Greenberg Traurig Alert
Legislative Outlook for the 106th Congress
View or download the PDF version of this Alert here.
With the 1998 mid-term elections behind us and a new leadership about to take
control in the U.S. House of Representatives, Greenberg Traurigs Washington
legislative group has developed the following analysis of the issues on which the 106th
Congress will focus. This analysis is designed to help guide our clients in their
operational decisions that could be positively or adversely affected by actions taken by
the next Congress.
Legislation in Washington does not happen in a vacuum. Direct input from our clients
can prevent or mitigate potentially harmful legislation and, on the positive side, can
generate beneficial legislation. With the opening of the next Congress less than two
months away, and with both political parties refining their agendas, it is now time for
our clients to assess where they might play a role in policy development in Washington.
At the outset of our "Legislative Outlook," we provide you with brief
commentaries by three of our shareholders with long-term service and experience in
Washington. We then follow with a more detailed examination of the impact of the elections
on the agenda of the 106th Congress in the key areas of trade, health care,
state and local government services, taxation, appropriations, the environment and gaming.
President Clinton: the Key Player in Congressional Legislation
By Jim Bacchus
The campaign is over; the next campaign will soon begin. Will there be any spare
time in between campaigns to address the economic and other needs of the nation?
but not much. Even before the dust settled from their defeats in the
recent general election, Republicans in Congress were already consumed by their own
internal divisions. Despite their elation over the election results, Democrats have their
own internal divisions as well. And, at most, there are about six months remaining for
legislative action by the Congress before the Congress and all of Washington are engulfed
in the partisan floodtides of the next presidential election.
What, if anything, can we hope will be accomplished in these few short months?
Dont expect a flat tax. Dont hold your breath awaiting universal health
care. The fondest dreams of the most ideologically committed in both parties on Capitol
Hill will continue to be frustrated
And dont expect any bipartisan grappling with the truly tough budgetary issues.
The spring of 1999 will not be remembered as the time when the Congress finally enacted
much-needed entitlement. reforms. Alas, the next real chance to confront that central
fiscal issue may not come until 2001, if then.
Yet, if my friends and former colleagues on the Hill are reading and absorbing the
recent election returns, as Im certain they are, then many in both parties will
undoubtedly try to rise above the seemingly endless acrimony to accomplish a few important
things legislatively before 1999 becomes campaign 2000.
First on the list will certainly be an effort to regulate managed health care plans by
enacting a "Patient Bill of Rights." In alllikelihood, the Democrats now have
the votes they need to enact their bill in the House, and they can expect to attract votes
from more moderate Republicans.
Next on the list is undoubtedly education, given the obvious significance of that issue
to the voters on November 3rd. But here there is less potential for bipartisanship, as the
two parties remain mired in ideological differences over the value of the nations
historical commitment to public education.
Also on the list is attention to Social Security. If ever an issue demanded a
bipartisan approach, it is the rescue of Social Security. Whether there will be time to
address this issue before the renewed assault of the sound bites remains, as they say, to
Who will be the key players in all this?
One key group will be an increasingly pivotal cadre of able, moderate
Republicans who are far more interested in serving the country than in indulging in sound
bites - Members of the House such as Mike Castle of Delaware, Rich Lazio of New York,
Connie Morrella of Maryland, Tillie Fowler of Florida, and others of like mind and
inclination. They now hold the "swing votes" and, thus, the balance of power in
Also, key will be Minority leader Dick Gephardt, emboldened by the election results and
now clearly seen by both parties as someone who might soon be Speaker.
Key too will be the quiet, centrist majority in the Senate - those in both parties who
do not merely appear on "Crossfire" but serve as a legislative brake on
excessively ideological legislation. And, of course, as he proved once again with his
budget victory in October, the key player in Congressional legislation in 1999 will
not be a Member of Congress at all, but, rather, the President of the United States,
William Jefferson Clinton.
Redirection or Merely a Restatement That All Politics Are Local?
By Nancy E. Taylor
The mid-term election results on November 3, 1998, signaled one strong message: voter
turnout and local politics are more important than slick television ads and negative
advertising. For those of us who watch election results closely, this was a year for
incumbents to win. Where there were open seats, the candidate who stuck to the issues won.
