Donald Trump’s election as president of the United States of America was as unexpected in the polls as the United Kingdom’s vote to embrace Brexit. Now Democrats and Republicans alike are trying to assess how Mr. Trump, a political outsider, will translate his campaign positions into policy. Much will depend upon the advisers Mr. Trump chooses and whether he collaborates with the Republican Party or negotiates a path forward independently.
Mr. Trump will be the first Republican president working with a Republican majority House and Senate since 1948 and will be positioned to push repeal of the Affordable Care Act (ACA) and Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), as well as push stricter enforcement of immigration laws and implementation of tax reform. Although the Republicans hold a majority in the Senate, they will not have the 60 votes necessary to end filibusters, so it is anticipated that Senate Democrats will have some ability to block and delay these initiatives. Also, the Obama administration’s frequent use of executive orders to accomplish policy goals will almost certainly be replicated by Mr. Trump in situations where legislative action may be blocked, most likely with respect to trade policy. The first 100 days of Mr. Trump’s presidency should give a better idea of the priorities and positions of the Trump administration.
Health Care Implications and Changes to the ACA
Donald Trump’s victory, along with Republican majorities in the House and Senate, will likely translate into a push to repeal and replace the ACA. The GOP may ultimately repeal much of the law through a budget reconciliation bill, similar to what was passed by both House and Senate, but vetoed by President Obama in January of 2016. Such legislation could stop funding for various provisions within the law, including subsidies to help individuals afford their premiums, federal assistance to states that expand Medicaid, and penalties enforcing the individual mandate. Repealing these provisions would produce a piecemeal law, likely ending the exchanges, Medicaid expansion and the individual mandate. Mr. Trump has already announced that he wants to keep intact certain provisions of the ACA, including the prohibition against insurers denying coverage because of patients’ existing conditions and a provision that allows parents to provide years of additional coverage for children on their insurance policies. Commentators note this may be more difficult than it seems. The GOP will likely also seek to implement an ACA replacement that might use Paul Ryan’s “A Better Way” proposal as the blueprint.
Dismantling Dodd-Frank Will Be a Protracted Battle
The Trump campaign consistently called for “dismantling” the Dodd-Frank law. But, like the health care reform system, piecemeal change may be more achievable than complete repeal. Dodd-Frank is the complex 2010 law which was intended to prevent U.S. banks and financial institutions from taking on too much risk, which, in another financial downturn, could endanger the economy. Some parts of the law have been implemented without undue difficulty, but others remain controversial, including the “Volcker rule” related to bank investments in derivatives. Some Trump advisors even favor a return to Glass-Steagall separation of investment and consumer banking. And a new debate on Dodd-Frank will likely reopen the banker-retailer fight over restrictions on credit card fees. One consensus among most Republicans is change in the Consumer Financial Protection Bureau (CFPB), to remove the single-person leadership. Barring an unlikely, last-minute judicial reversal, Mr. Trump will have the power, per the U.S. Court of Appeals for the District of Columbia Circuit, to remove the CFPB Director as soon as January 20, 2017. As CFPB activity is mostly regulatory, change in regulation and enforcement practices at CFPB could come quickly. But change to bank regulatory laws will not likely be immediate and may be incremental, reflecting actions that more populist Trump supporters can agree on with more traditional Republican supporters of banks.
Another financial services regulatory hot button, the U.S. Department of Labor’s (DOL) “fiduciary rule” to require financial advisers to act in the “best interests” of clients in retirement accounts, may be headed for reform. The Trump-headed DOL could administratively change or delay the rule, or Congress could direct change or delay through regulation.
Stars Aligning for Mr. Trump’s Tax Reform Proposals
President-elect Trump identified several tax proposals during the campaign. In general, Mr. Trump advocated tax policy that reduces the tax burden on both individuals and businesses and relies on a stimulated and growing economy to provide supplemental revenue to the government. While some economic analyses during the election questioned the fiscal impact of his plans, a number of key proposals are similar to recent Republican congressional proposals. Given Republican control of both the House and Senate, and a legislative process (reconciliation bills) that only requires a simple majority to pass such legislation, the chances of tax reform in the first half of 2017 seem substantial. Among Mr. Trump’s specific tax proposals during the election are:
- Reduce individual tax brackets to three (12, 25 and 33 percent), cap itemized deductions (at $200,000), and raise the standard deduction significantly (to $30,000) so as to eliminate many citizens from the obligations to pay tax and to enable many others to file simplified tax returns
- Reduce the business tax rate (from 35 percent to 15 percent) and ensure that tax flow through businesses pay only the 15 percent rate
- Allow businesses to elect to immediately write off new capital investments (such as plant and machinery), if they forego claiming certain interest deductions Retain individual capital gains rates (at the current 20 percent tax rate), but tax “carried interests” as ordinary income (this latter change was also proposed by Secretary Clinton);
- Repeal the individual and corporate Alternative Minimum Tax (AMT) regimes
- Repeal the Estate Tax
- Impose a deemed repatriation tax of 10 percent of offshore profits
In addition, Mr. Trump’s vow to “repeal and replace Obamacare” implicitly carries with it a potential repeal of the 3.8 percent tax surcharge currently in the law to cover certain increased Medicare costs. The foreign earnings repatriation proposal enjoys significant bipartisan support, as it is seen by many as a key to funding an infrastructure building program, strongly advocated by Mr. Trump and many in Congress.
