Federal Infrastructure Proposal Unveiled; What It Means for Indiana

On Monday, the Trump administration released its long anticipated $1.5 trillion plan for public works and infrastructure. The plan is based on $200 billion in direct federal spending to leverage $1.3 trillion in state, local and private infrastructure investment. (See https://www.whitehouse.gov/wpcontent/uploads/2018/02/INFRASTRUCTURE-211.pdf.)

With many of our nation’s roads, bridges, airports and other infrastructure in need of upgrading and building out for the future, this plan relies heavily on additional investment from the states and the private sector. The base of the plan has $100 billion in incentives in the form of grants to state and locals that includes $50 billion for rural projects, $30 billion for revolving federal credit and capital funds, as well as $20 billion for innovative projects that may not be ripe for private investment.

Indiana was one of several states that passed a bold, long-range infrastructure plan last year. (In fact, more than half of the states have raised their gas tax over the past five years.) So we should be well positioned to take advantage of this plan, as we have already taken the needed step to enhance our state and local road infrastructure funding.

Water infrastructure is a big issue for Indiana and this plan also proposes to leverage local investment with up to $40 in local and private money for every $1 in federal investment.

Additionally, the plan also proposes to cut federal permitting and approval times to two years, down from five to 10 years. This could be a big benefit for many projects.

Presently, this plan does not lay out specific funding for the proposal and puts that issue before Congress to solve. That could prove more difficult with concerns that the recently passed federal tax plan will raise the nation’s deficit. One option: the U.S. Chamber of Commerce recently proposed raising the federal gas tax, which has not been raised since 1993. No doubt, this will be a tough discussion in Congress.

There is usually an economic multiplier effect with infrastructure investment. America’s infrastructure is in dire need of modernization. Indiana has taken big steps to take care of its own and will hopefully benefit from this package. As details develop, we will continue to see how this plan evolves and impacts Indiana infrastructure.

Walorski Pushes for New Repeal of Medical Device Tax; Messer’s Reverse Transfer Concept Amended Into Reauthorization Bill

Congresswoman Jackie Walorski (IN-02) has brought forth legislation to suspend the medical device tax for five years. She joined Rep. Erik Paulsen (R-MN) in co-authoring the bill, H.R. 4617, which would delay the implementation of the 2.3% tax that was originally created through the Affordable Care Act. In 2017, Congress delayed the tax for two years, but without intervention it is set to take effect January 1, 2018.

“The job-killing medical device tax would have a devastating impact on Hoosier workers and patients across the country who depend on life-saving medical innovation,” Walorski said. “I am committed to permanently ending this burdensome tax. As we continue working toward repeal, we must protect workers and patients by preventing it from taking effect.”

Congressman Luke Messer (IN-06) and Congresswoman Jackie Walorski (IN-02)

Walorski’s bill was part of a group of legislation introduced by members of the House Ways and Means Committee aimed at stopping Obamacare taxes set to take effect in 2018. The other four measures are:

• H.R. 4618, introduced by Rep. Lynn Jenkins (R-KS), provides relief for two years from the tax on over-the-counter medications, expanding access and reducing health care costs by once again allowing for reimbursement under consumer-directed accounts;
• H.R. 4620, introduced by Rep. Kristi Noem (R-SD), provides relief in 2018 from the Health Insurance Tax (HIT) that drives up health care costs;
• H.R. 4619, introduced by Rep. Carlos Curbelo (R-FL), provides needed relief from HIT for two years for health care plans regulated by Puerto Rico; and
• H.R. 4616, introduced by Reps. Devin Nunes (R-CA) and Mike Kelly (R-PA), delivers three years of retroactive relief and one year of prospective relief from the harmful employer mandate paired with a one-year delay of the Cadillac tax.

Earlier this year, Congressman Luke Messer (IN-06) introduced legislation that encourages a more seamless transition for community college transfer students earning degrees. Messer’s proposal would make it easier for students to earn a degree through a “reverse transfer,” where students who transferred from a community college to a four-year-institution but haven’t completed a bachelor’s degree can apply those additional credits back toward an associate’s degree.

Originally titled the Reverse Transfer Efficiency Act of 2017, it was recently added as an amendment to the Higher Education Re-authorization by the House Committee on Education and Workforce. The provision would streamline credit sharing between community colleges and four-year institutions so transfer students can be notified when they become eligible to receive an associate’s degree through a reverse transfer.

