What awaits us in Washington
Pending legislation that will affect business in Southern Nevada
14 January 2013
People often complain that leaders in Washington do nothing.
That might not be the case in 2013.
President Barack Obama, Congress and the Supreme Court will turn to several issues that were tabled until after last November’s elections, and the to-do list includes many items that could change the way Nevadans do business.
There is a roster of matters that have been inherited from the president’s first term, not least of which is implementing the Affordable Care Act, which must be completed by Jan. 1, 2014.
The president also has laid out an ambitious agenda of items to tackle. At the top of the list is a pledge to advance a long-dormant overhaul of the country’s immigration laws that will almost surely include changes to how hiring practices are monitored. Obama also intends to take a stab at energy legislation, which could change the fate of Nevada’s nascent renewable energy industry.
Congressional leaders have clamored for long-awaited tax reform — which this time will require tinkering with corporate rates and loopholes — and overdue cybersecurity legislation that could help bolster Nevada’s recent investments. Leaders also will have to determine what to do about now-delayed sequestration cuts, the onset of which could rock Nevada’s military installations, and how to contend with approaching limits on national debt.
With the Supreme Court set to weigh in on gay marriage and the president gearing up for gun control legislation that is guaranteed to be challenged in court if it passes, certain niche industries in Nevada could see new clientele or new regulations.
Actions in Washington will almost certainly change the stakes of doing business for any company with profits or employees. Here’s what to watch out for:
The “fiscal cliff” deal Congress struck on New Year’s Day permanently put to rest a long debate over personal income, capital gains, estate and alternative minimum tax rates.
But it pales in comparison to what still waits in the wings: A large overhaul of the tax code that invariably will affect personal exemptions and corporate obligations and iron out loopholes that have clogged the system since the last major tax law was passed in 1986.
Top tax-policy writers in both parties — House Ways and Means Chairman Dave Camp, R-Mich., and Senate Finance Chairman Max Baucus, D-Mont. — agree that the tax code is so complex it stymies growth. And they have committed to start overhauling it in earnest this year.
But that doesn’t mean they will finish.
What’s at stake for Las Vegas? Local business leaders should watch for changes to the corporate tax code.
Most small businesses got some measure of security in the fiscal cliff deal, which capped the income tax rates — which also apply to pass-through entities — at Bush tax cut levels up to $400,000 ($450,000 for joint filers) and at 39.6 percent for those above.
In the coming wave of tax reform, larger corporate and pass-through filers should expect a change to the baseline tax rate. Obama has proposed dropping it from 35 percent to 28 percent. Leading Republicans have proposed 25 percent.
Republicans and Democrats also have agreed, at least in theory, that it is time to cut several corporate loopholes that keep many large businesses from paying the tax rate envisioned for them. Particularly gratuitous are the subsidies many oil and gas companies receive.
Democrats and some Republicans hope to make production tax credits for renewable energy permanent, a provision many Nevada energy companies could take advantage of. Such tax credits already were extended for one year under the fiscal cliff deal, along with sales taxes, mortgage interest and refinancing deductions that are crucial to sustaining the Nevada economy. Making some, if not all, of those items permanent would be up for discussion in a tax reform process.
The president has pushed for other changes to corporate accounting, such as eliminating accelerated depreciation of business assets (under the fiscal cliff deal, depreciation write-offs already were halved from their stimulus-era levels), ending last-in/first-out accounting practices and limiting the deductibility of corporate interest expenses.
The ugliest fight may come over whether to maintain the country’s current international taxation system or move the nation toward adopting a territorial system.
The political lines in that fight are clear: Republicans want to shift from the current system of taxing American companies’ profits no matter where they are earned to one in which American companies would not pay U.S. taxes on profits earned outside of the United States. Republicans say most developed nations have territorial systems and argue they encourage companies to use untaxed overseas profits to reinvest in U.S. operations. But Democrats maintain that more businesses would move their production and sales operations overseas if profits are not taxed.
The Obama administration has dismissed the idea of a territorial tax system and instead has pledged to pursue a more functional worldwide system that imposes minimum tax rates on income earned abroad.
Reversing the global flight of investment capital is seen as crucial to the resurgence of American manufacturing and production. It is an especially important consideration for Nevada, as the state looks to diversify its economy by encouraging more global production companies to set up shop in Las Vegas.
In the past few years, Nevada’s historically negligible international trade portfolio has experienced a rapid expansion, a trend state planners want to be sure that federal tax changes encourage.
