming number of House and Senate Republicans in favor of repealing the device tax, it would appear that the elimination of the $30 billion ACA excise tax on medical devices is easily achieved. However, the architect of the ACA still resides in the White House and without a credible way to replace the $30 billion in tax collections, Executive Branch approval seems unlikely. The majority of Democrats support repealing the tax, but it’s unclear whether Congress will be able to identify an acceptable budgetary offset. We expect this will be a high priority again in the next Congress. Pathway to Cures House Energy & Commerce Committee Chairman Fred Upton (R-MI) is leading the 21st Century Cures initiative in search of ways to accelerate the pace of cures in America. Upton and Representative Diane DeGette (D-CO) are traveling the country seeking to identify legislative and regulatory solutions to improve the pathway for innovation in medical care. Based upon conversations with committee staff, we expect momentum will build in 2015 for legislative action tied to more rapid pathways that both parties can support. RAC Reform Congress created the Recovery Audit Contractor (RAC) program to help the Centers for Medicare and Medicaid Services (CMS) identify improper payments made to providers by Medicare and Medicaid. When Congress expanded the program in 2010 the goal of ferreting out fraud was paramount; since then there has been enormous growth in appeals to RAC decisions to deny provider claims. This summer the HHS Office of Medicare Hearings and Appeals (OMHA) revealed a staggering 545% growth in RAC appeals over two years, which has made the 90-day ALJ review requirement, established by Congress in 2010, untenable, and has pushed adjudication time frames to 387 days as of June 30, 2014. Today, OMHA has over 800,000 pending appeals and receives a year’s worth of appeals every four to six weeks. Congress has no intention of putting the brakes on RACs given the billions in improper payments that they have identified and returned to the Medicare Trust Fund. Even so, many 10 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 in Congress believe RAC contractors are out of control. During the current Congress, notwithstanding numerous cosponsors, RAC reform legislation authored by Representative Sam Graves (R-MO) and Senator Roy Blunt (R-MO) did not gain traction. It is unclear whether the new Senate Republican majority is sufficiently large and dedicated enough to move such legislation, since Blunt’s bill already had 16 bipartisan cosponsors and did not make it high on a must-pass list of bills this year. It may be that immediate RAC reform will depend more on Congressional and stakeholder pressure on CMS to develop and implement critically needed policy and contractual changes. Ryan White Ryan White funding has remained relatively stable, despite a federal deficit reduction environment. Continued bipartisan support remains strong with an understanding that the HIV/AIDS epidemic is still an emergency with 50,000 new HIV infections each year. Current funding for the Ryan White program does not meet ongoing need, and advocates will continue to press for higher funding levels. Because Ryan White is domestic discretionary spending, any attempt to make across-the-board cuts would jeopardize vital services. Ryan White reauthorization expired in 2013, and advocates have been closely monitoring the impact of the ACA in terms of increased Medicaid enrollment and implementation of exchange marketplace enrollment, as Ryan White is payer of last resort. It will be critical to supporters of the Ryan White law and the HIV/AIDS community to see how new chairmen of the House and Senate Labor, HHS, Education Appropriations subcommittees will develop their annual spending bills for FY2016. Graduate Medical Education (GME) In addition to resolving Medicare payment issues, physicians want Congress to address the mounting funding shortfall for training our nation’s doctors. The release of an Institute of Medicine (IOM) report this summer called for wholesale changes in the way Medicare graduate medical education (GME) money is distributed and accounted for. Most notably, IOM recommends that Congress shift Medicare teaching dollars away from teaching hospitals and into community-based training sites. It is unclear whether Congress will wade into the medical education debate in the upcoming session before floating its own long-term solutions for getting the program back on course. Disproportionate Share Hospitals (DSH) The Affordable Care Act assumed more Americans would receive health coverage which would significantly decrease the need for disproportionate share hospital (DSH) payments for safety net hospitals treating Medicaid and uninsured patients. The ACA called for deep cuts to Medicaid DSH starting in FY 2014, but last year Congress repealed DSH cuts for FYs 2014 and 2015 which means that Medicaid DSH will be reduced by $35 billion between FYs 2017 and 2024. Public hospitals have argued that passage of the ACA does not mitigate the need for charity care payments; in fact, the Congressional Budget Office projects that at least 31 million Americans will remain uninsured. We predict Congress will face tremendous pressure from Governors – especially those that haven’t expanded Medicaid to rollback future Medicaid DSH cuts. ***
