Legislative Outlook: An Unpredictable Year
Tuesday, February 28, 2017
The self-employed saw 2016 end on a positive note when a federal judge indefinitely delayed enforcement of the Department of Labor’s new overtime rule. The rule would have required employers to begin paying overtime to certain employees earning less than $47,476 a year, a considerable increase from the current $23,660 threshold. The impact of this rule would be highly damaging to a large percentage of small business owners already struggling to manage their bottom lines. The court’s decision confirms that our elected officials, even in the aftermath of a toxic election cycle, are well aware of the need to protect the economic viability of small businesses.
The election of President Trump is seen by many in the small business community to be an indication that pro-small business initiatives will be a priority for the administration. The spin on this perspective is “cautiously optimistic” however, as the political magic eight ball seems to be particularly cloudy in predicting which legislative priorities will prevail in these politically uncertain times.
The first few weeks of transition for the new administration have been tumultuous and filled with the difficult lessons that come with agenda setting, crafting of political policy, and navigating the governing collective that is Congress. Yet despite the controversies, experience teaches us that all new administrations come with an adjustment period, and as Congress and President Trump acclimatize to their working relationships, it is likely that sound, less controversial policy will inevitably emerge.
Policy proposals that improve the small business environment and strengthen our economy tend to be a unifying endeavor for elected officials on both sides of the aisle. Elected officials recognize the value of the small business community and the regulatory burdens associated with being self-employed. Ensuring that our representatives remain focused on the small business community and resolved to act on its behalf will take cooperation and commitment.
Choices that small businesses make in their daily operations are directly linked to these policy decisions. For example, a simple clarification to the tax code could make completing tax forms less daunting, or could function to increase the owner’s retained earnings. Likewise, building crucial loyalties with employees might depend on whether small business owners can afford to provide employees with healthcare benefits. And unfortunately, an increased threshold for overtime pay could be the breaking point for many small businesses, simply too burdensome a liability on the bottom-line.
Managing overhead for many is a challenging task unto itself, but additional regulatory requirements often mean that innovations and efficiencies are shelved so that small business owners can dedicate their time to handle the “death-by-paperwork” scenarios. While the number of the self-employed in the U.S. continues to grow at an exponential rate, regulations and policies aren’t keeping up.
What will the 115th Congress and the new administration focus on in 2017 and implement in the FY2018 budgetary cycle? What we know so far is that the agenda looks much the same as it did in 2016: healthcare, taxes, immigration and regulations remain front and center. Less predictable are what the actual policy proposals will look like, how or when they might be implemented, and whether they will get sidetracked amidst larger legislative debates.
HEALTHCARE: PARTIAL OR FULL REPEAL OF THE AFFORDABLE CARE ACT (ACA)?
One of the first agenda items is whether to fully repeal the Patient Protection and Affordable Care Act (ACA), or alternatively, to phase it out gradually. The current challenge with both options is a lack of consensus on a replacement package. While immediate repeal looked imminent in January 2017, with President Trump even issuing an Executive Order prioritizing a repeal of the Act, the Republican-controlled Congress and the administration are now faced with internal debates.
These debates center around not only how to address specific provisions of the ACA, such as penalties and cost of the individual market, through partial or full replacement, but also in giving direction on how to overcome coverage gaps during implementation. Congress expresses continued support of health savings accounts (HSAs), which is good news for small business owners as they provide a more affordable alternative for health care coverage for themselves and their employees.
The self-employed continue to advocate for policies that reduce premiums, eliminate penalties, and offer tax deductions. The goals are flexibility and a more open market. As for the immediate future, small business owners should expect the current ACA to remain the same, with only potentially small reforms or perhaps phasing out of parts of the ACA to come over the course of 2017. It is less likely that a full repeal of ACA will take place without a more concerted agreement amongst the Republican-controlled Congress and the Administration regarding a successful replacement.
THE FEDERAL TAX CODE: A 30-YEAR-OLD CODE OVERDUE FOR A MAKEOVER
One topic of agreement across the political spectrum is that the current U.S. Tax Code is long overdue for an extensive makeover. Some experts have gone as far as to label 2017 as the year of “seismic” tax reform. In previous years, conflicting views on the ways and means of overhauling the Code stalled any significant progress, but circumstances have changed with a GOP-led Congress and a new administration. Republican Congressional leaders have already released their “Better Way” tax reform plan, and while the Trump administration has not yet introduced a detailed executive plan, one should be expected in the upcoming year. President Trump has expressed a desire to overhaul and simplify the tax code, while strengthening provisions related to business activities. The next step for Congress and the administration will be to reconcile their priorities for reform.
Relevant reforms for small businesses may include reducing the business tax rate and altering employer-sponsored benefits like health insurance or retirement contributions. Capital gains rate caps, capital expenses write-offs, and elimination of the estate tax could all become issues in 2017. Self-employment advocates will continue to push for straightforward changes in definitions and streamlined standardized deductions. The SBA and Linda McMahon as the new chief will also be crucial players. The small business community, now more than ever, needs its voice to be heard and to continue its call for a simplified, fair and user-friendly tax code.
IMMIGRATION: FROM CAMPAIGN PLATFORM TO POLITICAL FIRESTORM
During his campaign, President Trump focused on several immigration reform issues. Political veterans and policy wonks, alike waited with baited breath to see what actions he might take once sworn into office. Before completing his first 100 days, President Trump has demonstrated his staunch commitment to hardline immigration reform, and the small business community is left with the answer that immigration will be the political firestorm of 2017.
President Trump has taken direct action regarding H-1B visas and has indicated plans to increase use of the federal E-verify system, the new I-9 form and worksite audits. The construction of a physical “wall” between the U.S. and Mexico obviously remains a highly contentious subject. Despite the aggressive push by President Trump, the cost and magnitude of this project will remain a political hot-button well beyond the first legislative session.
How this might affect small businesses is a little less obvious. It depends on the nature of each individual business and the type of employees that business needs to successfully operate. Immigration policy debates span from the highly skilled workforce to those businesses reliant upon an immigrant workforce for manual labor. The administration’s actions do send a clear message that small business owners should be prepared for unexpected changes and keep their employee paperwork.
REGULATORY ISSUES: THE COST OF DOING BUSINESS
A recent report suggests that the average small business spends over $12,000 a year in regulatory costs. Beyond monetary concerns, regulatory strains appear in several categories for the self-employed. The 115th Congress and the Administration have proclaimed regulatory relief a priority. President Trump has signed an Executive Order mandating a “one in, two out” policy for new regulations; and Congress is moving legislation to eliminate or reduce regulations either passed in 2016 or due to start in 2017.
In addition to battles over the overtime pay rules, requirements for payroll, paperwork reduction, cybersecurity, and crowdfunding limits are all in play for the coming session. Bigger regulatory topics slated for 2017 range from debates about the minimum wage increase to expansion of paid-maternity and sick leave for employees. These bigger issues trickle down to the state and local levels as well, and small businesses are advised to keep an eye on their local political discussions.
The 115th Congress and the Trump administration have already set out on a bi-partisan path to support the Main Streets and the self-employed. While 2017 will be an unprecedented and unpredictable year, the voices of the American public and the small business community will echo through the halls of Congress and organizations like NASE will continue to work to get things done. In the meantime, Main Street should continue on its path and adjust to new legislation if and when it comes to pass.