Following these election results, Republicans are likely to veer toward the middle and
attempt to reposition Republicans as compassionate on social issues, fiscally
conservative, and for a strong defense. Early in the next Congress, Republicans will
propose health care reform (anti-managed care), education initiatives, and defense/foreign
policy activities. There is likely to be a lot of debate on tax reform and Social
Security. It is unlikely that any changes will happen as both Democrats and Republicans
will not agree.
On health care, in particular, Republicans will propose "Patient Bill of
Rights" legislation and the debate will center on expanding enforcement rights of
consumers to obtain remedies if a private health plan denies coverage. Republicans will
also review health care coverage issues for the small employers as health insurance
premiums will rise 15-30% for most small employers. Such an increase will lead to less
insured and a reaction from the Congress. Changes to Medicare will not be made as members
of Congress want to be "pro seniors" and very compassionate.
The big winners in this election were labor unions who returned to old-fashioned
politics of "getting out the vote"; the gambling industry; Vice-President Gore
who campaigned and raised money; and the Bush brothers. The big losers in this election
are conservative Republicans, pollsters, and Clinton joke-tellers.
Legislative Overview of the 106th Congress
By Jim Miller
Defining the Middle
The impact of the midterm year elections on legislation in the next Congress will be a
race by Republicans and Democrats to define the middle ground on the issues. The
inclination of Democrats will be to define the middle in a progressive manner, whereas the
Republicans will attempt to define the middle in a conservative manner. With the
Republicans enjoying only a six vote majority in the House, each party in the House will
jockey to peal off votes from the other side on key bills while struggling to keep their
own Members in line. For example, the principal battle on HMO reform embodied in versions
of "The Patient Bill of Rights," will be over the right of patients to sue their
health plans. Conservatives oppose extending liability to health plans and liberals
support it. Congressional Democrats and President Clinton have insisted on including the
right to sue in HMO reform legislation, and, so far, the polls support them. Unless
conservative Republicans can win the policy battle in the polls, it is likely that
moderate Republicans will join the Democrats on this issue.
The battle over HMO reform will presage many similar battles to come on education (e.g.,
Federal support for school construction,) social security, taxes and the environment.
Although it is unlikely that legislation on each of these issues will be passed by both
the House and Senate and sent to the President, that failure will not be critical. Indeed,
a stalemate on most of these issues will probably occur. Nevertheless, the party that most
successfully defines the middle and wins over public opinion will drive the Congressional
agenda and will be well positioned to capture the White House and both the Senate and
House in the 2000 elections. That is what this next session of Congress is all about.
It will be vital for clients interested in the Congressional agenda, now expected to
focus on trade, taxes, health, the environment, social security, education and national
security, to be proactive and have their concerns addressed early in this process of
defining the middle. Once both political parties have set their agendas and their
positions on specific issues, it will be extremely difficult to change them.
At this moment, the Democrats have already left the Republicans back in the starting
blocks in the race to develop and sell their agenda of saving social security, a
"Patient Bill of Rights" and education. Democrats in Congress have finally begun
to follow what has always been the legislative axiom of President Clinton: define the
middle ground on an issue, the "third way," and aggressively build consensus
around it. When Democrats do not follow this approach, as they failed to do in President
Clintons first term on the issue of health care reform, they lose. In the
illustrative case of health care reform, contrary to President Clintons basic
instincts, the Democrats in 1993 adopted a left-wing approach and attempted to build
consensus from the left to the middle. The Republicans succeeded in defining the
Democrats approach as an old-line, big government, liberal plan and captured the
middle. Because the Democrats had pinned their entire legislative success in 1993 and 1994
on President Clintons ability to deliver health care reform and then angered the
electorate by developing a plan that was contrary to the moderate approach on which
President Clinton was elected, they were clobbered in the 1994 off-year elections.
Since that time, President Clinton and the Congressional Democrats appear to have
learned their lessons. Helped in large part by the Republicans mishandling and
overreaching on the budget in 1995 (remember paying for tax cuts for the rich with cuts in
Medicare?) and the resulting government shutdown, the Democrats began to recapture the
middle. Pushed by their large right-wing freshman class, the Republicans thought they
could drive the legislative agenda in 1995 and 1996 by governing from the right and then
capturing the middle. Having witnessed the Democrats failures when following the mirror
image of this strategy on health care reform, the Republicans nevertheless did not learn
any lessons. Their failure led directly to President Clintons comeback and landslide
victory in 1996. Indeed, the House Republicans would have lost their majority as well had
they not learned the value of passing legislation late in 1996 that was largely regarded
as middle-of-the-road and acceptable to a majority of the electorate (e.g., health
When the next Congress began, Republicans and Democrats quickly came together on a
balanced budget agreement. Both parties recognized the political benefit of an agreement
that seized the middle and co-opted the left wing Democrats and right wing Republicans.
