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Coming Changes in Tax Policy and Domestic Politics

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  • 1. Summit 2011 Director and Officers Training Conference December 2, 2011 The View from Washington and Industry Leadership Joan Woodward Executive Vice President, Public Policy The Travelers Companies, Inc.
  • 2.
    • Election Results – A New Mandate for Change
    • Legislative Recap
      • Super Committee Failure ---- Now What?
      • Healthcare Law
      • Dodd-Frank Act
      • Economic Outlook
    Washington Policy and Political Outlook
  • 3. Electoral College – Mandate for Change But Did the Democrats Overreach? Obama: 364 McCain: 174
  • 4. Republicans Take Back the House
  • 5. Republicans Make Gains in the Senate BALANCE OF POWER 51 Democrats 2 Independent 47 Republicans
  • 6. In 2010, Republicans Regain the House After Four Years Democrats - 53 *incl. two Independents - 6 Democrats - 59 *incl. two Independents Republicans - 46 + 6 Republicans - 41 Gain/Loss** 2009-2010 U.S. Senate January 2011 Independent - 2 Democrats - 193 - 62 Democrats - 255 Republicans - 242 + 64 Republicans - 178 January 2011 2009-2010 Gain/Loss* U.S. House
  • 7. United States Governors Offices by Party November 1, 2010 Democrat: 28 Republican: 22
  • 8. United States Governors Offices by Party November 3, 2010 Republican: 29 Democrat: 20 Independent: 1
  • 9. Republican Presidential Primary Candidates
    • Representative Michelle Bachmann, Minnesota
    • Herman Cain, Former CEO
    • Newt Gingrich, Former Speaker of the House
    • Jon Huntsman, Former Governor of Utah, Former Ambassador to China
    • Representative Ron Paul, Texas
    • Governor Rick Perry, Texas
    • Mitt Romney, Former Governor of Massachusetts
    • Rick Santorum, Former Senator from Pennsylvania
  • 10. Budget Battles to Continue….
    • Government Shutdown Avoided in April and debt ceiling raised August 2 nd
    • Current U.S. Debt over $15 Trillion
    • Debt Ceiling Default Avoided
      • Established caps on discretionary spending thru 2021
      • Requires a vote on a balanced budget amendment in 2011
        • House rejected Amendment Nov. 18 th by a vote of 261 in favor to 165 opposed
      • Established procedures to increase the debt limit by $400 Bil. on August 2 nd
    • S & P Downgrade of U.S. Government Treasuries
  • 11. Super Committee Membership
            • Who we thought would be the Compromisers…
    Fred Upton (MI) Dave Camp (MI) Jeb Hensarling (TX & Co-Chair) Chris Van Hollen (MD) James Clyburn (SC) Xavier Becerra (CA) House Pat Toomey (PA) Rob Portman (OH) Jon Kyl (AZ) John Kerry (MA) Max Baucus (MT) Patty Murray (WA & Co-Chair) Senate Republican Republican Republican Democrat Democrat Democrat
  • 12. Super Committee Failure….
    • Across-the-board spending cuts now triggered
    • Cuts will total $1.2 Trillion over a ten year period and will come from the following:
      • Defense Cuts: $492 Billion
      • Non-Defense Cuts: $492 Billion
      • Reduction in Debt Service Costs: $215 Billion
    • Cuts do not go into effect until January 2, 2013
    • President Obama has threatened to veto any legislation amending the mandatory spending cuts
  • 13. Healthcare Law
    • U.S. House voted to repeal the healthcare law in January: 245-189 vote
    • Repeal failed in Senate: 47-51 vote
      • 4 moderate Democrats (Joe Manchin, D-WV; Ben Nelson, D-NE; Claire McCaskill, D-MO; Jon Tester, D-MT) looking to repeal individual mandate
    • Law has been ruled on by 4 district courts and 4 appeals courts
      • District courts in Detroit, Michigan and Lynchburg, Virginia upheld the law
      • District court in Richmond, Virginia ruled the individual insurance coverage mandate to be unconstitutional. September, 2011, 4 th Circuit Court of Appeals ruled that Virginia has no right to challenge law
      • District Court in Pensacola, Florida deemed entire law unconstitutional
      • 6 th Circuit Court of Appeals, Cincinnati, Ohio ruled that the individual mandate is a valid use of power
      • 11 th Circuit Court of Appeals, Atlanta, Georgia ruled that individual mandate is unconstitutional but the rest of the law can stand
      • D.C. Circuit Court of Appeals upheld law in its entirety
    • Supreme Court to hear arguments on 11 th Circuit case March 2012 with ruling expected in June 2012
  • 14.
