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Coming Changes in Tax Policy and Domestic Politics


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Coming Changes in Tax Policy and Domestic Politics

  1. 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. 2. <ul><li>Election Results – A New Mandate for Change </li></ul><ul><li>Legislative Recap </li></ul><ul><ul><li>Super Committee Failure ---- Now What? </li></ul></ul><ul><ul><li>Healthcare Law </li></ul></ul><ul><ul><li>Dodd-Frank Act </li></ul></ul><ul><ul><li>Economic Outlook </li></ul></ul>Washington Policy and Political Outlook
  3. 3. Electoral College – Mandate for Change But Did the Democrats Overreach? Obama: 364 McCain: 174
  4. 4. Republicans Take Back the House
  5. 5. Republicans Make Gains in the Senate BALANCE OF POWER 51 Democrats 2 Independent 47 Republicans
  6. 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. 7. United States Governors Offices by Party November 1, 2010 Democrat: 28 Republican: 22
  8. 8. United States Governors Offices by Party November 3, 2010 Republican: 29 Democrat: 20 Independent: 1
  9. 9. Republican Presidential Primary Candidates <ul><li>Representative Michelle Bachmann, Minnesota </li></ul><ul><li>Herman Cain, Former CEO </li></ul><ul><li>Newt Gingrich, Former Speaker of the House </li></ul><ul><li>Jon Huntsman, Former Governor of Utah, Former Ambassador to China </li></ul><ul><li>Representative Ron Paul, Texas </li></ul><ul><li>Governor Rick Perry, Texas </li></ul><ul><li>Mitt Romney, Former Governor of Massachusetts </li></ul><ul><li>Rick Santorum, Former Senator from Pennsylvania </li></ul>
  10. 10. Budget Battles to Continue…. <ul><li>Government Shutdown Avoided in April and debt ceiling raised August 2 nd </li></ul><ul><li>Current U.S. Debt over $15 Trillion </li></ul><ul><li>Debt Ceiling Default Avoided </li></ul><ul><ul><li>Established caps on discretionary spending thru 2021 </li></ul></ul><ul><ul><li>Requires a vote on a balanced budget amendment in 2011 </li></ul></ul><ul><ul><ul><li>House rejected Amendment Nov. 18 th by a vote of 261 in favor to 165 opposed </li></ul></ul></ul><ul><ul><li>Established procedures to increase the debt limit by $400 Bil. on August 2 nd </li></ul></ul><ul><li>S & P Downgrade of U.S. Government Treasuries </li></ul>
  11. 11. Super Committee Membership <ul><ul><ul><ul><ul><li>Who we thought would be the Compromisers… </li></ul></ul></ul></ul></ul>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. 12. Super Committee Failure…. <ul><li>Across-the-board spending cuts now triggered </li></ul><ul><li>Cuts will total $1.2 Trillion over a ten year period and will come from the following: </li></ul><ul><ul><li>Defense Cuts: $492 Billion </li></ul></ul><ul><ul><li>Non-Defense Cuts: $492 Billion </li></ul></ul><ul><ul><li>Reduction in Debt Service Costs: $215 Billion </li></ul></ul><ul><li>Cuts do not go into effect until January 2, 2013 </li></ul><ul><li>President Obama has threatened to veto any legislation amending the mandatory spending cuts </li></ul>
  13. 13. Healthcare Law <ul><li>U.S. House voted to repeal the healthcare law in January: 245-189 vote </li></ul><ul><li>Repeal failed in Senate: 47-51 vote </li></ul><ul><ul><li>4 moderate Democrats (Joe Manchin, D-WV; Ben Nelson, D-NE; Claire McCaskill, D-MO; Jon Tester, D-MT) looking to repeal individual mandate </li></ul></ul><ul><li>Law has been ruled on by 4 district courts and 4 appeals courts </li></ul><ul><ul><li>District courts in Detroit, Michigan and Lynchburg, Virginia upheld the law </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>District Court in Pensacola, Florida deemed entire law unconstitutional </li></ul></ul><ul><ul><li>6 th Circuit Court of Appeals, Cincinnati, Ohio ruled that the individual mandate is a valid use of power </li></ul></ul><ul><ul><li>11 th Circuit Court of Appeals, Atlanta, Georgia ruled that individual mandate is unconstitutional but the rest of the law can stand </li></ul></ul><ul><ul><li>D.C. Circuit Court of Appeals upheld law in its entirety </li></ul></ul><ul><li>Supreme Court to hear arguments on 11 th Circuit case March 2012 with ruling expected in June 2012 </li></ul>
  14. 14. <ul><li>Largest Regulatory Change to the U.S. Financial System since the Great Depression </li></ul><ul><li>Impacts virtually every sector of the U.S. economy – mostly banks </li></ul><ul><li>Two Main Goals behind the Act: </li></ul><ul><ul><li>Limiting future risk taking to prevent “systemic risk” before it happens </li></ul></ul><ul><ul><li>Consumer Financial Protection Agency </li></ul></ul><ul><ul><ul><li>Elizabeth Warren leaves government to run for Massachusetts Senate seat </li></ul></ul></ul><ul><ul><ul><li>Richard Cordray, former Ohio Attorney General, nominated </li></ul></ul></ul>Dodd-Frank Act
