Policy Road Ahead: Beyond the First 100 Days

02 June 2009 Publication
Authors: George W. Ash

Public Policy News Alert

Next Major Legislative Challenges

Obama: “If we don’t get health care reform done this year, we’re not going to get it done.”
Following the Memorial Day break, Congress returns to a political environment largely defined by $1.4 trillion in spending bills to revive the economy as well as sweeping efforts to address global climate change and reform the nation’s health care system — two critical areas affecting all Americans.

With few expecting bipartisan cooperation, the success or failure of these measures appears to rest with President Obama and the Democratic leadership in Congress. Yet with fewer than 50 legislative days before the August recess, which is slated to include a lengthy Supreme Court confirmation process, swift passage of such controversial legislation seems unlikely.

The Great Health Care Debate Begins: Who Will Pay?
Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) have released three separate white papers detailing policy options for a health care overhaul, including a blueprint for moving from the current fee-for-service system under Medicare toward a value-based purchasing system. Behind the scenes, Senate Committee on Health, Education, Labor, & Pensions Chairman Ted Kennedy (D-Mass.) has been developing his own approach, which will closely resemble the health care reform enacted in his home state of Massachusetts three years ago. Even insurers have injected themselves into the debate, pledging to reduce the growth in health care costs by $2 trillion over the next 10 years.

While a health care reform bill is not likely to follow pay-as-you-go rules (which require Congress either to impose cuts or raise taxes when funding new expenses), plans from Congress and the Obama administration have sought to cut back spending throughout the system in order to extend health care coverage to all Americans. Thus far, proposals have included a competitive bidding program to private Medicare insurer Medicare Advantage; limits on the current tax exclusion for employee health benefits; and tax increases for sweetened beverages such as fruit punch and soda.

An additional idea being considered by Democrats to fund health care reform is a tax on employer-supplied health benefits. However, both employers and unions have expressed opposition to this plan, fearing that it could result in higher costs on employees, or provide an incentive for employers to drop benefits and force workers into a government-run program.

The Republican proposal is based upon a tax credit for individual health care costs up to $2,300 and $5,700 for families.

Cap-and-Trade and RES Survive Challenges
After four days of committee deliberation and weeks of behind-the-scenes negotiations, the House Committee on Energy and Commerce achieved passage of the American Clean Energy and Security Act of 2009. The vote is being regarded as a significant victory for Committee Chairman Henry Waxman (D-Calif.), who gained consensus among Democrats with widely differing priorities.

However, the legislation has an uncertain future. Eight other committee chairs share jurisdiction over the issue, and several already have outlined their objections to the bill. House Majority Leader Steny Hoyer (D-Md.) expressed his intention to hold floor debate in June or July, but that timeline could be derailed by colleagues with higher priorities. Rep. Charles Rangel (D-N.Y.), Chairman of the House Committee on Ways and Means, has stated that his top priority is to address health care legislation rather than energy/climate change, and several other committee chairs agree.

A renewable electricity standard (RES) survived a key “make-or-break” test in the Senate, but like its House counterpart, the bill expected to encounter resistance before reaching the Senate floor. The Committee on Energy and Natural Resources still must decide whether to grant the Federal Energy Regulatory Agency (FERC) the right of eminent domain to site high-priority electricity transmission lines across the country, and the degree to which FERC could assess the cost among ratepayers for new transmission construction. Senate Republicans, in support of nuclear power, favor excluding generation from new nuclear reactors and existing ones from the baseline RES. Lastly, 49 RES-related amendments remain to be considered before the bill can emerge from committee.

Although observers do not expect this bill to get to the Senate floor before July, both the House and Senate bills could be voted on before the August recess. If so, the legislation would go to conference to hammer out a compromise bill after Congress returns to Washington following the Labor Day break.

