Barn Clearing Budget Deal Gives Speaker Ryan A Fresh Slate by Elizabeth Varley, Columbia Threadneedle Investments
- The Bipartisan Budget Act of 2015 should provide some degree of certainty as government shutdowns will be avoided through 2016 and into early 2017.
- Financial advisors should update information related to Social Security claiming strategies.
- We anticipate favorable treatment of tax extenders but final resolution may not occur until late in the year.
The surprise resignation of Speaker John Boehner sparked a flurry of legislative activity in Washington last month with accomplishments on several fronts. The most significant of these is raising the debt limit ceiling and putting in place a framework for a spending agreement that will extend to March 2017, well after the presidential elections are decided and a new president takes office on January 20, 2017.
While new House Speaker Paul Ryan may have objected to the process, the Bipartisan Budget Act of 2015 means that Representative Ryan arrives in office with an opportunity to steer through more legislation, providing an opportunity to check off some accomplishments early in his tenure as Speaker. The budget legislation is broad and touches a number of areas including a provision to amend the Affordable Care Act’s automatic enrollment requirements. Other legislation awaits action by Congress before the end of the year. First up will be a highway reauthorization bill which is expected to be of longer duration than the short-term extensions that have been provided recently. At the same time, Appropriations Committee officials will be focused on pulling together the specific provisions that will be included in an omnibus spending bill.
Enacting these priorities into law should be easier, not harder, with the budget agreement in place. A highway bill will likely include some revenue increases, but the odds of including major changes to reform tax policy to assist U.S. multi-nationals will likely be put off until there is more appetite for comprehensive tax reform. Proponents of tax reform continue to pin their hopes on 2017. The legislation also allows Speaker Ryan to focus on the 2016 election cycle without battling over whether to shut down the government or a potential default on the debt – occasions which can separate Republicans rather than unite them.
The bipartisan legislation includes some unpopular but expected changes on the Social Security front. Individuals who were thinking about using claiming strategies such as file and suspend to increase benefits will no longer have that option. Likewise, a Social Security beneficiary will not be permitted to restrict an application for the receipt of a spousal benefit while allowing other benefits to grow. This applies to beneficiaries turning 62 after 2015. At the same time, Medicare beneficiaries who were facing premium increases under Medicare Part B in a year when no cost of living adjustment is anticipated for Social Security recipients will be getting relief. The legislation also addresses the insolvency of the Social Security Disability Insurance program, but only to a small degree. The changes to entitlement programs will slightly increase their fiscal soundness but could have symbolic effects that lead to other incremental reforms to put these programs on sounder footing.
The end of the year negotiations over the spending bills are likely to get heated, particularly over policy riders that seek to delay or stop new federal rulemakings or revisit provisions enacted in Dodd-Frank. Issues such as governance of the Consumer Financial Protection Board (CFPB), the DOL fiduciary rule, or the oversight of asset managers by the Federal Reserve are all likely to be in the mix of issues that Congress will seek to include in an end of the year package with the Administration pushing to exclude these provisions.
Finally, Congress still needs to attend to the tax extenders. The Finance Committee is advocating for a two-year extension of most extender provisions, while the House of Representatives has pushed for making permanent many of the extenders. The odds of getting permanence are still very low, and taxpayers may be forced to wait until late in the year for a final resolution for tax year 2015. The good news is that popular provisions such as the Qualified Charitable Deduction continue to enjoy significant support from policymakers and will very likely be renewed and extended.