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Into the Whirlwind: 119th Congress
I'm writing this article eight days into the second Trump Administration. In my opinion, there shouldn't be much shock and awe over his actions. Love or hate him, he is following through on the key campaign promises that he can keep solely through executive action. It is true that he may be going deeper than many assumed he would. For instance, in taking aim at diversity, equity, and inclusion (DEI) programs, President Trump is not simply revoking recent executive orders (EO), he is revoking EOs that go back to the 1960s that were issued by President Lyndon Baines Johnson, a figure in ancient history for most reading this article.
However, in our constitutional system of checks and balances a President can do just so much alone, and many of the actions President Trump has taken since being sworn into office will be challenged in the courts. In this context, then, he will need judges to be on his side, and some will not be. Of course, this points to limitations on acting purely through executive action.
To keep his promise to enact the largest tax cut in American history, President Trump needs Congress. He does have Republican majorities in both chambers, albeit by slim margins, and Congress has a powerful legislative tool that greatly enhances the likelihood of success.
If you listen carefully enough, you will begin to hear a lot about budget reconciliation. The budget reconciliation process was enacted as part of the Congressional Budget and Impoundment Control Act of 1974, another nod to history. It allows for expedited consideration of certain tax, spending, and debt-limit legislation. Reconciliation can be used to address most mandatory entitlement spending, including Medicare and Medicaid. The most important procedural aspect of reconciliation is that it is not subject to filibuster in the Senate and may be approved in that chamber by a simple majority vote.
A primary piece of the reconciliation bill will be the extension and broadening of the Tax Cuts and Jobs Act of 2017 (TCJA), enactment of which was a priority for President Trump in his first term. Because the reconciliation bill will have a significant section devoted to taxes, state and local governmental retirement plans, which must be qualified under the federal tax code, need to pay attention, and there could be both positive and negative provisions to follow.
Specifically in the case retired first responders, the reconciliation bill could increase the annual cap under the Healthcare Enhancement for Local Public Safety Act (HELPS). The $3,000 annual cap has not been increased since its inception in 2006 despite significant increases in premiums for health care and long-term care insurance over the past 19 years.
On the defensive side, bear in mind that the original House-passed version of TCJA contained a provision to specifically subject investments of state and local governmental pension plans to the Unrelated Business Income Tax (UBIT). Analysis of the provision at the time concluded that UBIT would cover certain investments in private equity and hedge funds, debt-financed investments, as well as direct ownership and management of a business.
NCPERS, among other stakeholders, took the lead in lobbying against the UBIT provision, and it was not included in the final TCJA. However, because it was a Republican initiative in the past, it may resurface in this Congress as lawmakers struggle to find spending and revenue offsets for at least a portion of the cost of extending and enhancing the TCJA. Estimates are that a simple extension of the TCJA will result in revenue losses over the next 10 years of $4.6 trillion. On the campaign trail and continuing in his recent remarks President Trump also has called for a repeal of taxes on tips and overtime income, and Social Security benefits. Repealing these taxes would result in additional lost revenue of $1.8 trillion over the next 10 years.
Forecasts of how long Congress will need to develop and pass a reconciliation bill vary. Ambitious forecasts put final Congressional action around Memorial Day, while others believe the process will take all year with a bill finally being presented to President Trump in December. Until Congress begins consideration of the bill and finds out how difficult it will be to put the spending and tax provisions in place while satisfying all parts of the GOP political spectrum, we will not have a firm handle on the timeline.
Be assured, however, that NCPERS will closely monitor the budget reconciliation process and report any significant developments to its members.
Tony Roda is a partner at the Washington, D.C. law and lobbying firm Williams & Jensen, where he specializes in legislative, regulatory, and fiduciary matters affecting state and local pension plans. He represents the National Conference on Public Employee Retirement Systems and state-wide, county, and municipal pension plans in California, Colorado, Georgia, Kentucky, Nebraska, Ohio, Tennessee, and Texas. Tony has an undergraduate degree in government and politics from the University of Maryland, J.D. from the Catholic University of America, and LL.M (tax law) from the Georgetown University Law Center.
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