Donald Trump will be the next President and Republicans will retain control of the House and Senate. The election results set the stage for potentially significant changes in health care, taxes and other employee benefits. The result represents a surprise given pre-election predictions from political commentators and the capital markets. This article provides a brief overview of the election’s implications for the benefits-related proposals President-elect Trump put forth during his campaign, including health care reform, paid maternity leave, child care benefits and tax reform.
The new Congress will be sworn-in in early January and President-elect Trump will be inaugurated on January 20. He has said he will seek early action on health care reform, but the timing for this and other policy reforms is not yet clear.
General Discussion and Observations
The election results are in: Donald Trump will be the next President and Republicans will retain control of the House and Senate, setting the stage for potentially major changes in health care, tax and other benefits. President-elect Trump will enter office with an agenda that includes repealing the Patient Protection and Affordable Care Act (ACA), providing paid maternity leave, establishing new tax breaks for child care, reforming the tax code and more. In addition, House and Senate leaders will have a clear path to enact legislation blocked under President Obama. President-elect Trump also enters office with significant goals for immigration and other policies, so the timing and outlook for changes in benefits and workplace policies will be affected by the new administration’s priorities.
Health care reform
The election results set the stage for repeal of the ACA. During a campaign event last week, President-elect Trump said he would seek immediate repeal of the law, and Republican lawmakers will support quick action. However, lack of a 60-vote Senate majority, and the need to draft, debate and approve a replacement could thwart quick action. If Congress has to use the budget reconciliation process to move repeal through the Senate, action would be delayed to accommodate the budget procedure.
The ACA replacement proposed by President-elect Trump during the campaign emphasized promoting health savings accounts (HSAs), selling health insurance across state lines and allowing individuals to deduct their premiums. Vice President-elect Mike Pence noted that the repeal would have to include a transition for those currently receiving assistance under the law, but details have not been released.
The transition or replacement could incorporate some provisions developed by a House Republican task force last year, including a cap on the employee tax exclusion for employer-provided health coverage. The task force proposed capping the exclusion “at a level that would ensure job-based coverage continued unchanged for the vast majority of plans.” The revenue from a cap could help offset the tax deduction proposed by President-elect Trump, tax credits proposed by the House task force or other financial assistance for those who currently receive support under the ACA.
President-elect Trump proposed addressing prescription drug costs by moving drugs into the marketplace faster to increase competition and reduce costs. Lawmakers have supported this goal, but it is not clear whether they would include prescription drug proposals in legislation to repeal and replace the ACA, address the issue in separate legislation or take another path.
President-elect Trump proposed six weeks of paid leave following childbirth for women whose employers do not offer paid maternity leave benefits. Congress generally has not supported paid leave legislation, so it is not clear whether or when House and Senate leaders will act on the proposal. In the absence of federal action, states and cities have enacted a wide range of paid family and paid sick leave law, and that trend seems likely to continue.
President-elect Trump proposed to allow families with incomes up to $500,000 ($250,000 for single filers) to deduct child and elder-care expenses for up to four dependents from gross income. The deduction would be capped at the average cost of child care in the taxpayer's state, and would also be available to stay-at-home parents. Low-income families could receive child care rebates through the Earned Income Tax Credit.
He also proposed new Dependent Care Savings Accounts. These accounts would not have to be established through an employer and families could contribute up to $2,000 per year. Funds could carry over from year to year and be used for child care, school tuition, after-school enrichment programs or elder care (including nursing or long-term care). Mr. Trump also suggested incentives for employers to provide more workplace child care facilities. Proposals to expand child care tax incentives have been pending in Congress but have received little attention, and it’s not clear whether they will gain traction during the upcoming legislative session.
Retirement was not a focus of this year’s campaign and President-elect Trump did not issue retirement-related proposals. However, tax reform discussions could have important implications for retirement plans. In addition, a number of bipartisan retirement provisions have been put forth in Congress, including proposals to expand plan sponsorship and access by allowing open multiple employer plans, increase savings by expanding automatic enrollment arrangements, and encourage annuitization by highlighting lifetime income distribution options when employees retire. Such provisions could gain attention and momentum during the 115th Congress.
During the campaign, President-elect Trump broadly called for repeal of the Dodd-Frank Act. Earlier this year, the House Financial Services Committee approved the Financial CHOICE Act, which could provide a vehicle for the repealing the CEO pay ratio disclosure, pay for performance disclosure, mandatory clawbacks for financial restatements and required policies to prohibit hedging by executives.
The election results could open a path for tax reform, although overhauling the Internal Revenue Code will be a difficult task. This year, House Republicans outlined concepts that would reduce and consolidate the tax brackets and eliminate or simplify most current deductions and other tax preferences. A central component of the reform would be a broader definition of taxable income that would tax all employment and self-employment compensation except reformed health and retirement tax incentives. The House proposal suggested three tax brackets: 12% (replacing the current 10% and 15% brackets); 25% (replacing the 25% and 28% brackets); and 33% (replacing the 33%, 35% and 39.6% brackets). President-elect Trump adopted these brackets as part of his campaign proposal. The House proposal would eliminate the estate tax – another provision supported by Mr. Trump on the campaign trail.
Although the election improved the chances for broad tax reform, the process remains difficult because of the complexity of the tax code, the winners and losers created by changing current-law tax rules and the potential cost of reform. Furthermore, an early focus on replacing the ACA and other policy priorities from the administration could leave a limited legislative window during which to draft, debate and enact tax reform during the 115th Congress.
State and local activity
State and local governments have taken action on paid leave, commuter benefits, minimum wage increases, retirement savings and paid leave. This trend is expected to continue, and could intensify if Congress and the administration do not enact federal legislation on these and other issues. In addition, the potential for ACA repeal could trigger renewed state discussions about health care reform. Employers should prepare for an increasing patchwork of state requirements, and possibly for an increase in the number of benefits and workforce-related policies receiving attention at the state and local level.
The effects of the election results will begin during the Congress’ lame-duck session – the legislative session between Election Day and the end of the year. The lame-duck session will involve lawmakers who have served throughout the 2015 – 2016 legislative term, including some who will not be returning for the 115th Congress in 2017 and 2018. Legislation approved during the lame-duck session will be presented to President Obama to sign or veto during his final weeks in office, with government funding being the main issue. The current funding resolution expires on December 9, so lawmakers must fund federal agencies and activities into 2017. The election results reduce the chances for action on other legislation during the lame-duck session because House and Senate Republicans are likely to wait until their bills can be signed by the new Republican president.
Over the coming weeks, the new administration and new Congress must organize. President-elect Trump will nominate members of his cabinet and build his White House staff. On Capitol Hill, lawmakers will hold leadership elections and determine committee assignments. These activities will influence the agenda and outlook for the 115th Congress. Based on early policy pronouncements that agenda could include, beyond the policy areas discussed above, significant infrastructure spending combined with large tax cuts, as well as a renegotiation of certain trade agreements (e.g., NAFTA) and substantial changes to immigration policy.