The tax proposals outlined by Mr. Trump and the work previously done by congressional Republicans suggest some significant changes to U.S. tax laws, particularly those affecting business, if agreement can be reached among the diverse elements of Republicans and if the legislative process can be adjusted to accommodate the fiscal impact of the proposed changes.
Immigration System Adjustments Expected
Under the Trump administration, the H-1B visa program is expected to become more restrictive. The government may impose higher wage requirements, further restrict visa numbers, and/or require that employers conduct recruitment in the local labor market before filing an H-1B visa petition. Other employment-based non-immigrant and immigrant visa categories may be similarly changed. Some actions, such as change in the number of H-1B visas, can be implemented only through legislation — a relatively lengthy process — while others can be implemented more quickly through regulation.
President Obama's executive orders authorizing temporary work authorization and protection from deportation to certain categories of undocumented young people (DACA) and their parents (DAPA) will probably be revoked.
Employers will need to "know their workforce" to determine whether current employees, such as those hired under DACA, will lose work authorization in coming months. They will also need to consider how their foreign national workers, business units employing these workers and company budgets may be impacted by impending changes to immigration laws and procedures.
During the campaign, Mr. Trump advocated for a ban on Muslims entering the United States. Under his administration the government may develop and implement a program for enhanced screening of visa applicants and suspend the issuance of visas to individuals from regions where Mr. Trump has expressed concern about terrorism. In addition to tightening visa issuance procedures, the government may introduce a new tracking system to ensure that foreign nationals in the U.S. do not stay beyond their authorized period of admission.
Use of E-Verify, the government's work authorization verification program, could become mandatory for all employers. President-elect Trump has called for expansion of this program and for increased enforcement activity against employers using undocumented workers. This could take the form of increased worksite raids and employer audits.
Major Changes to International Trade on Horizon
Trade was a hot-button issue during the campaign, and President-elect Trump signaled his intent to renegotiate or eliminate trade deals and roll back trade regulations once in office. His ability to do that unilaterally is limited by Congress, but with a Republican majority in the House and Senate, he may have the congressional support to modify or repeal the underlying legislation. Mr. Trump will have legal ability to terminate or modify the executive orders issued by President Obama on trade-related issues. The U.S. President also has power to impose tariffs and other trade sanctions without congressional approval.
Congress will not take up the Trans-Pacific Partnership Agreement (TPP) to approve it before President Obama leaves office. During the campaign Mr. Trump expressed his disdain for trade agreements like the TPP and NAFTA, and he may seek to negotiate different deals with trading partners. Such a renegotiation would likely require concessions on all sides.
Mr. Trump repeatedly called China a currency manipulator during the election. A Trump Treasury Department would need to comply with the current legislative process by reporting China to Congress as a currency manipulator. Ultimately it would be up to Congress to decide whether to accept the recommendation against China and take action.
The Obama administration made a number of policy decisions that may not survive a Trump presidency. For example, Mr. Trump may or may not opt to close the door to Cuban trade that Obama used his executive authority to open. Mr. Trump’s possible relationship with Vladimir Putin may also lead to a rollback of U.S. sanctions on Russia implemented after Russia’s annexation of Crimea. With respect to Iran, Mr. Trump has made conflicting statements that the multilateral deal made earlier this year is a disaster, but that U.S. companies should be permitted to do business with Iran.
The one certainty is that significant change will occur. The details of those changes will play out in public congressional debates, but also in hundreds of less formal decisions on rules, interpretations and enforcement policy by U.S. regulators. President-elect Trump’s advisers and Cabinet choices will likely be a mixture of experienced Republican officials, business executives and outside-the-beltway types. Combining those elements will not be easy or necessarily result in quick action. But, for businesses feeling over-regulated after the past eight years, the federal regulatory burden will likely stop increasing. Whether and how quickly current rules and enforcement are changed or adjusted is the open question.