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Greenberg Traurig Alert

Legislative Outlook for the 106th Congress

November 1998

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With the 1998 mid-term elections behind us and a new leadership about to take control in the U.S. House of Representatives, Greenberg Traurig’s 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?

Perhaps…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?

Don’t expect a flat tax. Don’t 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 don’t 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 I’m 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 nation’s 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 be seen.

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 the House.

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.

The Democrats

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 Clinton’s first term on the issue of health care reform, they lose. In the illustrative case of health care reform, contrary to President Clinton’s 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 Clinton’s 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 Clinton’s 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 care portability).

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 President’s 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 Congress.

The Republicans

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 dominant.

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 Democrat’s 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 House’s 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 York’s 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 elections.

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.

Trade

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 D’Amato.

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 strategy.

Health Care

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 patient’s access to an expedited internal review and independent external review process.

Medicare Reform

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 program.

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 employer’s 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 States.

Employment and the Disabled

In the Administration’s 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 Congress.

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 year’s appropriations process.

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

Tax Legislation

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 Clinton’s argument that tax cuts, paid out of a budget surplus, raid the Social Security Trust Fund and undercut the program.

Congressman Livingston’s 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 spouse’s 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 year.

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.

Social Security

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 bi-partisan commission.

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 Florida’s 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 process.

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 Livingston’s elevation to the Speakership and Congressman Young’s 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.

Environment

By Peter M. Gillon

Superfund Reform

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 same.

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

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 March 1999.

Gaming

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 Congress.
  • "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 Congress.


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.