11 / 24 What the Election Means for Trade Policy The election of a Republican Senate will have many policy consequences. But in the area of international trade, a bicameral Republican Congress is likely to result in cooperation with the Obama Administration as part of a broad international economic agenda. In the new Congress, both the Senate and the House have substantial pro-trade majorities that are likely to support many of the Obama Administration’s current trade initiatives. Whereas divisions within the Administration’s coalition in the outgoing Congress have slowed progress on the trade negotiations, a Republican majority is likely to be a reliable partner on trade policy. This year, the Obama Administration sought Trade Promotion Authority (TPA) to facilitate the negotiation of a series of ambitious trade agreements. These agreements could enhance the United States’ role in setting high standards for the global trading system. This effort suffered a setback when the US Senate resisted the call for a renewal of TPA. As a result some feel the trade representatives negotiating for the US where seen as doing so without the benefit of a formal structure protecting the product of their effort. TPA formalizes the process by which US negotiators consult Congress, and ultimately bring a detailed agreement back to the legislative branch for formal approval. As one result of the election, the renewal of TPA is expected to be passed in the near term. The likely TPA proposal will closely resemble current H.R. 3830, “The Bipartisan Congressional Trade Priorities Act.” This compromise contains specific limitations on negotiating authority necessary to attract broad support in Congress, and also increases the transparency of the negotiating process. This legislation will set the stage for as many as three major new trade agreements that are currently under negotiation and, if implemented, would deepen US trade engagements and increase US leverage in the global trading systems. ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
12 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Transpacific Partnership The first of these is the Transpacific Partnership (TPP). This negotiation is currently at a critical juncture. The TPP is an evolving regional trade agreement that could incorporate a major part of the Pacific Rim in what the Obama Administration has described as a “21st century trade agreement.” Close to completion, the agreement would go far beyond traditional bilateral trade pacts focused on tariff adjustments. The TPP aspires to much deeper integration, incorporating nuances such as supply chain management, state owned enterprises (SOE), regulatory cooperation, and novel digital trade issues. It is controversial in sectors such as agriculture, textiles, and apparel, and it strongly promotes intellectual property rights and opened government procurement processes. Although the TPP negotiation is incomplete and faces many challenges, prospects are positive that it will be completed and approved by congress early next year. Transatlantic Trade and Investment Partnership Another current trade negotiation is the Transatlantic Trade and Investment Partnership (TTIP), a bilateral pact with the European Union. Like TPP it aspires to economic integration far deeper than traditional FTA’s. TTIP is a high standard, comprehensive agreement aligned to eliminate barriers to trade and investments in goods, services, agriculture, and government procurement. Its function would be to promote regulatory cooperation, and promote labored environmental standards, strengthen intellectual property rights, and regulate data flows and supply chain management. At this time, negotiations are yielding indeterminate results, and appear to be slowed by political issues. A final agreement under negotiation is the Trade in Services Agreement (TISA), a multilateral pact intended to allow service providers to compete on a non-national basis. Recently launched, this agreement would promote transparency and the predictability of regulatory policies in a regime more effective than the WTO. Although the prospects for the new trade agreements are uncertain until completion, their prospects in congress have been substantially enhanced by a Republican Senate majority. Other prospective trade legislation includes: • Miscellaneous Tariff Bill (MTB) has currently passed in the House but hostage to anti-earmark sensibilities by a Senate faction. This bill will certainly be passed, or promptly reinitiated in the new Congress. • The US Export-Import Bank is likely to be reauthorized, although with continuing political angst in the House GOP. • The Generalized System of Preferences (GSP) is a trade program for emerging economies and is likely to be swiftly reauthorized. • The African Growth and Opportunity Act (AGOA), the cornerstone of US-Africa Trade Policy, will receive strong support for reauthorization in the new Congress. Action is less likely under a GOP Congress on Trade Adjustment Assistance (TAA), which may be further delayed and possibly reduced. • Trade Legislation specific to the US-China trade frictions is somewhat less likely, although discontent about intellectual property violations and current currency manipulation will continue to bubble up on occasions. ***
