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.

Some Puzzling State Revenue Numbers

The Indiana State Budget Agency recently released the revenue collections report for October. The overall collections for the fiscal year now stand 2.8% ($136 million) below projections; not good, but not critical at this juncture.

The troubling numbers for the revenue watchers are the corporate tax collections. They were down again this month and are now at 52% below the April revenue forecast projections. Nobody really knows how to fully explain the drop. While the corporate collections historically fluctuate widely from month to month and are the hardest to predict for many reasons (that are not directly related to predictable economic activity), the gap between projections and collection is extraordinary. Fortunately, corporate collections have never represented a big piece of the pie (only around 6%) when compared to sales (48%) and individual income (36%) tax collections. Still, the unforeseen drop accounts for $126 million of the $136-million-dollar shortfall.

The State Budget Agency has drilled down on the matter and is attributing it to a high volume of refunds. But what is triggering the refunds is not clear either. Sometimes refunds can cover a number of years. They could be tied to a recent settlement of numerous cases or result from changes in the law – lots of possible factors. Whatever they are attributable to, they probably don’t mean that corporate collections will stay down; they are likely to rebound over the balance of the fiscal year and smooth out the impact, but they are not likely to recover to the total of the original projections. Let’s hope this is just a temporary mysterious dip that is evened out over time.

For those interested, you can review all the numbers and commentary from the State Budget Agency.

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 

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.

Technology Policy Summit, Other Events on Tap

One sign of the continued growth of Indiana’s technology and innovation sectors is the plethora of meetings, conferences, summits and other events that fill the calendar.

Leading the way is the Indiana Chamber’s second Technology Policy Summit. After a successful year advocating on innovation and entrepreneurship issues at the Statehouse in 2017, the organization’s tech policy committee has identified priorities for the year ahead. Look for summit sessions on data center strategies; autonomous vehicles; Smart Cities, Smart State initiatives and more.

The December 1 event (8:00 a.m.-1:30 p.m.) will take place at the Conrad in downtown Indianapolis. We’ll share a more in-depth preview in this space in the coming weeks. Learn more and register at https://www.indianachamber.com/event/technology-policy-summit/.

Among the many other programs coming up:

  • Indy IoT 2017: The New Crossroads of IoT features a focus on making things, moving things and growing things. ClearObject is the organizer of the luncheon program on October 25 at 502 East Event Centre in Carmel.
  • The CIS-IEEE EnCon Engineering Conference highlights the cutting edge of technical innovation. The Cyberinfrastructure Building and the Innovation Center on the Indiana University campus in Bloomington will host the November 10-11 sessions.
  • Innovation, entrepreneurs and more will come together for the 2017 Indiana AgbioSciences Innovation Summit. AgriNovus Indiana presents the daylong program on November 29 at the JW Marriott in downtown Indianapolis.

Again, these are just a few of the many programs focused on advancing technology, innovation and entrepreneurship in Indiana. We encourage you and your team members to take advantage of the opportunities, get involved and benefit from the collective learning.

New Training Grants for Employers Now Available

The Indiana Chamber has been strongly encouraging our state government leaders to take bold action to address Indiana’s current and future workforce needs – a significant concern for many of our members.

We’re pleased to see Gov. Holcomb’s recent rollout of the Next Level Jobs initiative, which will help to further ensure employees have the skills needed to compete in the 21st century workforce.

What does this mean for your business?

Employer Training Grants are available! Employers in high-demand business sectors can be reimbursed up to $2,500 for each new employee that is trained, hired and retained for six months.

• Your employees can also take advantage of Workforce Ready Grants and access free education opportunities to help sharpen their skill set for the changing workforce.

Let us know if you need assistance in navigating these opportunities.

State Wants to Hear From You on How to Streamline Small Businesses Reporting

Cutting red tape for Indiana’s job creators is key to making our state a better place for small businesses to expand and hire more Hoosier workers. To that end, during the 2017 legislative session, the Indiana Chamber supported House Bill 1157, Small Business Duplicative Reporting, which was authored by Rep. Doug Miller (R-Elkhart). The law is simple, but hopefully effective in generating ideas to make early-stage and small business interactions with state government in Indiana even more business-friendly.

As a result of the successful legislation, the Indiana Economic Development Corporation has set up an online survey to gather feedback from employers and government officials on instances of duplicative reporting.

The Indiana Chamber is encouraging small business owners and local governments to take part in the survey. It only takes about five minutes to complete and asks participants to identify situations where they are required by state law, rule or guideline to submit similar information to at least two state agencies. Duplicative information can include notifications, tax reports, employment information and other statistical data.

By helping to identify these issues, the state can work to streamline reporting processes or even eliminate some – which should save business owners time and money.