Neither party gained political advantage over the other as a result. It represented good
government, rather than party building politics. Perhaps that is why this bipartisan
success was not to be repeated in other significant areas (with the possible exception of
IRS reform) in the rest of the session.
Following the balanced budget agreement, Republicans failed to pursue any particular
agenda. The party of tax cuts bickered over the size and nature of a tax cut and ended up
with practically nothing. Given the opportunity of this legislative vacuum, the Democrats
began to develop an agenda that they used to define the middle ground on issues that are
very important to a majority of Americans: education, social security and health care.
While Republicans were mired in their inability to push an agenda that captured the middle
- due in large part by the intransigence of their right wing, the Democrats united behind
their mantra of education, social security and health care. The failure of the Republicans
to produce a budget plan and to timely pass appropriations bills in the last session gave
the Democrats the opportunity to drive their agenda home in the omnibus budget agreement
finally reached just two weeks before the elections. The budget bill itself and the fall
election campaign waged by Democrats are evidence that, for now, the Congressional
Democrats and President Clinton have defined and seized the middle on their agenda.
The Democrats have the advantage, and the risk, of going first with their agenda. The
President is currently making key decisions on Fiscal Year 2000 budget, the first budget
of the new millenium. The Budget will be presented in late January and followed by the
Presidents State of the Union Address. President Clinton has been particularly adept
at using the State of the Union Address to build momentum around his ideas. With the
unexpected success of the Congressional Democrats in the midterm elections, the President
and his Congressional allies will be greatly energized as they begin the next session of
For their part, the Republicans may still be in the starting blocks in advancing an
agenda, but they still hold the majorities in both the House (6 seats) and the Senate (5
seats). With the majorities come committee chairmanships. Particularly in the House, the
Republicans will enjoy super majorities in committees which overstate their overall
strength but will enable them to control committee agendas. With Congressman Bob
Livingston as the new Speaker, expect the Republican House Committee Chairmen to have more
power. Accordingly, even while re-energized House Democrats will attempt to drive the
agenda (particularly their "Patient Bill of Rights") in the next Congress, they
will often find themselves stymied by the committee process where Republicans will be
Prior to the opening of the next Congress in early January, also expect the Republicans
to attempt to develop an agenda with a clear message. They will try to translate the
traditional Republican message of less government, lower taxes, strong national defense
and individual opportunity into specific proposals that address the needs of average
Americans. They will try to come forward with thoughtful approaches to health care,
education and social security and not just bash the Democrats ideas as simply more
big government. This duty will not necessarily fall on Congressman Livingston, who, as the
new Speaker, will focus primarily on the timely completion of the Houses basic
duties of passing a budget and appropriations bills. Nor will the duty fall on Senate
Majority Leader Trent Lott. If they are smart, the Congressional Republicans will work
closely to develop their agenda with the Republican Governors, such as the Bush Brothers,
New Yorks Governor Pataki, Michigan Governor Engler, Pennsylvania Governor Ridge and
Wisconsin Governor Thompson who all won with overwhelming majorities. To ensure success,
the Congressional Republican agenda must complement the efforts of these successful
Governors at the state level and be used to develop the platform on which the Republican
nominee for President in 2000 can run. This is a tall order for Congressional Republicans
who have all but frittered away the good will they generated in winning the 1994
Nevertheless, while President Clinton and the Congressional Democrats now appear to
have an advantage over the Republicans on defining the middle, it bears noting that
Democrats owe their recent electoral success enormously to organized labor and to the
minority community who traditionally comprise the left wing of the Democratic Party. The
influence of organized labor will pull Democrats to the left on issues such as trade,
social security reform, education and taxes. Indeed, some in House Leadership, such as
Minority Whip David Bonior (D-MI), believe that the political center is now defined by
organized labor and the minority community. How President Clinton and Congressional
Democrats deal with organized labor and its agenda, as well as the desires of the minority
community, will go a long way toward determining their ability to capture the middle. It
is much easier to campaign on a promise to save social security than to develop a plan,
pass it, and keep organized labor on board.