13 / 24 What the Election Means for Tax Policy The new Congress can be expected to bring a new commitment to moving significant tax legislation, in part because a closer political alignment between Republican majorities on the two tax writing committees and because of the new leadership on both committees. With Senator Orrin Hatch (R-UT) assuming the chairmanship of the Senate Finance Committee, trading places with Senator Ron Wyden (D-OR), who will remain the ranking member, the Committee will be led by experienced legislators with a gift for finding common bipartisan ground in contentious policy areas. At the same time, the House Ways & Means Committee will likely be chaired by Representative Paul Ryan (R-WI), a leading GOP tax reformer. The two committees will be facing the challenge of identifying tax positions that can generate support in both chambers, where common Republican majorities belie critical differences. In the wake of the election, both committees are expected to grope for common ground on long delayed legislation to extend expiring tax provisions. These “extenders” are normally reauthorized temporarily on a rolling basis, injecting great volatility in to the tax code. The Senate Finance Committee has sought to continue this process, which recently the House Ways & Means Committee has signaled a preference for, making certain tax polices permanent (e.g., the R&D credit, Section 179 expensing for small business) while permitting other less vital (or politically potent) provisions to end. As these two competing positions are difficult to reconcile, there remains great uncertainly how the committees will find common ground. The election’s conclusion will likely lead to a negotiated compromise – possibly in the post-election lame duck session. Tax Reform Tax reform remains a central issue for both committees and the demand for a comprehensive overhaul on both the individual and corporate tax codes remains compelling. Although Republican majorities on the Ways & Means and Senate Finance Committees are likely to find considerable common ground on how to approach an updated federal tax system, core ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations 13 / 24 What the Election Means for Tax Policy The new Congress can be expected to bring a new commitment to moving significant tax legislation, in part because a closer political alignment between Republican majorities on the two tax writing committees and because of the new leadership on both committees. With Senator Orrin Hatch (R-UT) assuming the chairmanship of the Senate Finance Committee, trading places with Senator Ron Wyden (D-OR), who will remain the ranking member, the Committee will be led by experienced legislators with a gift for finding common bipartisan ground in contentious policy areas. At the same time, the House Ways & Means Committee will likely be chaired by Representative Paul Ryan (R-WI), a leading GOP tax reformer. The two committees will be facing the challenge of identifying tax positions that can generate support in both chambers, where common Republican majorities belie critical differences. In the wake of the election, both committees are expected to grope for common ground on long delayed legislation to extend expiring tax provisions. These “extenders” are normally reauthorized temporarily on a rolling basis, injecting great volatility in to the tax code. The Senate Finance Committee has sought to continue this process, which recently the House Ways & Means Committee has signaled a preference for, making certain tax polices permanent (e.g., the R&D credit, Section 179 expensing for small business) while permitting other less vital (or politically potent) provisions to end. As these two competing positions are difficult to reconcile, there remains great uncertainly how the committees will find common ground. The election’s conclusion will likely lead to a negotiated compromise – possibly in the post-election lame duck session. Tax Reform Tax reform remains a central issue for both committees and the demand for a comprehensive overhaul on both the individual and corporate tax codes remains compelling. Although Republican majorities on the Ways & Means and Senate Finance Committees are likely to find considerable common ground on how to approach an updated federal tax system, core ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert
13 / 24 What the Election Means for Tax Policy The new Congress can be expected to bring a new commitment to moving significant tax legislation, in part because a closer political alignment between Republican majorities on the two tax writing committees and because of the new leadership on both committees. With Senator Orrin Hatch (R-UT) assuming the chairmanship of the Senate Finance Committee, trading places with Senator Ron Wyden (D-OR), who will remain the ranking member, the Committee will be led by experienced legislators with a gift for finding common bipartisan ground in contentious policy areas. At the same time, the House Ways & Means Committee will likely be chaired by Representative Paul Ryan (R-WI), a leading GOP tax reformer. The two committees will be facing the challenge of identifying tax positions that can generate support in both chambers, where common Republican majorities belie critical differences. In the wake of the election, both committees are expected to grope for common ground on long delayed legislation to extend expiring tax provisions. These “extenders” are normally reauthorized temporarily on a rolling basis, injecting great volatility in to the tax code. The Senate Finance Committee has sought to continue this process, which recently the House Ways & Means Committee has signaled a preference for, making certain tax polices permanent (e.g., the R&D credit, Section 179 expensing for small business) while permitting other less vital (or politically potent) provisions to end. As these two competing positions are difficult to reconcile, there remains great uncertainly how the committees will find common ground. The election’s conclusion will likely lead to a negotiated compromise – possibly in the post-election lame duck session. Tax Reform Tax reform remains a central issue for both committees and the demand for a comprehensive overhaul on both the individual and corporate tax codes remains compelling. Although Republican majorities on the Ways & Means and Senate Finance Committees are likely to find considerable common ground on how to approach an updated federal tax system, core ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