When Congress passed the Affordable Care Act, January 2014 was a long way off. Now the clock is ticking for companies that need to figure out how to honor new obligations to employees without adversely affecting their bottom line.
In Nevada, the cultural shift that the health care law is expected to bring is significant. The state routinely ranks among the worst for availability of health care, and panic and grim forecasts about upcoming changes already have made some companies change their health care offerings. Many have reduced employee coverage options, increased premiums or, in the most extreme cases, slashed workers’ hours so they no longer are legally mandated to receive health coverage.
Other companies have shrugged at the changes, concluding they are manageable.
In December, Gov. Brian Sandoval announced he would not stand in the way of implementing required changes. He even accepted the Obama administration’s terms on expanding Medicaid, which he was not required to do.
By this time next year, health care exchanges should be up and running, Medicare will have been expanded, and all residents will be both guaranteed and required to have health insurance. New caps on flexible spending will apply ($2,500 across the board), but lifetime caps on coverage will disappear and tax credits for those who can’t afford coverage will kick in.
The cost of health care to employers is slowing down, too: In 2012, health care costs were projected to increase by 5.9 percent, according to human resources consulting firm Towers Watson. In 2013, they were anticipated to rise by 5.3 percent. Without changes already enacted, the increase would have been 6.5 percent.
That does not mean that individuals will see a break in their health care obligations, however. Towers Watson found that companies are shifting away from traditional, preferred provider organization (PPO) health plans toward more value- and account-based health plans to keep corporate overhead low.
Since 2010 when the health care law passed, the prevalence of high-employee-premiums offset by Health Savings Account plans has doubled.
The debate over immigration reform has become so mired in politics, it is easy to forget that the issue is about access to and regulation of the workplace.
The immigration bill that Obama has placed front and center of his agenda will have to address the situation of undocumented immigrants with deep roots in the United States, especially “the Dreamers” whose parents brought them to the United States as children and who were given a two-year deportation reprieve and renewable work authorization in 2012.
But immigration legislation also will likely have to reset thresholds and methods of calculating the availability and distribution of visas in existing categories that regulate employers’ ability to hire immigrant labor.
Now, both skilled worker visas (H-1B) and seasonal unskilled worker (H-2B) visas are capped at 65,000 and 66,000, respectively. Most Republicans and Democrats agree that the categories must be expanded to maintain a steady labor pool and keep innovative immigrants who come to study in the United States contributing to the economy once they graduate. There also is general acceptance of similar merit for other visas, including the nursing visa (H-1C), agricultural worker visa (H-2A) and investor visa (E-5).
But there remains the question of if, or when, recipients should be allowed to convert visas into green cards and eventually into citizenship.
Immigration and Customs Enforcement has taken a sharp turn toward policing employers under the Obama administration, as it racks up the number of deportable aliens far beyond levels achieved under the Bush administration. For employers, pressure to regulate hiring will lead to the proliferation and mandatory adoption of the E-Verify system, a biometrics-based way to check the work eligibility of applicants based on Social Security data.
Nevada had a very promising start to its renewable energy development without too much federal intervention. Companies recognized the potential of vast, open stretches of desert for building solar fields and moved quickly and in tandem with state representatives to strike deals with the federal government to buy or rent federal lands on which to build them.
With the help of Sen. Harry Reid, state-sited projects also reaped a small fortune in government stimulus tax credits incentivizing the construction of large-scale plants and the rehabilitation of existing structures to be more renewable-energy friendly. What once seemed an ambitious renewable energy standard began to come within reach.
But in a way, it almost happened too fast. With capacity to meet the 15 percent renewable energy standard in place, the appetite for new projects dried up, the construction boomlet petered out, and the relative loss of federal interest in subsidizing projects — there is only one exclusive renewable energy investment tax credit program left — caused the speculation side of the industry to go into hibernation, except for in the Amargosa Valley, the one strip of Nevada with an access point to the still-growing renewable energy market in California.
Experts stress that energy policy needs to address infrastructure and regulation – construction of high-speed transmission lines, manufacturing facilities for renewable energy equipment, land for installations and an interstate system for trade. Such efforts will likely encounter resistance and complications, however, as they involve not only partisan philosophical differences, but also the rights and interests of various states.
Congress tried to tackle cybersecurity last summer but was stymied by partisan discord and public disinterest.