“An associate’s degree can make a huge difference for working Hoosiers,” Messer said. “By making it easier for transfer students to combine credits and get a degree they’ve earned, Hoosiers will have more opportunities to get good-paying jobs and succeed in today’s workforce.” This legislation was supported not only by the Indiana Chamber, but also by Ivy Tech Community College and the Indiana Commission for Higher Education.

FCC’s Official Net Neutrality Decision Coming This Week

On Thursday, the Federal Communications Commission (FCC) will decide whether to overturn the Obama-era net neutrality regulations that currently govern the internet. It is highly anticipated they will decide to return to the pre-2015 regulations.

Net neutrality implies an open internet environment that internet service providers should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or web sites.

The 2015 net neutrality laws reclassified high-speed broadband as a public utility under Title II of the 1934 Communications Act rather than the 1996 Telecom Act. These regulations applied to both mobile and fixed broadband networks. The reclassification changed how government treats broadband service and gave the FCC increased controls over internet service providers.

The office of FCC Chairman Ajit Pai recently issued this Myth vs. Fact statement on returning to the pre-2015 regulations. One issue the public is concerned with is if internet providers would block or “throttle back” certain content to the public. Another is if content developers would pay internet providers for accelerated data transfer. The bigger issue is whether internet providers can operate their businesses as businesses rather than as a public utility. Data show that private investment in internet services has slowed under the post-2015 regulations.

The Indiana Chamber supports free-market competition in the delivery of advanced communications services. The competition in a free-market environment among industry service providers is consistent with providing choice to consumers and an adequate service of last resort in extended service areas.

The Chamber opposes any attempt to impose new regulations on broadband and other next-generation telecommunications services by the FCC, especially through the unilateral reclassification of such services under Title II of the Federal Communications Act.  The Indiana Chamber supports the U.S. Congress examining and deciding issues such as net neutrality. We believe that advanced communications and digital infrastructure are critical to long-term economic development. Since 2006, private companies have invested more than $1.5 billion in new broadband capacity in the state, expanding service to more than 100 Hoosier communities and creating 2,100 new jobs within the industry.

If the FCC rules to return to the pre-2015 regulations, it is expected that Congress will entertain legislation to promote some of the concepts of net neutrality and limit the ability to stifle content.

Many Business Provisions Still Being Reconciled in Federal Tax Reform

We’re almost there. Tax reform has passed both the House and Senate. It now seems very possible that the President will have a bill to sign by Christmas. As some have described: All they need to do now is “sand the rough edges”. But another saying is equally applicable to the business tax components: “The devil is in the details”. Specifically, details directly relating to the taxation of both C-corporations and pass-through entities. Terms that will impact those who do business here and those who do business around the globe. In other words, details that will significantly affect big businesses, small businesses and everybody in between.

The process for reconciling the two versions of tax reform is already underway as the House and Senate name members to the conference committee that will determine exactly what will be in the package before it is voted on one last time. Indications are that majority leaders want to have a committee report for their respective bodies to act on by the end of next week. So while the details still have to be worked out, both bodies are very engaged and they’ve passed legislation that defines the general parameters.

There will continue to be debate, in public and in private, over the deficit, how much growth tax reform will generate, who benefits and who doesn’t, but the House and Senate are effectively committed to getting something done at this point. On the individual income tax side, they will need to find agreement regarding the limits on the deductibility of state and local taxes (SALT), as well as mortgage interest. These items are important to individuals, important to the numbers and important politically. But the two sides really aren’t that far apart. A $10,000 SALT deduction of some kind and a healthy mortgage interest deduction will almost certainly remain in the final product.

But where they land on many items critical to business is harder to predict; a lot is up in the air. Let’s start with the corporate rate itself. While both plans call for a 20% rate, the President hinted it could still change slightly. That appears unlikely, however, but the rate is tied closely to the fiscal projections. And the fiscal projections are why the Senate delayed the effective date for corporate rate change to 2019, to reduce the cost of the bill. So when exactly the change goes into effect is at issue.

Similarly, the taxation of pass-through income is also unsettled. The House limits the pass-through rate at 25%. The Senate approach was to give a deduction to pass-throughs to keep their tax down. Effectively, the different approaches would not have drastically different bottom line impacts for most pass-through income recipients. The real complications come via provisions directed at guarding against individuals in higher brackets from categorizing personal income as business/pass-through income.

