Business Ethos Blog

Compromise: You Win Some and You Lose Some

Dr. David MielkeCongress accomplished something that hasn’t been done for a number of years.  They actually completed budget bills, for spending and for taxes, avoiding what had been business as usual, that is passing a continuing resolution to keep the budget the same as the year before and at the last minute merely renewing the expiring tax preferences.  The bills were a compromise, with each party getting some of their policies included, but not succeeding on all matters that resulted in criticisms from both parties.  Who were the major winners and who were the losers?  Is the overall package the “Right Thing to do?”  Let’s look at some issues:

1. The House and the Senate voted overwhelmingly to pass the $1.1 trillion omnibus spending bill and the $622 billion tax package a couple weeks ago.  President Obama signed the legislation.  The cost of the tax legislation is not offset and will add to the deficit.  Fiscal conservatives criticized the deals because the cost of the tax bill was not offset by reducing spending and adding to the deficit.

2. The oil industry emerged as the big winner of the spending bill, which lifts a decades old ban on crude and natural gas exports.  This was criticized by several Democrats, environmentalists and President Obama.

3. Labor unions and those opposed to Obamacare also have something to celebrate in the omnibus bill.  It places a two year moratorium on the Cadillac tax on expensive health care plans and the 2.3% medical device tax.  It also freezes the premium tax on health insurers for one year and removes the subsidy for insurance companies for losses incurred on the healthcare exchange.  This reduces revenue for the healthcare reform law by $35 billion.

4. The nation’s renewable energy producers claimed a significant win by securing extensions of tax credits for wind and solar despite Republican opposition.  The solar investment tax credit and the wind production credit are extended and will be phased out over 5 years in the spending bill.

5. The tax legislation extends a slate of corporate tax breaks, representing big victories for business and manufacturing groups.  The tax package indefinitely extends the research and development tax credit, some small business expensing and extends bonus depreciation for 5 years.  The package also locks in 4 other tax breaks for individuals, the deduction for classroom expenses used by teachers, the deduction for state and local sales taxes, 5 incentives for charitable giving and the exclusion related to mass transit.

6. The deal also cements expansion of the earned income tax credit and child tax credit created by President Obama’s stimulus law.  Supporters of these provisions claim the improvements will lift about 16 million people, including 8 million children, out of poverty or closer to the poverty line each year.

7. Financial reform advocates had hoped that President Obama would finalize 2 new rules in 2016 that shed light on the dark money that certain nonprofit organizations and corporations contribute to political campaigns.  The legislation includes language to block both.  Language in the spending bill also prevents the SEC from issuing a rule requiring publicly traded companies to disclose their political spending.

8. The financial industry struck out.  Wall Street fell short in its efforts to ease rules under the 2010 Dodd-Frank financial reform law and delay the Labor Department’s fiduciary rule which will force retirement investment advisors to act solely to the benefit of their clients.

9. Opponents of mandatory labeling laws for foods that contain GMOs also were handed a blow with language that forces producers to develop guidelines and implement a program for mandatory labeling of genetically engineered salmon.  At the same time, the Grocery Manufacturers Association, was disappointed that the legislation did not block states from issuing their own mandatory labeling laws.

10. The legislation did not cut out funding for Planned Parenthood, a hot button issue for some Republicans.

11.  There were numerous other provisions in the 2,250 pages of the final $1.8 trillion legislation.

Do you agree with some of the provisions of the legislation—and also disagree with some?  Are these 2 bills examples of good compromises?  Is it worrisome that the tax provisions were not offset by spending reductions or tax increases and thereby busting the 2011 spending caps and adding to the deficit?  Is the concern over the deficit no longer a priority?  Was the compromise the “Right Thing to do?”  Overall, it is a good compromise.  There is strong support for our increasingly important oil and gas industry which is under pressure and for encouraging businesses to do R&D and invest in depreciable assets.  It is the first major pushback toObamacare.  The lack of GMO labeling may cause problems for the food industry.  There is continuing concern about the deficit.  Do solar and wind energy really need additional subsidies? But, it is a compromise and a good one.  Great to see that Congress can actually get something done and that this is a 2 year budget deal, so we won’t have to be concerned with this issue for at least another year, erasing the threats for a government shutdown.  Santa delivered a good present.