14 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 differences with the Department of the Treasury mean that a window for real tax reform will narrow as we get closer to the 2016 election. We can expect that the demand for tax reform – coupled with political pressure on Republican Congressional majorities to define pro-growth economic policies – will draw both committees towards tax reformers. In the wake of the election, expect leaders of the House Ways & Means Committee and Senate Finance Committee to launch tax reform projects, with some effort to make them bipartisan. In Ways & Means, the tax reform initiative of Chairman Dave Camp has strengthened institutional understanding of the issues and process. Similarity, earlier bipartisan efforts by Senator Wyden to define common ground for tax reform (the Wyden-Coates proposal) has laid groundwork for cooperation of tax policy in the Senate. While the Camp blueprint in the current Congress is unlikely to become the starting place for future tax reform, other simplification proposals are available to launch discussions, including passed legislation by Representative Ryan. Tax reform deliberations will focus on achieving well established, if challenging, goals: a simpler, more predictable, less burdensome revenue system that allows higher levels of economic growth while preserving fairness. On the corporate side, reform will aspire to a structure where lower rates have a simplified tax base, allowing greater competitive positioning by domestic firms in global markets. Ultimately, the ambition to reform the corporate tax regime is linked to revising the taxation of individuals through the treatment of unincorporated pass-through entities taxed at individual rates. In the effort to lower individual tax rates and simplify the tax base (while generating comparable revenue and higher economic growth), predictable issues will be engaged and tested, including the mortgage interest deduction; the charitable deduction; tax treatment of retirement savings; higher education tax incentives; the taxation of investment income, capital gains, and dividends; the deductibility of state and local taxes; the administration of minimal tax. Corporate Tax Reform Corporate tax reform will require aligning the American tax system with global changes that increasingly disadvantage domestic production. This will require adjusting for outdated international tax rules and reassessing territorial tax regimes. Other issues, like cost recovery systems and inventory accounting methods such as LIFO, will face extensive review. Industry specific tax preference will face potential scrutiny and challenge. The tax writing committees will also have the opportunity in the new Congress to review and potentially challenge some of the core assumptions that have led past tax reform efforts. Some established features of the current system invite revision as part of a fundamental tax overhaul: revenue neutrality, imputed distributional effects, and the possibility of dynamic analysis. A review of these standards can be achieved in the upcoming Congress, and many prove essential to realizing fundamental reform. More limiting tax initiatives may also become possible as the new Congress moves forward. For example, the continuing problem of corporate territorial taxation may revive the demand for a new time-limited opportunity for corporate tax payers to repatriate foreign earnings back to the United States to incent domestic investment. Free standing initiatives to repeal the Alternative Minimum Tax for offer expensing for capitol investments could be made part of a larger growth initiative linked to economic policy emanating from Capitol Hill. ***
15 / 24 What the 2014 Election Will Mean for Energy Policy The increase in the Republican majority in the House, combined with the Republican victory in the Senate, will provide an interesting political environment for President Barack Obama’s last two years in office. We are hopeful that common ground between the President and the Congress can be found on a number of pending issues related to energy and the environment. In addition, the new Congress will be in a position to block at least some regulatory changes through appropriations bill limitations. Some long simmering issues, such as the Keystone XL Pipeline, will likely be worked out in compromise legislation in which each side must give in order to get. The status quo of the past four years — a Republican House and a Democratic Senate — has been firmly upended. Given limitations imposed by Senate rules requiring a 60-vote majority for most legislation, and the President’s ability to veto bills that strongly run counter to Democratic ideology, most legislation must be compromise. But as opposed to the prior four years, we do foresee legislation addressing some energy and environmental issues passing both Houses of Congress and making it to the President’s desk. “The new Congress will clearly embrace a decidedly pro-growth, pro-development approach to energy which will encourage increased domestic production, especially in those sectors that require high levels of capital investment. Natural gas will be a big winner, but so will other energy producers that utilize new technologies.” – Rep. Philip English Environmental Regulatory Agenda The hopes and dreams of environmental groups for an aggressive regulatory agenda during President Obama’s final two years have suffered a big setback with the Republican congressional midterm election majorities. We think it is safe to say that some of the environmental regulatory agenda will move forward, but not the most aggressive provisions. The existing regulatory pipeline is filled with provisions with major potential impacts on oil and natural gas producers, refineries, ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