What about the issues of interest to multinationals who conduct huge volumes of business activity around the globe? The House and Senate agree that the U.S. must move to a territorial system and companies shouldn’t be taxed here on income they earn overseas. But beyond that basic principle, how multinationals and their foreign-sourced income is handled is anything but clear right now. Both the House and Senate have included forms of supplemental taxes intended to prevent their perception of “base erosion” and to discourage what they view as corporations “gaming the system”.

Likewise, they are still working through how best to address the repatriation of foreign-earned profits and are looking at special, one-time tax provisions to encourage companies to bring those assets back to the U.S.  Another item important to many businesses of all types and sizes is how quickly, to what extent and for how long will they be able to claim deductions for capital expenditures/investments. Two final differences to note: (1) The Senate preserves the corporate alternative minimum tax; the House repeals it; (2) the House and Senate versions both limit the interest expense deduction, but in materially different ways. (A good summary of all the differences can be found in this report from the Tax Foundation.)

Of course, there are many, many other pending issues wrapped up in this legislation for the tax folks in Washington to resolve in short order. They include the health care mandate, estate tax, exemptions for educational institutions and nonprofits, and the list goes on. Tax reform appears close. Let’s hope good solutions are close too.

Indiana Would Be Hit Hard by NAFTA Pullout

The U.S. Chamber recently released its analysis of which states would be most harmed from a NAFTA withdrawal.

Unfortunately, Indiana would be among the Top 10 most hard hit states, with more than 250,000 Hoosier jobs put at risk.

On top of that, nearly half of Indiana’s exports are destined for customers in Canada and Mexico, generating more than $16 billion in export revenue. Indiana’s farmers and ranchers would also suffer a blow, particularly those with soybean crops exported to Mexico.

Good Progress Being Made on Chamber’s ‘Repeal’ List

At the start of 2017, the Indiana Chamber sought input from its members on the federal rules, regulations and executive orders that were affecting the bottom line for Hoosier businesses and hampering expansion and job growth. These onerous policies, for the most part, circumvented Congress and amounted to attacks on business, industry and, ultimately, the workforce.

The finalized list was submitted to Vice President Mike Pence and the Indiana congressional delegation in late January. We are pleased to report that much progress has been made on many of the items and encourage you to review the updated document.

White House

House and Senate Get Started on Tax Reform; Where Does Donnelly Stand?

Late last week, the House Ways and Means Committee concluded its markup of the GOP tax reform bill (the Tax Cuts and Jobs Act) and voted along party lines to move the measure, 24-16. The core of the House bill reduces the number of individual tax rates, slashes the corporate tax rate and eliminates many deductions and credits.

The bill now will be taken up by the full House of Representatives for debate and vote – likely before the Thanksgiving recess. What are some sensitive issues being discussed in the tax reform bill? Pass-throughs, adoption tax credits, deductibility of state and local taxes (SALT), excise tax and more.

The GOP can only lose 22 votes in the House and whip counts are being held very close to the vest – only five or six Republicans have publicly stated that they are against the bill in the current form (all due to SALT).

Meanwhile, the Senate decided on Thursday to release its own tax reform plan. From the business perspective, the differences largely are about adjusting the dollar dials and creating negotiation items. In other words, politics. The Senate option does delay some positive economic effects, but if that’s what it takes to get a permanent tax reduction in the books so be it! We do want to point out that there are some notable differences between the two versions, particularly on the individual side – including with the estate tax and mortgage deduction, which, again, serve to set up further negotiations.

Senator Todd Young welcomed the effort from the Senate Finance Committee.

“I’m encouraged by the Senate’s proposal to create a tax code that is simpler, fairer and allows hardworking Hoosiers to keep more of what they earn. I’m also glad that this proposal maintains the adoption tax credit that is important to so many Indiana families. As we continue to debate a final tax relief package, I will keep working to ensure Hoosier voices are heard.”

Meanwhile, Sen. Joe Donnelly, didn’t give away his stance: “As I have said, tax reform should create jobs, protect jobs, invest in American workers and benefit middle class families. I will carefully review the Senate proposal and continue to engage with my colleagues and the White House on behalf of Hoosiers as the Senate works on tax reform.”

Donnelly also met on Thursday with the White House Director of the National Economic Council Gary Cohn to discuss his tax reform priorities. Earlier last week, Donnelly participated in another such meeting with White House Director of Legislative Affairs Marc Short and Cohn. President Donald Trump called in for a portion of the event. In that meeting, Donnelly discussed his tax reform priorities and shared a letter that he also sent to Vice President Mike Pence on Tuesday emphasizing that the tax policies should align with the interests of American workers and support companies that invest in the U.S.