Specific Legislative Projections
During the next Congress, the time for either party to achieve its agenda will be very
short, a time frame that is between February and July - just six months. After July, the
legislative process will be consumed by Presidential politics and the fact that both the
Senate and the House will be up for grabs in 2000.
By Howard A. Vine
The recent elections have done little to dramatically alter the composition of
Congressional Committees central to the passage of trade legislation. As a result, major
trade initiatives such as Fast Track legislation and the Africa Free Trade bill will
likely face the staunch opposition that doomed their passage at the conclusion of the 105th
Congress. However, the 106th Congress will offer significant but discrete
opportunities for strategically placed countries and companies to make targeted, tactical
gains on trade issues.
On the House side, the Ways and Means Committee will see a few minor vacancies among
their membership filled by members who have long coveted seats on the Committee. The
majority must fill two seats vacated by Senator-elect Jim Bunning (R-KY) and
Representative John Ensign (R-SC), while the Democrats will look to fill the seat vacated
by Representative Barbara Kennelly (D-CT). For the Republicans, Representative Mark Foley
(R-FL) appears an early favorite for one of these two Majority seats.
Similarly, the Senate Finance Committee is slotted to see two new members with little
discernible effect on the character or agenda of the Committee. Senate Minority Leader Tom
Daschle expressed his support of moderate Chuck Robb (D-VA) for the seat left behind by
defeated Senator Carol Moseley-Braun. Senator Robb, expected to face a difficult battle
for re-election from former Virginia Governor George Allen, will likely use the seat as a
magnet for campaign contributions. The Republicans, however, have yet to indicate their
replacement for defeated Senator Al DAmato.
Developing coalitions to support major trade initiatives may well prove more difficult
this Congress than at the end of the 105th Congress when the Republican
leadership lost several major trade battles on the floor of the House. While many moderate
Republicans have returned to Congress, Democratic members return emboldened by their
surprisingly strong showing on election day. The Democrats attribute much of their
electoral success to the support of their traditional base - namely labor and minority
organizations. These organizations have typically opposed sweeping trade agreements and
have advocated more protectionist trade measures. With Democrats positioning to regain
control of the Congress and retain the White House, party leaders will be ever mindful of
the positions of these important groups. In addition, the Congressional Hispanic and Black
Caucuses will leave House and Senate leaders hard pressed to push for significant trade
initiatives while centrist republican and democratic members will clamor for more action
on trade. The net result will most likely prove gridlock on these large trade initiatives.
However, House Ways and Means Chairman Bill Archer (R-TX) has signaled his intention to
continue pushing the Caribbean Basin Initiative while the Senior Democrat on the House
Committee Charlie Rangel will likely support an African Trade Initiative. Both of these
bills will continue to face serious opposition from textile industry states - opposition
which they were unable to overcome in the 105th Congress. None the less,
strategic participation in the debate on these large efforts may help yield the targeted
gains which will likely prove the hallmark of trade efforts in the 106th
Congress. Those most interested in achieving targeted trade objectives - for example
related to GSP, tariff reduction, or country specific problems - must approach the larger
debates from a comprehensive strategic perspective.
On behalf of firm clients we will be actively engaged in a number of trade-related
initiatives. For one of our large international clients, we will devise a political
strategy to promote the global acceptability of genetically modified organisms (GMOs).
Global trade agreements on bio-diversity and bio-engineered food threaten to erect trade
barriers to the free flow of genetically modified crops and products thereof. We will work
to forge a constituency and appropriate support for promoting technology enhancements in
food and challenge artificial trade barriers disguised as health and safety standards.
For another client, we will monitor closely U.S. policies towards China as the company
evaluates prospects for initiating trade actions against foreign exporters of bearings. We
will likewise monitor any proposed Congressional efforts to weaken existing trade
safeguards and disciplines, to ensure the continued availability of the trade remedy laws.
On behalf of a new firm client, the Costa Rican Investment and Trade Development Board
(CINDE), we will develop and implement a comprehensive campaign to obtain a direct,
bi-lateral free trade agreement between the U.S. and Costa Rica without the fast track
mechanism. This novel approach will permit the democratic and environmentally sensitive
country of Costa Rica to seek a trade agreement through direct negotiations with the
Administration and Congress. The dearth of trade legislation coupled with the anticipated
failure of the fast track mechanism should provide a smart, aggressive and willing country
an opportunity to reap substantial gains by re-writing the rules of trade legislation.