16 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 and electric power producers. We expect that the new Congress will target a number of these proposed regulatory provisions, including, among many others, the final regulations by the Environmental Protection Agency (EPA) on the Clean Air Act’s New Source Performance Standards (NSPS) for new power plants and refineries, and the regulations on NSPS for existing power plants and refineries. Additional EPA regulatory actions likely to be targeted include the Ozone National Ambient Air Quality Standards (NAAQS) and others related to control of greenhouse gas emissions. Keystone XL Pipeline Another regulatory decision that has long been pending before the Administration is the approval of the Keystone XL Pipeline bringing oil from Canadian oil sands to US refineries. Disapproval of this Pipeline is one of the primary objectives of the environmental community, and they cannot be expected to give the Administration a pass on this key issue. However, we believe that Keystone XL is likely to be part of a larger legislative compromise that will emerge from a more bipolar government. Approval of the Yucca Mountain nuclear storage facility in Nevada is also likely to be high on the legislative agenda for the new Congress, now that Senator Harry Reid (D-NV), a long-standing opponent of Yucca Mountain, will no longer be Senate Majority Leader. However, this will be difficult to accomplish. Hydraulic Fracturing The greatest threat facing continued, rapid expansion of oil and natural gas production has been the potential EPA federalization of regulation of hydraulic fracturing, which has always been primarily regulated by state authorities. The EPA has seemed determined to assert its regulatory authority, although the form and extent that will take remains undetermined at this time. Further, the Department of the Interior (DOI) has been engaged in a regulatory process on hydraulic fracturing on public lands that has caused significant opposition from the oil and gas industry because of the concerns about many provisions, including conflict with pertinent state regulations. We expect that Congress will be especially active in limiting EPA and DOI regulation of hydraulic fracturing. Leasing of oil, natural gas, and coal from onshore and offshore federal lands is not likely to be expanded during the Administration’s final two years. However, we do expect to see Congress pass legislation that will mandate an expansion of leasing both on and offshore. These lands are under the control of the DIO, which has significantly reduced new leasing, particularly under former Secretary Ken Salazar. New offshore oil and gas revenue sharing provisions will be spearheaded by Senator Lisa Murkowski (R-AK), the likely new Chairwoman of the Senate Energy & Natural Resources Committee, and will possibly be included in any energy legislation passed. Legislative Agenda Over the past four years, we saw how a divided Congress functions — we have seen many bills passed by the House of Representatives dying from inaction by the Senate. Committee leadership changes in the new Congress may provide opportunities for moving legislation that did not exist previously. The most significant change is the likely elevation of Senator Murkowski to Chairwoman of the Senate Energy & Natural Resources Committee. Senator Murkowski is keenly interested in obtaining offshore oil and gas revenue sharing for Alaska, and she should be expected to actively push for this as part of any energy bill. Further, Senator Murkowski has been the prime congressional advocate for eliminating current restrictions on the export of crude oil. We would expect that she would work to move such a bill early in the next Congress. The Obama Administration can be expected to maintain its strong support for the production of renewable energy on public, private, state, and Native American lands.
17 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 However, the expiration of numerous renewable energy tax provisions at the end of 2014 place the expansion of renewable energy at risk. Some of these may be addressed in tax extenders legislation in a lame duck session this year. Senator Ron Wyden (D-OR), current Chairman of the Senate Finance Committee, will push for renewable energy tax extenders. Likely incoming Senate Finance Committee Chairman Orrin Hatch (R-UT) will face significant pressure to cut back on renewable energy tax provisions. *** Government Relations
18 / 24 What the 2014 Election Will Mean for Technology and Communications Republican retention of the House and a takeover of the Senate may jump-start several stalled legislative initiatives of interest to technology and communications companies. But passing these initiatives will require bicameral and bipartisan cooperation, given the Senate’s 60-vote threshold for most legislation, and President Obama’s veto power. Patent Reform In December 2013, the House of Representatives approved comprehensive patent legislation, “The Innovation Act” (H.R. 3309), introduced by Judiciary Committee Chairman Bob Goodlatte (R-VA) that was aimed at curbing so-called “patent trolls” threatening lawsuits against business “end-users.” The Obama Administration supported the bill and it passed 325-91. However, the Senate companion bill, “The Patent Transparency and Improvements Act” (S. 1720) introduced by Senate Committee on the Judiciary Chairman Pat Leahy (D-VT), stalled in committee as small inventors, venture capital