Growing dependency on the Internet has made the cyber arena vulnerable. Homeland security and defense experts say the threat of a massive and crippling cyberattack on the United States isn’t a question “of if, but when.”
Regardless, an attempt to enhance government and corporate cybersecurity in late 2011 inspired privacy advocates to launch a winning campaign to prevent the federal government’s efforts to establish an information-sharing system that would involve corporations stepping into a space traditionally occupied only by clandestine government agencies. Lawmakers have vowed to try again.
The goal was to use the business sector to expand the government’s ability to collect data on suspicious entities. Businesses would be invited to collect information on suspicious activity and breaches and report it to federal authorities, with the hope that better information sharing would lead to more effective efforts to shut down hacker and spy networks and increase both companies’ and individuals’ ability to protect information.
What is less clear from legislation under consideration is what happens to that information. The open-ended, nonspecific, self-regulated nature of the venture has led critics to question its potential effectiveness, especially when compared to the new authority the government would gain to collect information on people through supposedly private dealings.
The effort is not one that focuses specifically on Las Vegas or Nevada as a hub for culling information or policing the Internet. Las Vegas and Reno already received federal grants to train local government and business leaders about communal cybersecurity activity.
But the success or failure of the venture could help the city determine how to position itself for the next generation of cybersecurity policing, both in terms of individual business planning and as host to a new industry. Gov. Brian Sandoval has expressed particular interest in bringing more data storage companies like Switch to southern Nevada. There has even been talk about repurposing parts of Yucca Mountain for the project, should nuclear development there finally be shuttered.
Sequestration and defense
Sequestration, in which automatic spending cuts are triggered, fell by the wayside in the fiscal cliff debacle but will come up again for debate in a matter of weeks. What transpires could have significant consequences for Nevada’s military contractors, as $60 billion per year was set to be drained from the defense and security sector starting Jan. 1., but the onset date was delayed two months. Congress now has a new deadline to decide whether to let the cuts stand or figure out a way to offset them.
Members of both parties want to stave off the budget slashes to the military. Republicans want to replace them entirely with cuts elsewhere in the budget, while Democrats would rather defer all budget cuts. During the fiscal cliff debate, Reid angled for a two-year delay.
It is unclear where in defense and security spending those cuts, if they occur, would fall. But businesses that do business with the military via short-term contracts should beware: Cuts could apply anywhere from materials to maintenance.
Nevada, however, may have one saving grace that prevents the onset of serious cuts if the sequester does strike. While the state has Army National Guard units, Nevada’s full-time military installations focus most intently on air warfare (consider our Nellis and Creech air force bases and Fallon Naval Base). The Obama administration identified naval and air capacity as growth areas.
Nevada hopes to expand interest in that expertise, especially in the area of unmanned aerial flight, to attract the burgeoning domestic drone industry. The state applied to the Federal Aviation Administration to be one of only a handful of drone testing locations in the United States. An expansion in that industry would be an opportunity to attract the attention of national contractors locally.
Recommendations from a special task force on gun control assembled by the president could significantly change the stakes of Nevada’s firearms industry.
Members are expected to deliver their findings this month.
Guns are a big business in Nevada and part of the state’s tourism portfolio. Shooting ranges abound, and billboards for gun shops adorn the walkways of McCarran International Airport and the sides of local highways.
It is easier to buy a gun in Nevada than in most other states. People who come to buy firearms at Nevada’s many gun stores and those who come for the region’s many gun shows stay in hotels, eat in restaurants and gamble in casinos.
How, if at all, to regulate that industry will be a hard question for Nevada lawmakers who have to consider safety concerns, Second Amendment sensibilities and the state’s economic interests. Las Vegas has the third-worst rate of gun-related deaths in the country, behind New Orleans and Detroit — a sticking point when trying to attract people and businesses to the city. But the sale of guns also pumps money into the Nevada economy, and taxes from the sales help fund the struggling state government.
By mid-June, the Supreme Court is expected to have heard arguments and delivered a decision on the constitutionality of the federal government’s Defense of Marriage Act, which has defined marriage as exclusively between a man and a woman since 1996.
If the Supreme Court strikes down the law, it will not change the definition of partnerships under Nevada state law. The Silver State has allowed for civil unions, but not gay marriage, since 2009.
But a Supreme Court decision striking down DOMA would pressure states without strong opposition to gay unions to revisit their marriage laws. In Nevada, that could open up a whole new horizon for the wedding chapel industry and its offshoot industries.
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