Finally, on behalf a statewide agricultural concern, we will continue to lobby in
support of effective trade remedies, including the 201 import surge "safeguards"
and Commerce Department monitoring and self-initiation of cases.
For clients with modest trade interests, such as seeking duty suspension or relief from
a Section 301 trade retaliation listing, the 106th Congress will offer
opportunities to affect these narrow outcomes through a comprehensive yet targeted trade
By Tim Trysla*
Having gained seats in the House and having months of investigation ahead of them, the
Democratic Leadership will be more emboldened to push for moving managed care reform,
social security and education to the front burner. Republicans will counter with a plan
for tax cuts to spur a sluggish economy and both parties will be positioning themselves
for a Year 2000 Social Security debate.
Future of Managed Care Debate
The President and Democratic Leadership intend to make "The Patient Bill of
Rights," a bill to reform the managed care industry, as their top priority. Unlike
the past, the House and Senate Republican Leadership are expected to introduce their own
"Patient Bill of Rights" in the 106th Congress and this will likely
result in another long and lengthy debate. Both bills include numerous insurance reforms
including an anti-gag rule provision and a "prudent layperson standard" for
emergency room services. But the bills differ on the right for patients to sue their
employers and health plans for medical malpractice. The majority of Democrats support the
right for patients to sue ERISA plans for damage claims. The Republicans favor a provision
that requires health plans to give patients access to an expedited internal review
and independent external review process.
The National Bipartisan Commission on the Future of Medicare, a commission that was
created by Congress in the Balanced Budget Act of 1997, is scheduled to make
recommendations by March 1, 1999. The Commission is charged with making recommendations to
strengthen and improve Medicare in time for the retirement of the "baby boom"
generation. It is unclear whether the Commission will provide recommendations on a range
of issues such as raising the age of eligibility to fundamental restructuring of the
Medicare + Choice Reform
Senate Finance Chairman Roth (R-DE) and House Ways and Means Subcommittee on Health
Chairman Thomas (R-CA) have indicated their intentions to introduce legislation to
streamline the regulatory requirements of health plans that participate in the Medicare +
Choice program. Chairman Roth (R-DE) and Representative Thomas (R-CA) are reacting to
recent reports that more than 400,000 beneficiaries have been dropped by Medicare HMOs.
Forty-two health plans have chosen to leave Medicare before 1999 and another 53 plans have
announced service cutbacks.
Health Tax Deductibility
In an effort to enhance portability and access to health insurance, House Ways and
Means Subcommittee on Health Chairman Thomas (R-CA) will continue to examine proposals to
extend tax deductibility of health insurance to individuals. Under current law, employers
who voluntarily offer health insurance to their employees are able to deduct the full
amount of the cost of the health insurance. Any co-payment or deductible paid by the
employee generally is paid with after tax dollars. Chairman Thomas (R-CA) is interested in
enhancing the individual market and lessening the reliance on an employer based health
insurance system by extending the current employers deduction to employees and
expanding the ways of purchasing health insurance that are not linked to the workplace. He
believes this will make health insurance more portable and available.
Crime, Education and Other State and Local Government Services
By Reta Lewis
Juvenile Crime Legislation
Efforts to attach juvenile crime legislation to the FY 1999 budget collapsed amid
partisan disagreements over whether to emphasize prevention or punishment. H.R. 3 and H.R.
1818 had been approved by the House on September 15, 1998, as part of a larger package
built around S. 2073, a bill authorizing funding for the National Center for Missing and
Exploited Children. H.R. 3 would give prosecutors the discretion to decide when juveniles
age 14 or older should be tried as adults for drug or violent crimes in federal court.
H.R. 1818 would have combined prevention programs, including those for abused children and
gang intervention, into a single Juvenile Delinquency Prevention Block Grant to the
Employment and the Disabled
In the Administrations negotiations with the Congressional leadership over the FY
1999 budget, the White House unsuccessfully sought to include S. 1858, the Work Incentives
Improvement Act, in the final agreement. Sponsored by Senators Kennedy (D-MA) and Jeffords
(R-VT), the Work Incentives Improvement Act facilitates employment among people with
disabilities by removing barriers to health care coverage. The Administration has named
this legislation among its priorities in the 106th Congress.