What’s Up With Federal Tax Reform

Is anything really happening? Yes.
Will something eventually get passed? Probably.

A group of key individuals who dubbed themselves the “Big 6” has been meeting for a few months and more intently in recent weeks. They include two members each from the administration (Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn), Senate (Majority Leader Mitch McConnell and Finance Committee Chair Orrin Hatch) and House (Speaker Paul Ryan and Ways and Means Chair Kevin Brady.)

Are they motivated to find common ground? Certainly. Is there a consensus? Not yet. Right now, they don’t even agree on whether, or to what extent, the legislation must be revenue neutral.

But they all seem to recognize that they need to do something – failure to coalesce is not in anyone’s interest. So what have they agreed on so far? The border-adjustment tax is out. Some method for allowing the repatriation of overseas earnings (at a one-time low-rate tax) is in. The corporate rate must drop to 25% or less (depending on how many deductions and breaks they can eliminate.) They appear to be embracing a way to allow small businesses to immediately deduct investments in new equipment and facilities, i.e. “full expensing.” On the individual income side, a collapsing of the brackets and lowering of rates (no details.)

Possible tradeoffs or “pay-fors” in tax circles: eliminating some business interest deductions, eliminating the state and local tax (SALT) deductions and capping the mortgage interest deduction. These are yet unsettled issues. But listen and watch closely to the SALT discussions going forward; there is a lot of money and a lot of political (with a small p) interest in this item. It is more a geographic than partisan issue because taking the SALT deduction away will have a significant negative impact on people (constituents of Republicans and Democrats) in states that have high state and local taxes. This item could have a big bearing on the entire effort and whether we get true reform or temporary tax cuts.

Tax cuts are the easy part for these folks. The hard part is finding ways to pay for reductions. The last true tax reform was in 1986, 31 years ago, and it required a lot of time and bipartisan buy-in. The Big 6 are all Republicans and they are anxious to get something done. They could mimic the Bush tax cuts of 2002 and 2003, passed through the reconciliation process, which means whatever they do expires after 10 years. Somewhat ironically, most of those Bush cuts were only made permanent as part of the Obama budget deal of 2012.

To recap the status of tax reform: Much remains up in the air.

Tech Talk: Breaking Down the H-1B Visa Numbers

U.S. employers planned to pay high-skilled foreign workers with H-1B visas a median salary of $80,000 a year in fiscal year 2016, up from about $69,000 a decade earlier, according to a Pew Research Center analysis of new U.S. Citizenship and Immigration Services data. This is the first time the U.S. government has made salary information about H-1B applicants publicly available.

The 2016 median salary reported for H-1B visa applicants was higher than the median salary paid to some U.S. workers in similar high-skill occupations. For example, U.S. workers in computer and mathematical occupations had a median salary of $75,036 in fiscal 2016, a slight increase from 2007, when the median salary was $73,979 (adjusted to 2016 dollars), according to U.S. Bureau of Labor Statistics data on all U.S. workers. The majority (60%) of all H-1B applicants from fiscal 2007 to 2016 were seeking employment in computer and mathematical occupations.

Several bills have been proposed in Congress this year to change the H-1B program, and the Trump administration has said it backs a plan that would reverse decades of U.S. immigration policy by admitting more high-skilled immigrants and fewer low-skilled immigrants.

The USCIS data show that overall demand for H-1B visas has increased sharply over the past decade. The number of total H-1B visa applications filed by employers on behalf of foreign workers increased from 246,126 in fiscal 2009 to 399,349 in 2016, and is on pace to reach a new high in 2017. Overall, U.S. employers filed more than 3.4 million H-1B visa applications from fiscal 2007 through the end of June 2017 (the first nine months of fiscal 2017).

The U.S. government also released H-1B visa salaries that individual employers plan to pay foreign workers, as indicated on applications approved by USCIS (and still subject to State Department review).

The biggest names in technology planned to pay the highest average salary to H-1B visa holders in fiscal 2016. But they also expected to hire fewer workers than other companies, according to data on applications approved by USCIS. Facebook planned to pay an average salary of $140,758 on 1,107 H-1B visa applications (a total that includes both first-time and renewal applications), the highest average salary paid among the 30 companies with the most visa approvals. Apple planned to pay a $138,563 average salary on 1,992 applications, while Google paid a $131,882 average salary on 2,517 applications.

The top prospective employers of foreign workers on H-1B visas provide information technology and other business services. Cognizant Tech Solutions, an IT consulting company based in New Jersey, had 21,459 applications approved in fiscal 2016, the most of any company. The next two top H-1B employers are companies based in India with offices in the U.S.: Infosys (12,780 applications approved) and Tata Consultancy (11,295).