    • Largest Regulatory Change to the U.S. Financial System since the Great Depression
    • Impacts virtually every sector of the U.S. economy – mostly banks
    • Two Main Goals behind the Act:
      • Limiting future risk taking to prevent “systemic risk” before it happens
      • Consumer Financial Protection Agency
        • Elizabeth Warren leaves government to run for Massachusetts Senate seat
        • Richard Cordray, former Ohio Attorney General, nominated
    Dodd-Frank Act
  • 15. 2001 Bush Tax Cuts Extended Thru End of 2012
    • Tax Relief expiring December 31, 2012
      • Extension of current tax rates
        • Top marginal tax rate for individuals is 35.0%
        • Maximum long-term rate for capital gains and dividend income is 15.0%
        • Maximum estate tax rate is 35%; first $5 million exempt
      • Many middle-income taxpayers exempt from alternative minimum tax (AMT)
      • Tax credits for children, education and other incentives
    • Tax Relief expiring December 31, 2011
      • 2% payroll tax holiday for employees (reduce FICA from 7.65% to 4.65%, up to wage base cap of $105K)
      • One-year 100% expensing of investments (including equipment) for businesses; 50% second year
      • Unemployment benefits for long-term jobless
      • President Obama proposes extending thru 2012
  • 16. U.S. GDP Quarter-Over-Quarter Change Unemployment hit 10.8% during the Reagan Recession First 4 consecutive quarters of negative GDP growth since 1947
  • 17. University of Michigan Index of Consumer Sentiment Source: University of Michigan October 2011: 60.9 November 2011: 64.1
  • 18. A Jobless Recovery in the US Continues Source: United States Department of Labor, Bureau of Labor Statistics
    • Unemployment Rate in
    • October 2011 was 9.0%:
    • Current Unemployment
    • Demographic Data:
    • African American: 15.1%
    • Asian: 7.3%
    • Hispanics: 11.4%
    • White Americans: 8.0%
    • W/O High School Deg: 13.8%
    • With High School Deg: 9.6%
    • Some College: 8.3%
    • With College Deg: 4.4%
    • Unemployment Status:
      • 57.1% for more than 15 wks
      • 42.8% for more than 27 wks
    Unemployment hit 10.2% in October 2009 December 2007: Unemployment Rate: 4.9% -Beginning of Recession
  • 19. U.S. Federal Deficit ($in Billions) Source: Congressional Budget Office Clinton Surplus Years 2009 US Budget Deficit Hit $1.4 Trillion
  • 20. US State and Municipal Debt Crisis
    • $1 Trillion of unfunded liabilities
      • Pension and other post-employment benefits
    • Combined 2011 budget shortfall of $125 billion
      • High jobless rates, reduction in state and local tax receipts
    • Federal Intervention
      • Bankruptcy
        • Currently only municipalities can file for protection
        • Some discussion that states may be allowed to file for bankruptcy, but this is not likely
        • Largest municipal debt bankruptcy in history in Jefferson County, Alabama; over $1 Billion
    1 Source: Pew Center on the States – “ The Trillion Dollar Gap ” (February 2010) 2 Source: Center on Budget and Policy Priorities 1 2
  • 21. State Budget Battles Continue Brown: 49% Approval Scott: 37% Approval Dayton: 52% Approval Malloy: 41% Approval Kasich: 35% Approval Walker: 37% Approval
    • WI: $3.6 Billion Deficit
    • Ended collective bargaining rights for most state employee unions
    • Recall elections validated Governors plan
    • MN: $5 Billion Deficit
    • Twenty day shutdown over budget
    • Delayed payment of school funds and borrowed against state’s tobacco settlement
    • OH: $8 Billion Deficit
    • Privatized state prisons
    • Tied teacher pay to student achievement
    • FL: $3.6 Billion Deficit
    • Cut $1.35 Billion for schools
    • 4,500 state government positions eliminated
    • Mandatory drug tests for welfare recipients
    • CT: $3.2 Billion Deficit
    • Sales and retroactive income tax increases
    • Union concessions demanded
    • CA: $25 Billion Deficit
    • Cut $3 Billion for schools
    • 70 state park closures
  • 22.  

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