Dollars to the Classroom Act
H.R. 3248, the "Dollars to the Classroom Act," was passed on the House floor
on September 18, 1998. The bill consolidates $2.74 billion, which currently funds 31
separate federal education programs. The funding would be turned over to the States as
block grants. Since the companion legislation, S. 1589, was not acted upon in the Senate,
the bill did not become law this year. However, this legislation commands strong support
from Republicans, and is therefore likely to be reintroduced in the 106th
Empowerment Zone Funding
The FY 1999 Omnibus Bill includes $60 million in funding for Round II Empowerment
Zones. $45 million of this total is targeted to urban communities. Thus, each designee
will receive approximately $3 million. It is important to note that additional funds for
Round II will be available when Congress passes legislation to fully fund the
newly-selected Empowerment Zones. In the Second Session of the 105th Congress,
legislators failed to act on companion bills introduced by Senator Carol Moseley-Braun
(D-IL) and Congressman Charles Rangel (D-NY) that would have fully funded Round II.
Consequently, Round II has been partially funded through this years appropriations
Year 2000 Computer Problem
S. 2392, legislation to encourage the disclosure and exchange of information about
coping with the Year 2000 computer glitch, was signed by the President on October 19,
1998. The other "Y2K" bills which the county had expressed an interest in,
including S. 2000, H.R. 4455, and H.R. 4756, did not become law this year.
Taxes and Social Security
By Jim Miller
Since his last State of the Union Address, President Clinton has done an effective job
of selling the public on saving Social Security first before addressing tax cuts. For
years, tax cuts have been a defining issue for Republicans. Therefore, it is widely
believed that the Republicans will push for an across the board cut in rates early in the
next Session as the center piece of a tax bill. Because Republicans are expected to pay
for the tax cut proposal with a portion of the expected budget surplus, President Clinton
and the Congressional Democrats will oppose it. Therefore, an across the board rate cut is
unlikely to be enacted. This does not really matter to the Republicans. They believe they
can win over public opinion on this issue.
Congressman Bob Livingston (R-LA), the new House Speaker, has announced that his first
order of business will be to propose taking Social Security "off budget." Ever
since the Johnson Administration, the Social Security Trust Fund has been included in the
Federal Budget as a way to mask the true deficit. By proposing to take Social Security off
budget, Congressman Livingston hopes to blunt President Clintons argument that tax
cuts, paid out of a budget surplus, raid the Social Security Trust Fund and undercut the
Congressman Livingstons proposal is very clever. Several influential Democrats,
led by Senator Hollings (D-SC)and Senator Dorgan (D-MO), have argued for taking Social
Security off budget. Right now, his chances for success are not clear. However, if he is
successful, the result will be a greatly reduced budget surplus, with possibly a
short-term deficit. That means that any tax cuts proposed by Republicans that are paid for
with a surplus will have to be dramatically scaled back.
Both Democrats and Republicans support some type of "marriage penalty"
relief, the scope and extent of which varying on how each party proposes to fund it. Both
parties also support extension of various provisions due to expire next year, such as the
research and experimentation tax credit, the work opportunity tax credit, and the
deduction provided for contributions of appreciated stock. The expiration of these
provisions next year and widespread support for their further extension guarantees that a
tax bill of some type will pass Congress next year.
It now appears probable that President Clinton will again propose a cigarette tax, the
proceeds of which he would use to fund programs related to health care and education
programs designed to reduce smoking, particularly among teenagers. The popularity of a
cigarette tax in Congress as a means to fund various favorite programs and tax cuts will
ultimately determine its size. As always, the tobacco lobby will wage war on any cigarette
tax as a regressive measure against the middle class.