  15. 15. 2001 Bush Tax Cuts Extended Thru End of 2012 <ul><li>Tax Relief expiring December 31, 2012 </li></ul><ul><ul><li>Extension of current tax rates </li></ul></ul><ul><ul><ul><li>Top marginal tax rate for individuals is 35.0% </li></ul></ul></ul><ul><ul><ul><li>Maximum long-term rate for capital gains and dividend income is 15.0% </li></ul></ul></ul><ul><ul><ul><li>Maximum estate tax rate is 35%; first $5 million exempt </li></ul></ul></ul><ul><ul><li>Many middle-income taxpayers exempt from alternative minimum tax (AMT) </li></ul></ul><ul><ul><li>Tax credits for children, education and other incentives </li></ul></ul><ul><li>Tax Relief expiring December 31, 2011 </li></ul><ul><ul><li>2% payroll tax holiday for employees (reduce FICA from 7.65% to 4.65%, up to wage base cap of $105K) </li></ul></ul><ul><ul><li>One-year 100% expensing of investments (including equipment) for businesses; 50% second year </li></ul></ul><ul><ul><li>Unemployment benefits for long-term jobless </li></ul></ul><ul><ul><li>President Obama proposes extending thru 2012 </li></ul></ul>
  16. 16. U.S. GDP Quarter-Over-Quarter Change Unemployment hit 10.8% during the Reagan Recession First 4 consecutive quarters of negative GDP growth since 1947
  17. 17. University of Michigan Index of Consumer Sentiment Source: University of Michigan October 2011: 60.9 November 2011: 64.1
  18. 18. A Jobless Recovery in the US Continues Source: United States Department of Labor, Bureau of Labor Statistics <ul><li>Unemployment Rate in </li></ul><ul><li>October 2011 was 9.0%: </li></ul><ul><li>Current Unemployment </li></ul><ul><li>Demographic Data: </li></ul><ul><li>African American: 15.1% </li></ul><ul><li>Asian: 7.3% </li></ul><ul><li>Hispanics: 11.4% </li></ul><ul><li>White Americans: 8.0% </li></ul><ul><li>W/O High School Deg: 13.8% </li></ul><ul><li>With High School Deg: 9.6% </li></ul><ul><li>Some College: 8.3% </li></ul><ul><li>With College Deg: 4.4% </li></ul><ul><li>Unemployment Status: </li></ul><ul><ul><li>57.1% for more than 15 wks </li></ul></ul><ul><ul><li>42.8% for more than 27 wks </li></ul></ul>Unemployment hit 10.2% in October 2009 December 2007: Unemployment Rate: 4.9% -Beginning of Recession
  19. 19. U.S. Federal Deficit ($in Billions) Source: Congressional Budget Office Clinton Surplus Years 2009 US Budget Deficit Hit $1.4 Trillion
  20. 20. US State and Municipal Debt Crisis <ul><li>$1 Trillion of unfunded liabilities </li></ul><ul><ul><li>Pension and other post-employment benefits </li></ul></ul><ul><li>Combined 2011 budget shortfall of $125 billion </li></ul><ul><ul><li>High jobless rates, reduction in state and local tax receipts </li></ul></ul><ul><li>Federal Intervention </li></ul><ul><ul><li>Bankruptcy </li></ul></ul><ul><ul><ul><li>Currently only municipalities can file for protection </li></ul></ul></ul><ul><ul><ul><li>Some discussion that states may be allowed to file for bankruptcy, but this is not likely </li></ul></ul></ul><ul><ul><ul><li>Largest municipal debt bankruptcy in history in Jefferson County, Alabama; over $1 Billion </li></ul></ul></ul>1 Source: Pew Center on the States – “ The Trillion Dollar Gap ” (February 2010) 2 Source: Center on Budget and Policy Priorities 1 2
  21. 21. State Budget Battles Continue Brown: 49% Approval Scott: 37% Approval Dayton: 52% Approval Malloy: 41% Approval Kasich: 35% Approval Walker: 37% Approval <ul><li>WI: $3.6 Billion Deficit </li></ul><ul><li>Ended collective bargaining rights for most state employee unions </li></ul><ul><li>Recall elections validated Governors plan </li></ul><ul><li>MN: $5 Billion Deficit </li></ul><ul><li>Twenty day shutdown over budget </li></ul><ul><li>Delayed payment of school funds and borrowed against state’s tobacco settlement </li></ul><ul><li>OH: $8 Billion Deficit </li></ul><ul><li>Privatized state prisons </li></ul><ul><li>Tied teacher pay to student achievement </li></ul><ul><li>FL: $3.6 Billion Deficit </li></ul><ul><li>Cut $1.35 Billion for schools </li></ul><ul><li>4,500 state government positions eliminated </li></ul><ul><li>Mandatory drug tests for welfare recipients </li></ul><ul><li>CT: $3.2 Billion Deficit </li></ul><ul><li>Sales and retroactive income tax increases </li></ul><ul><li>Union concessions demanded </li></ul><ul><li>CA: $25 Billion Deficit </li></ul><ul><li>Cut $3 Billion for schools </li></ul><ul><li>70 state park closures </li></ul>