groups, leading innovative American companies, research universities, intellectual property attorney associations, and trial attorneys stepped up opposition to the legislation. Given its support from portions of the business community and the Administration, patent legislation will be a major issue in the next Congress, though enactment into law of a broad bill is not certain. In October, President Obama reiterated Administration support for patent legislation and last week, House Speaker John Boehner (R-OH) released a legislative plan for the next Congress that included “combating abusive patent litigation.” Senate Judiciary Ranking Member and incoming Chairman Chuck Grassley (R-IA) worked with Senator Leahy on patent legislation during this Congress and likely will revive the bill in the next Congress. Although trial attorney groups who opposed the Leahy legislation will have less influence in a Republican-controlled Senate, it’s unclear whether the Senate this year can move forward given the business community split. A narrower patent demand ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
19 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 letter bill along the lines of legislation considered earlier this year in the House Energy and Commerce Committee is one possible compromise. A potential new factor is the United States Supreme Court’s recent Octane Fitness, Nautilus and Alice v. CLS Bank rulings, along with other court decisions and changes in Patent and Trademark Office dispute procedures, which may be deterring many lawsuits against technology end-users — the principal impetus behind and the rationale for new patent legislation. Communications Act Update In December 2013, House Energy & Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) launched a multi-year bipartisan committee to update the Communications Act of 1934 to bring US communications laws into the digital age. In June 2014, Senate Commerce Ranking Member and incoming Chairman John Thune (R-SD) hinted that the Senate under a Republican majority would work closely with its House counterparts. During the new Congress, both House Energy & Commerce and Senate Commence will ramp up work on updating the communications laws. Despite the widespread recognition that the current laws need revision and bipartisan and bicameral interest in moving forward, consensus breaks down on whether proposed changes will accelerate or harm innovation and consumers. Spectrum The FCC continues to work on efforts to make more spectrum available, but its long-awaited spectrum auction, a key component, is delayed because of broadcaster litigation. Congress remains keenly interested in spectrum policy and will address the spectrum shortage challenge both through oversight of the FCC and a possible Communications Act rewrite or stand-alone legislation that could include shifting of some government-held spectrum to the private sector. Net Neutrality Most Republicans oppose FCC net neutrality regulations and incoming Senate Commerce Chairman Thune has long questioned the FCC’s legal authority to mandate net neutrality. Because the President, most Senate Democrats, and some prominent US businesses support the FCC, the likelihood of any anti-net neutrality legislative initiative becoming law is low. Congressional activity likely will be limited to questions during FCC oversight hearings and congressional letter inquiries, especially if the FCC actions turn out to be not especially burdensome for broadband providers traditionally opposed to net neutrality. Online Privacy Although online privacy is an increasing consumer concern, lawmakers of both parties, with some notable exceptions, have been generally reluctant to push legislation curbing data collection and have been receptive to industry arguments that marketplace solutions and industry standard-setting are preferable alternatives. In addition, Senate Commerce Chairman Jay Rockefeller (D-WV), a leading proponent of online privacy legislation, is retiring at the end of this Congress. It’s unlikely that legislation will become law in this area, and focus of activity will continue to be the Federal Trade Commission (FTC).
20 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Satellite Television Reauthorization and A La Carte Television When Congress returns for the lame duck session, it will address the expiring Satellite Television Extension and Localism Act (STELA). The House passed its STELA reauthorization earlier this year (H.R. 4572) and the Senate Commerce-approved bill is awaiting floor action (S. 2799). An earlier version of the Senate satellite television reauthorization bill included an “a la carte” provision allowing consumers to choose which broadcast channels they want in their cable or satellite television packages. The provision was dropped because of broadcaster opposition. Newly elected House Republican Whip Steve Scalise (R-LA) is a strong proponent of a la carte and has said that he expects the issue to resurface next Congress in the context of a Communications Act update. Cybersecurity Senate Select Committee on Intelligence Chair Dianne Feinstein (D-CA) and retiring Ranking Member Saxby Chambliss (R-GA) are working with their House counterparts on a modest cybersecurity bill that could pass during the upcoming lame duck session. This bill may not contain the information-sharing protections supported by the business community but opposed by privacy advocates. Internet Access Tax Moratorium The Internet Access Tax Moratorium, first enacted in 2004, expires December 11, 2014. The Marketplace Fairness Act (MFA), a bill that helps states and localities collect sales taxes on online purchases by their consumers, has cleared the Senate but not the House (S. 743). MFA proponents may try to attach their bill to the tax moratorium extension legislation. ***