Donnelly’s priorities are consistent with his End Outsourcing Act, which would support companies that invest in American workers and penalize companies that ship American jobs to foreign countries.

The Hill reported late last week that “Blue Dog Democrats are lining up in firm opposition to the Republicans’ tax code overhaul, hoping that Tuesday’s election results (particularly in Virginia) will force GOP leaders to reach across the aisle for a bipartisan alternative.”

Donnelly, a Blue Dog Democrat, has not said anything of the kind publicly and has been heavily courted by the Trump administration for his vote.

Federal Tax Plan = Meaningful Cuts More Than Comprehensive Reform

The “Tax Cuts and Jobs Act” (H.R. 1) has finally arrived! The long-awaited details – over 400 pages worth – are now out there for all to debate. This is a debate that will play out before the House Republican Ways and Means Committee this week. Much of the public discourse will focus on how it impacts individuals, but for the business community it is the taxation of businesses, large and small, that is of the most significance.

The plan includes a reduction of the corporate rate from 35% to 20%, an important and meaningful step. It also caps the taxation of income derived from pass-throughs (S corporations, LLCs, partnerships and sole proprietorships) at 25%. Key provisions are outlined below. And if you are truly into tax law, the full bill is also available, as is a section-by-section summary.

Now you may note that this legislation is labeled a tax cut, not tax reform. And while many will call it that, it is probably better characterized as a tax cut bill. Cuts are good, and these measures will certainly be the impetus for some level of economic growth. But the trillion dollar questions remain: How much will it spur in gross domestic product (GDP) growth? And, can that realistically be enough to offset the projected reductions in tax collections?

Nobody can really know the answers to these politically-charged questions. But as you read the “scoring” of this legislation (to be published by the Congressional Budget Office after passage out of the House Ways and Means Committee), you may consider these items for context: the GDP growth rate in the United States averaged 3.22% from 1947 until 2017; GDP has pleasantly surprised people by breaking the 3% mark the last couple quarters; and the GDP will probably need to go a good bit higher to prevent the bill from adding substantially to the already staggering federal deficit. So listen for what growth rates are assumed in the projections that will be discussed and debated – and draw your own conclusions.

Key provisions affecting businesses

  • Reduces the corporate tax rate: The rate will drop to 20% from the current 35% and is designed to be permanent.
  • Establishes a repatriation tax rate: The repatriation rate on overseas assets for U.S. companies would be as high as 12%. The bill also may include a mandatory repatriation of all foreign assets. Illiquid assets would be taxed at a lower rate, spread out over a longer period than liquid assets like cash.
  • Creates a 25% rate for pass-through businesses: Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the so-called pass-through rate. (There will be some guardrails on what kinds of businesses can claim this rate to avoid individuals abusing the lower tax.)

Key provisions affecting individuals

  • Creates new individual income brackets:
    • 12% for income up to $45,000 for individuals and $90,000 for a married couple
    • 25% up to $200,000 individual/$260,000 couples
    • 35% up to $500,000 individual/$1 million couples
    • 6% over $500,000 individual/$1million couples
  • Caps state and local property tax deduction at $10,000, but does NOT cap income or sales tax deductions.
  • Eliminates the estate tax: The threshold for the tax, which applies only to estates with greater than $5.6 million in assets during 2018, would double to over $10 million; the plan then phases out the tax after six years.
  • Does NOT change taxation of 401(k) plans.
  • Increases the child tax credit to $1,600 from $1,000. The bill would also add a credit of $300 for each non-child dependent or parent for five years, after which that provision would expire.
  • Limits home mortgage interest deduction: On new-home purchases, interest on loans up to $500,000 would be deductible. (The current limit is $1 million.)
  • Nearly doubles the standard deduction: To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700).
  • Eliminates most personal itemized deductions and many credits. The only deductions preserved explicitly in the plan are for charitable gifts and edited home-mortgage interest.
  • Repeals the alternative minimum tax (AMT). The tax, which forces people who qualify because of an outsized number of deductions, would be eliminated under the legislation.

Full policy highlights of the bill can be found here.

Keep in mind this is the House’s plan and it will be subject to a different form of scrutiny in the Senate. So regardless all the prior coordination among those working together on this effort for months, some (perhaps many) things will change – they always do!