The President is also likely to resurrect several proposals from previous budgets which
would curtail certain corporate tax subsidies and close loopholes. These include proposals
to (1) defer the deduction for interest and original issue discount (OID) on convertible
debt; (2) eliminate the dividends-received deduction for certain preferred stock; (3)
repeal the percentage depletion for non-fuel minerals mined on Federal and formerly
Federal lands; (4) repeal tax-free conversions of large C corporations to S corporations
(section 1374); (5) replace sales-source rules with activity based rules; (6) modify rules
relating to foreign oil and gas extraction income; (7) repeal lower-of-cost-or-market
inventory accounting method; (8) increase the proration percentage for property casualty
insurance companies; (9) restrict impermissible business directly conducted by REITs; (10)
modify depreciation method for tax-exempt use property; (10) impose excise tax on purchase
of structured settlements; (11) eliminate non-business valuation discounts; (12) eliminate
"Crummey" rule; (13) eliminate gift tax exemption for personal residence trusts;
(14) include qualified terminable interest property (QTIP) trust assets in surviving
spouses estate; and (15) modify the reserve rules for annuity contracts. These
proposals have not been passed by Congress in the past and are not expected to pass in the
next Session. However, with their increased numbers in the House, the Democrats will
attempt to bring alternative tax bills to the House floor which otherwise were bottled up
in the Ways and Means Committee. These alternative tax bills could include some of these
measures to pay for tax breaks sought by Democrats and could attract Republican support.
One measure proposed by President Clinton last year on which Congressional action is
increasingly possible is to modify the treatment of closely held REITs. In advancing the
proposal, the Administration cited a number of tax avoidance transactions involving the
use of closely held REITS. The Administration specifically proposed to impose as an
additional requirement for REIT qualification that no person can own stock of a REIT
possessing more than 50 percent of the total combined voting power of all classes of
voting stock, or more than 50 percent of the total value of shares of all classes of
stock. The REIT community should be alert to this proposal because some on the
Congressional tax-writing communities believe there is a need to cut back on perceived
abuses in this area.
Overall tax reform is effectively dead for now, although some more targeted areas of
reform are under examination. For example, Congressman Thomas (R-CA) is actively examining
the concept of shifting the health insurance deduction from the corporate level to the
individual as a means to increase health insurance coverage. Shifting the deduction may
also be paired with a mandate that individuals purchase insurance. Such a proposal, if
enacted, would dramatically transform the health insurance market place. Its chances for
success are small, but expect activity in this area. Republicans are looking for positive
alternatives to capture public support away from currently popular proposals, such as
"The Patient Bill of Rights". Another area where the Democrats may propose tax
reform involves the taxation of health plans. Minority Leader Dick Gephardt (D-MO) has
already expressed his strong desire to eliminate for-profit health plans.
A hot area of activity will be tax aid for school construction. President Clinton will
again propose at least $5 billion in tax incentives over five years and more that $10
billion over ten years to help States and school districts accelerate the pace of new
construction or renovation projects. House Republicans passed a proposal this year that
died in the Senate which would have relaxed the arbitrage rebate rules for school
districts by giving districts four years (instead of two years) to build schools and earn
arbitrage. Some proposal on school construction will emerge and be passed into law this
Finally, there could be another run at Federal taxing and regulation of the gaming
industry. In 1993, the industry successfully killed such efforts before they could make it
out of White House policy shops. With the strong backing of the National Governors
Association, the industry argued that taxation of gaming is often the principal source of
local funding for social services and education. Nevertheless, gaming revenues continue to
be a tempting target for the funding of Federal programs and tax cuts.
The Social Security Trust Fund is predicted to become insolvent in about 35 years.
President Clinton has said he is determined to save social security in the next Session.
Saving social security is good politics for both parties and, therefore, could motivate
the enactment of legislation. However, the temptation will be strong for Democrats to talk
up the issue until the Presidential election because it continues to be a winning issue
for Democrats. Republicans would benefit greatly if a solution were enacted and the issue
was taken off the table.
The main issue dividing the left and right on social security concerns whether any
portion of social security should be privatized to allow for private investment accounts.
Organized labor strongly opposes privatization of any type. Although President Clinton has
spoken favorably about examining some form of privatization, he has been careful not to
make any commitments. Senator Moynihan (D-NY), ranking member on the Senate Finance
Committee who has announced his retirement in 2001, and Seator Bob Kerrey (D-NB), who also
serves on the Finance Committee, support some forms of privatization, but they are in a
minority in their party.
