By Susan J. White and Jonah Mainzer, Susan J. White and Associates, Inc.
The State of Congress
The change in the majority in the House has left a divided government. Many of the new Republicans ran and won with few campaign promises except to the cut the deficit. Thus, it is unclear how much legislation beyond appropriations can be passed in this Congress. As we have seen in the past few weeks even the enactment of appropriations seems to be quite difficult. Because of the division between the two parties that has developed in recent Congresses, it remains to be seen how and if compromise can be reached.
Since the beginning of the fiscal year last October, the federal government has been funded by a series of continuing resolutions to keep the government running. There have been a series of two to three week resolutions and Congress is still working on passing a resolution that will fund the government through the rest of the fiscal year ending in September. The more aggressive budget cutters in the Republican Caucus are seeking cuts equivalent to a $100 billion annual cut which translates into about $60 billion for the remainder of the fiscal year. This is about twice what the Republican leadership had originally proposed and well under the proposed budget of President Obama. As of today, the President and the Democratic leadership in the Senate has proposed $33 billion in cuts. This is near the level of cuts the Republican leadership originally suggested before their more aggressive caucus demanded greater cuts.
In addition to overall cuts are riders that are specifically aimed at cutting or ending particular programs that are opposed by the Republican majority in the House. The most significant of these are the defunding of Planned Parenthood, National Public Radio and a number of EPA programs. Senate Democratic leadership has emphatically rejected these riders.
While appropriators in Congress decide on this year’s budget others are working on the budget for next year. This week House Committee on the Budget Chairman Paul Ryan (R-WI) will announce the budget for the coming year and years to come that he will propose to the Committee on the Budget. He has indicated in news interviews the extraordinary proposals he intends to make. They include major overhauls of Medicare and Medicaid and tax cuts, and possibly tax reform.
Both Committee on Finance Chairman Baucus (D-MT) and Committee on Ways & Means Chairman David Camp (R-MI) have indicated an interest in tax reform. Most likely, this will begin with hearings from now through the summer, with no expectation of any legislating until the fall, but more likely in 2012.
Executive Board Visit
On March 28-29, the NAGDCA Executive Board held its annual legislative visit and held a series of meetings to discuss the NAGDCA legislative priorities. NAGDCA President Gay Lynn Bath provided these in letters during the meetings held over the two days. The priorities include National Save for Retirement Week, tax reform, required minimum distributions, TIPRA 2005, municipal advisor definitions and whether wrap contracts should be included in the definition of swaps. Meetings were held with Representative Allyson Schwartz (D-PA), Senator Ben Cardin (D-MD), majority and minority tax counsel for the Senate Committee on Finance, Senate Committee on Health, Education, Labor and Pensions and the House Committee on Ways and Means, the Joint Committee on Taxation, Counsel to Representative Sam Johnson (R-TX), the Department of the Treasury and the SEC.
National Save for Retirement Week
The House of Representatives has a number of new internal rules that the Republican majority passed at the beginning of Congress. One of these rules banned commemorative resolutions and while both Representative Schwartz and Johnson would support passing a National Save for Retirement Week Resolution it does not appear that the House would take it up this year.
Although the House cannot pass a resolution this year, the Senate does not have that rule and NAGDCA will work on passing a National Save for Retirement Week Resolution in the Senate. The first year that the resolution was passed, 2006, there was only a Senate resolution and NAGDCA will continue advocating for the resolution to help people save for retirement.
During the Executive Board visit, NAGCA board members discussed the possibility of tax reform with Congressional staff and while most staff members did say that it was on the radar they also said that there was likely to be no substantive legislation in the current Congress. Staff also mentioned that there was the possibility that tax reform could occur during the next Congress and this Congress would be used essentially as a fact finding mission to lead into reform during the next Congress.
Required Minimum Distributions
A further issue that NAGDCA discussed are the required minimum distributions. This issue grew out of the fact that Congress passed a Roth 457 last year and it seems that the legislation was drafted to mirror other Roth legislation. The difference between the Roth 457 and other Roth legislation is that in the Roth 457 taxes have already been paid on the income and many 457 plans are designed to allow money to remain in the retirement plan as opposed to other plans where it is designed to distribute the capital in the plan. As this was likely passed to mirror other Roth plans, and was possibly an oversight, staff said they would look at the issue.
At the end of this year, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) will require state and local governments to withhold three percent of nearly all payments to contractors or vendors. The withheld money would then be remitted to the federal government for federal income tax purposes. This provision was estimated to raise $7 billion between 2011 and 2015. There have been a number of bills passed that have delayed the implementation of TIPRA but it is currently slated to take effect at the end of the current year. Last year, the House of Representatives passed a bill that would repeal the TIPRA requirement but the Senate would only agree to a one year extension of the bill. Congressional staff mentioned that they were aware of the requirement and many members are opposed to it but as it raises significant revenue it is unlikely that a repeal will be passed and the current prognostication is that it will be put off until next year with another one year delay.
SEC Proposed Rules
The SEC is in the rulemaking process for a number of rules two of which concern NAGDCA and these are whether wrap contracts should be in included in the definition of a swap and the definition of a municipal investment advisor. NAGDCA has weighed in and submitted comments to the SEC on both of these issues and will continued following them until the rulemaking process is complete.
NAGDCA opposes including wrap contracts in the definition of a swap and in the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203) the issue was not decided. In the legislation, the SEC and CFTC are to undertake a study and publish the results fifteen months (this October) after the legislation was passed. This study is not an SEC or CFTC priority and until the study is completed, which will likely be after the October deadline, wrap contracts are not included in the definition of a swap.
The other rule that NAGDCA is concerned about would be municipal advisor registration. The legislation was vague about who would have to register and the SEC is currently in the rulemaking process defining who would have to register. The proposed rule is currently very broad and in the recent meeting, SEC officials said that the many retirement boards who include retirees and other members were not meant to be covered by the rules. The rule is meant to cover people who are trying to sell products and serve on retirement boards and it is likely that the final rules will narrow the regulation to only include the intended targets. The SEC stated that the reason that the original rules were very wide was that under the Administrative Procedure Act (Pub.L. 79-404) rules can be narrowed but if they had wanted to widen the rule the process would have to start from the beginning.