As for the timeline, it’s hard to say. But we do know that the House Ways and Means Committee will begin hearing amendments this week, and the process could take several days. A vote on the bill by the full House, as it is passed out of Ways and Means, is anticipated to come as early as November 13. From there it goes to the Senate Finance Committee, then full Senate. Optimists hope for something to pass before the end of the year. However, don’t be surprised if the debate isn’t carried over into the beginning of 2018.

Indiana’s delegation members are also weighing in with their views on the new tax bill. Chief among them is Congresswoman Jackie Walorski (IN-02), a member of the pivotal House Ways and Means Committee: “Hoosiers deserve every opportunity to achieve success and live the American Dream, and that’s what tax reform is all about. The Tax Cuts and Jobs Act will help American businesses expand, invest and hire more workers, and it will let middle-class families keep more of the money they earn. It’s time to fix our broken tax code and level the playing field for hardworking Americans by once again making America the best place in the world to do business.”

Resource: Bill Waltz at (317) 264-6887 or email: bwaltz@indianachamber.com 

Donnelly Co-Sponsor of Chamber Policy Priority – Delaying Health Insurance Tax

Great news on a long-term policy priority for the Indiana Chamber! A bill has been introduced to delay the implementation of the Affordable Care Act’s Health Insurance Tax (HIT) until 2020 and to make the fees tax-deductible. As things currently stand, the tax would come into effect in early 2018 and bring with it increased health care costs.

Joe Donnelly

Senator Joe Donnelly is one of two co-sponsors of the measure from Sen. Heidi Heitkamp (D-ND).

The Indiana Chamber opposes HIT because of its impact on the small business community. HIT rests entirely on the insured marketplace, so that means businesses and their workers will feel the brunt. Higher premiums for consumers, including small and family-owned businesses – no thanks! And to make matters worse, the tax does not sunset but increases through 2024 and is adjusted for premium growth.

A recent report funded by UnitedHealth Group says that HIT would “increase 2018 health care costs by $158 per person on the individual market, and by $245 for Medicare Advantage participants.”

The HIT has been a bipartisan bone of contention for years, with a previous one-year delay in implementation already having passed Congress.

The Heitkamp-Donnelly bill, S. 1978, now will be reviewed by the Senate Finance Committee.

The Indiana Chamber will continue to voice its approval for this measure to our delegation members.

Senate Health Care Reform – Act III

A bipartisan agreement has been reached in the Senate to help stabilize health care markets – from Senate Health, Education, Labor and Pensions Committee Chairman Sen. Lamar Alexander (R-TN) and ranking member Sen. Patty Murray (D-WA).

Among other things, the Alexander-Murray agreement would:

  • fund cost-sharing reduction payments, which help lower consumers’ deductibles and co-pays, for two years;
  • broaden the pool eligible for a “copper plan” (catastrophic medical) coverage option, which would help reduce the mandate implications for essential benefits;
  • include funding to help Americans navigate signing up for health insurance, which had been cut by the Trump administration; and
  • set up high-risk pools that will allow for continued coverage for these individuals.

What this is not is a “repeal and replace”. That said, the two-year funding promise is good news for insurers and would help alleviate their unease, which would also be felt by consumers. But this bill does nothing to address the core problems in the individual marketplace that threaten its sustainability.

Indiana Sen. Joe Donnelly, who has been pushing for bipartisan fixes to the Affordable Care Act (ACA), has thrown his support behind the Alexander-Murray agreement and is a co-sponsor of the legislation. He stated, “This is the product of hard work from members on both sides of the aisle, and it’s an important step in providing much needed stability to the market. I’m proud to be part of the effort, and I will continue working with Republicans and Democrats to move this much-needed legislation forward.”

President Trump has alternately met the agreement with both optimism and skepticism. Overall, he’s indicated that he would favor a short-term subsidy fix; however, he doesn’t want to help insurers either.

It would appear the bipartisan legislation would garner most, if not all, Senate Democrat votes (as Minority Leader Chuck Schumer alluded to on Thursday), so that would leave a lot of wiggle room for passage if some, or even many, Republicans vote against it. The question is what Senate Majority Leader Mitch McConnell will do and what he says to his caucus.

Meanwhile, Sens. Bill Cassidy (R-LA) and Lindsey Graham (R-SC), the authors of the Senate’s second ACA reform attempt, have been working with Alexander and Murray on ways the bill can be made palatable to the very conservative arm of the congressional Republicans – most notably in the House.

In other words, this is far from a done deal.