21 / 24 What the 2014 Election Will Mean for Higher Education The Higher Education Reauthorization (HEA) was last reauthorized in 2008 after five years of temporary extensions by Congress. The federal law governing higher education and federal financial aid programs for college students has been operating again under temporary extensions since 2013. The 113th Congress began with high hopes of reauthorizing HEA but, with just a lame-duck session between completion and adjournment, it seems likely that the 114th Congress will be tasked with HEA reauthorization. HEA Reauthorization With Republicans reclaiming the Senate majority in yesterday’s elections, Senator Lamar Alexander (R-TN) is presumed to be the next chair of the Senate Health, Education, Labor & Pensions (HELP) Committee. Senator Alexander, a former college president, as well as a former Secretary of Education, has had a longtime focus on simplification -- particularly in regards to the federal student loan process. Alexander authored draft legislation with Senator Michael Bennett (D-CO) shortening the lengthy Free Application for Federal Student Aid (FAFSA) to a page, as well as combining two federal grant programs into one Pell Grant program, reducing six different federal loan programs into three and streamlining the current loan-repayment plans into two plans — one of which would be income contingent. Senator Alexander’s proposal provides an alternative starting point to outgoing Chairman Tom Harkin’s (D-IA) comprehensive HEA discussion draft, which was written without any input from Republicans. It is likely that Senator Alexander will start with a “blank page” on HEA reauthorization when he takes the gavel. Chairman John Kline (R-MN) of the Education & the Workforce Committee released an 11-page guide outlining his reauthorization priorities — including a proposal to consolidate all existing undergraduate federal student loans and grants. The Education & the Workforce Committee hasn’t released legislative language. Chairman Kline is term-limited; however, he has indicated his desire to keep the gavel of the Education & the Workforce Committee and is likely to be successful in his request for a term limit waiver. Representative Virginia Foxx (R-NC) is next in line if Kline is not successful and currently chairs the Subcommittee on Higher Education & Workforce Training, which has been responsible for the three narrowly focused HEA bills which have passed the House this Congress. ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert Government Relations
22 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Gainful Employment Regulations On October 30, the Department of Education (DOE) released its long awaited “gainful employment” standards for vocational programs at for-profit institutions and community colleges. The overall structure bears similarities to previously-released draft regulations. But according to the DOE, 16 percent of the 8,000 covered programs (which have a total enrollment of one million students) would not pass under the proposed standards (a majority of which are for-profit institutions) and another eight percent would fall into a “warning zone.” Critics have pointed out that the DOE’s decision to drop a student loan default rate standard from the final rules, leaving only metrics on graduates’ debt-to-earnings ratios as factors on which the colleges can be judged and punished, greatly weakens the final rule. This round of regulations is likely to be challenged in court by for-profit institutions that successfully blocked past regulations and will certainly face opposition from a Republican-controlled Congress who have a more favorable opinion of for-profit institutions and a resistance to additional federal regulation. Higher Education Tax Policy In July, the House approved an overhaul of higher education tax breaks, which was the result of the work done by the Ways & Means Committee’s members on recommendations for fundamental tax reform. The Student and Family Tax Simplification Act, the culmination of a working group led by Rep. Diane Black (R-TN) and Rep. Danny Davis (D-IL), makes permanent the American Opportunity Tax Credit (AOTC), which is not set to expire until 2017. However, it would also eliminate and consolidate other various tuition tax benefits drawing opposition from the higher ed community. The legislation passed the House largely along party lines. Democrats and the White House opposed the bill in large part because of the lack of an offset. A change in the Chairmanship at the Senate Finance Committee will likely spur efforts to simplify and consolidate existing tax education credits in the name of fundamental tax reform. Senator Orrin Hatch (R-UT) is the next in line to become the Finance Committee chairman. The tuition deduction, the individual retirement account (IRA) Charitable Rollover, and the R&D tax credit all expired in 2013 and are likely to be considered in any lame-duck tax package. Whether they will be extended or made permanent remains to be seen and largely determined by who ultimately has control of the Senate and the appetite for an extender package in the lame duck session. Pell Grants With the current continuing resolution set to expire on December 11, the first order of business is an end of year omnibus appropriations bill or continuing resolution to finalize the current fiscal year’s spending levels, including Pell Grants. The Senate has proposed a $100 increase in the maximum Pell Grant for the 2015-16 school year, to a level of $5,830. The House did not yet unveil its preferred spending level, leaving it to be worked out during lame duck session negotiations. The potential impact on Pell Grants of a new Republican majority is unknown, but it is worth noting that current Budget Chairman Paul Ryan (R-WI) proposed an FY’15 budget resolution which would freeze the maximum Pell Grant award at the current $5,730 for 10 years and would have changed the program substantively in an effort to control future spending. Pell Grant funding had been protected from budget sequestration, but such protection might not be available in future years. Accordingly, given the likely flat funding in the next appropriations process, the possibility of flat funding for Pell Grants or even some reductions in future years is a very real possibility. ***