Smart-Grid Funding Grants Increase 10-Fold
Another related issue of interest is smart-grid transmission. On May 18, 2009, President Obama held a closed-door meeting at the White House with a group of 70 executives from the electric industry as well as state regulators and computer hardware and software manufacturers. At the urging of the electric industry and other proponents, the administration then announced an increase in the maximum grant available under the smart-grid transmission “investment” program from $20 million to $200 million, and for a “demonstration” project from $40 million to $100 million. This development, which does not require legislative approval, could provide much-needed funding for eligible industries and technologies.

“Pay-as-You-Go” = New Taxes
The appropriations process for FY-2010 is underway. In February, the Obama administration submitted its $3.7 trillion budget, and Congress passed its non-binding budget resolution before the Memorial Day recess, which sets the framework for Congress to make legislative decisions on taxes, appropriations, and entitlement programs later in the year. The budget deal also includes a pay-as-you-go provision, requiring all new tax cuts or entitlement program spending outside of health care to be offset by equivalent tax increases or spending cuts elsewhere. This will be applied to bills containing the annual fix for the Alternative Minimum Tax, an extension of estate tax relief, the $400 middle-income tax credit, and the anticipated increase for Medicare payments to doctors. The Obama budget places a cap of just over $1 trillion in discretionary spending for the 12 annual appropriations bills.

President Obama’s budget also includes $198.3 billion worth of revenue-raising changes to the tax code. Included is a proposal to scale back tax advantages for businesses operating overseas by curtailing the “deferral” option, which allows companies to delay paying taxes on overseas earnings until those profits are transferred home — a move estimated to generate $60 billion over 10 years. Rep. Rangel will be a valuable ally on Capitol Hill, telling media outlets that he welcomed the plan and looked forward to working with the administration.

However, not everyone is siding with Mr. Rangel and the president. The U.S. Chamber of Commerce has denounced the proposal, expressing concern that it will “limit the ability of U.S. companies to compete” internationally. Expect corporate America to continue its public policy campaign of positioning members as voting against economic recovery if they impose this tax.

Bowing to businesses’ point that overseas operations support some U.S.-based jobs, President Obama has extended an olive branch to corporations by including a $74.5 billion permanent extension of the research and development tax credit, and he also would exempt research expenses from the new deferral limits.

Mr. Rangel also announced that he still is considering the possibility of a carbon tax on emitters as an alternative to Mr. Waxman’s cap-and-trade proposal. His plan likely would be viewed as increasing the tax burden on specific sectors of industry, pushing those sectors to engage with Washington and blunt the effort.

Possible Compromise on “Card-Check”
Many believe that one outcome of Senator Arlen Specter’s (D-Pa.) switch to the Democratic party will be passage of a card-check bill, allowing employees to authorize the formation of unions at a workplace by a majority sign-up (card check). Under current law, that authorization requires a secret-ballot election.

The legislation, which long has been a top priority for labor unions, was introduced during the past several years but has never been enacted. While Mr. Specter has said he continues to oppose the initiative, other Democrats also have expressed their concerns, including Senators Mary Landrieu (D-La.), Blanche Lincoln (D-Ark.), and Mark Pryor (D-Ark.).

Senator Tom Harkin (D-Iowa) is working on a compromise measure. Some Democrats speculate that they will drop the demand for a secret ballot and enact other labor reforms, including establishing finite time windows for secret-ballot elections to take place once ordered; establishing a mail-in ballot process by which the National Labor Relations Board could not only certify but also monitor elections; and the idea of “last, best offer” negotiations, where an arbitrator would choose between a union’s offer and that of an employer in setting the terms of a contract. If a compromise cannot be reached by June, Mr. Harkin has pledged to force a vote on the bill in its current form, including the elimination of the secret-ballot provision.


Public Policy Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this alert or would like to discuss these topics further, please contact your Foley attorney or the following:

George W. Ash
Detroit, Michigan
313.234.7147
gash@foley.com

Ladonna Y. Lee
Washington, D.C.
202.295.4107
llee@foley.com

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