Coming Changes in Tax Policy and Domestic Politics

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.

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

Electoral College – Mandate for Change But Did the Democrats Overreach? Obama: 364 McCain: 174

Republicans Take Back the House

Republicans Make Gains in the Senate BALANCE OF POWER 51 Democrats 2 Independent 47 Republicans

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

United States Governors Offices by Party November 1, 2010 Democrat: 28 Republican: 22

United States Governors Offices by Party November 3, 2010 Republican: 29 Democrat: 20 Independent: 1

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

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

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

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

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

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

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

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

University of Michigan Index of Consumer Sentiment Source: University of Michigan October 2011: 60.9 November 2011: 64.1

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

U.S. Federal Deficit ($in Billions) Source: Congressional Budget Office Clinton Surplus Years 2009 US Budget Deficit Hit $1.4 Trillion

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

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

Coming Changes in Tax Policy and Domestic Politics

by Kevin Jessop on Dec 06, 2011

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Coming Changes in Tax Policy and Domestic Politics — Presentation Transcript