23 / 24 What the Election Means for Anti-Poverty Programs Anti-Poverty Programs In the months leading up to Tuesday’s midterm elections, both Democrats and Republicans paid considerable attention to federal anti-poverty programs. Not surprisingly, the parties have contrasting views on how to lift low-income Americans out of poverty. In March, on the 50th anniversary of President Lyndon Johnson’s War on Poverty, House Budget Committee Chairman Paul Ryan released a critique of federal assistance programs. Chairman Ryan followed up in July with a proposal that would overhaul the way federal aid is delivered to the poor. Meanwhile, President Barack Obama and fellow Democrats continued to champion traditional liberal goals, such as an increased minimum wage and a continuation of emergency unemployment benefits. Tuesday’s election results are sure to have an impact on how this debate plays out over the next two years. Ryan’s Anti-Poverty Plan Most immediately, Tuesday’s Republican gains increase the likelihood that Congressman Ryan’s anti-poverty proposal may pass the House. Although Ryan is currently the chair of the House Budget Committee, it is widely expected that with the Republican victory in the House, Ryan will be elected chair of the House Ways and Means Committee , which has jurisdiction over many anti-poverty programs, such as Temporary Assistance for Needy Families (TANF) and the earned income tax credit (EITC). Ryan’s plan would consolidate up to 11 federal assistance programs into a single funding stream that states could implement with considerable flexibility, subject to certain guidelines and performance requirements. Democrats already have expressed concerns about abandoning federal formulas in favor of block grants, as well as the deep cuts to anti-poverty programs that both the plan and Ryan’s proposed budget would require. However, some advocates have praised Ryan’s plan, which would assign every aid recipient a case manager and tie aid to the recipient’s progress in meeting set benchmarks. ARENT FOX LLP LA / NY / SF / DC ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014 Legal Alert
24 / 24 ARENT FOX LLP LA / NY / SF / DC Legal Alert Government Relations With Congressman Ryan as the next chair of the House Ways and Means Committee , this debate is certain to take center stage in the new Congress. Of course, even assuming passage in the House, the plan would still need approval in the Senate – a difficult task because last night’s Republican gains failed to deliver the party a 60-vote, filibuster-proof majority. And the President’s support of the proposal in its current form seems unlikely. The question is whether Republicans and Democrats can come together to agree on a proposal that does not compromise either party’s principles. EITC: A Rare Point of Agreement Despite their many differences on the subject of federal aid to the poor, there is at least one policy that continues to draw the support of both Democrats and Republicans: the earned income tax credit (EITC). The EITC, a tax credit for low and moderate income working people that is designed to reward increased work, has been a key component of anti-poverty proposals emerging from both sides in recent months. In fact, Congressman Ryan’s anti-poverty proposal and President Obama’s 2015 budget proposed similar expansions of the program. In the coming weeks and months, expect the EITC to be an important topic of discussion as Congress considers its response to poverty in America. A Return to Sequestration? Negotiations over anti-poverty programs will almost certainly be framed by the looming threat of budget sequestration. As we enter the final fiscal year of the Bipartisan Budget Act of 2013, which set top line discretionary spending levels for 2014 and 2015, lawmakers will have to reach an agreement if they are to avoid deep cuts to many federal programs in 2016, including those that benefit the most vulnerable Americans. While many mandatory programs currently are exempt from budget sequestration, including Social Security, Medicaid, and SNAP (formerly known as the food stamp program), discretionary programs could be subject to reduced funding. These cuts would hit critical anti-poverty programs such as the Low-Income Home Energy Assistance Program (LIHEAP), which helps low-income individuals pay their heating bills; the Head Start program, which provides early education to low-income children; and the Job Corps program, which provides education and training for at-risk youth. In fact, in the current deficit reduction environment, these programs will likely be in danger even if politicians are able to avoid sequestration in 2016. With Republicans controlling both houses of Congress, discretionary anti-poverty programs – as well as mandatory programs now exempt from sequestration – are likely to be on the negotiating table as lawmakers seek to trim federal spending further. *** ARENT FOX 2014 ELECTION ANALYSIS NOVEMBER 5, 2014