Republicans tend to support some types of privatization, but are afraid that they will
be burned politically on the issue if they are proactive on the issue. They would prefer
to wait until President Clinton comes forward with a proposal, just as they waited for him
to put forward his ill-fated Health Security Act. Having learned his lesson, President
Clinton will come forward with some basic principles, but no legislation, and have
Congress produce a bill, or he will produce a proposal that is the product of a
The Budget Process and Appropriations
By Diane Blagman*
As the new Speaker, Congressman Livingston will be determined to make the budget and
appropriations process work on a timely basis. If he can achieve that goal, both this year
and next, he will be judged a success. The process has been stalled recently by the
insistence of both the left and the right to attach non-germane "riders" to
appropriations bills that address social policy issues such as abortion rights. In order
to keep the process moving, the new Appropriations Committee Chairman (probably Bill Young
of Floridas 10th District) will depend on Democrats to override the
attempts of religious right Republicans to attach forms of anti-abortion riders to
appropriations bills. This will give Democrats a far greater role in the appropriations
The Democrats will continue to push for greater Federal funding for education and
training, child care, the environment and community and regional development. The
Republicans may go along with many of these initiatives and will also push for more funds
for defense, such as a missile defense system, and for transportation infrastructure. With
Congressman Livingstons elevation to the Speakership and Congressman Youngs
expected appointment to Committee Chairman, there will be a reshuffling of Subcommittee
chairmanships. These will have a strong impact on the priorities of each subcommittee.
By Peter M. Gillon
Superfund reform died in the 105th Congress due to the gap between industry's desire
for comprehensive reform and the Administration's insistence that the program has been
fixed administratively. EPA has the statistics to back up its position now, with a recent
GAO report that 95% of the non-federal Superfund sites will have final cleanup decisions
by the end of the fiscal year. And in fact, either because of the EPA administrative
progress or the fatigue from five years of unsuccessful lobbying, the pressure for major
legislative reform is greatly diminished. EPA now has made reauthorization of the program
a high priority and industry groups are reevaluating their positions. What is likely to
emerge is a modest reform bill that could see legislative action by late 1999. The
opportunity this situation presents is the potential to address specific issues through
technical changes to the legislative proposals being considered. We have been successful
on behalf of certain of our clients to address their liability issues through such an
approach, and various industry segments, such as scrap metal recyclers, are doing the
Global Climate Change Treaty
The Global Climate Change Treaty is another contentious issue facing the 106th
Congress. The treaty, which was negotiated among 160 nations in December 1997, calls on
the United States to substantially lower its greenhouse gas emissions a decade from now.
With the Clinton Administration's announcement that it will sign the Kyoto Protocol,
Majority members have roundly disparaged the action and have called for President Clinton
to send the treaty to the Senate for a vote on ratification. It appears the Protocol would
be defeated in a Senate vote. Such a vote would provide Vice-President Gore with the
perfect millennium campaign issue, and thus we expect the Administration to attempt to
delay such a vote until the summer of 2000. Although several multinationals, such as BP
and Monsanto, have endorsed the Protocol, industry remains staunchly opposed.
Other issues likely to arise in the 106th Congress include interstate waste,
regulatory reform and reinvention, and legislation targeted at cleanup of blighted
properties known as brownfields. We also expect some legislative activity in the area of
federal labeling of genetically modified organisms in food, and trade in such foods as
affected by the Biosafety Protocol signed by numerous countries and due to be ratified in
By Ronald L. Platt*
Most lobbyists who work on gaming matters expected the 106th Congress to be
a much less favorable climate. There was the specter of the Commission on the Impact of
Gaming and its report to Congress in 1999 and a vocal concern expressed by many Members of
Congress, that the spread of gaming across the country had created serious concerns which
could lead to anti-gaming legislative initiatives. Now most observers believe that the
conditions of hostility that were forecast will not be as severe as previously thought.
While not suggesting that the efforts of anti-gaming forces will be reduced in
intensity, several factors lead us to believe that their activities will not be as
successful as earlier thought:
- Internet gaming legislation was not passed by the 105th Congress. Those who
wish to limit gaming will be required to devote time and resources in this area again.
- The limitation upon the Secretary of Interior with regard to finalizing a rule for
alternative procedures for Class III Native American gaming was limited to six months as
opposed to a full fiscal year. Thus this issue will also have to be redressed in the 106th
- "Pro-gaming" ballot initiatives were successful in California, Missouri and
Louisiana. Support for a state lottery was a major factor in the election victories of
Democratic candidates for governor in the states of South Carolina and Alabama. Retention
of video poker was also a factor in the South Carolina election.
Rather than expecting the success of a number of new anti-gaming legislation in the new
Congress, the outlook is for a continuation of the limited initiatives of the past
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.