NAIFA MAY GovTalk Partner Newsletter

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May 14, 2021

Virtual Congressional Conference to Defend against Adverse Tax Proposals

NAIFA’s May 25-26 Congressional Conference is less than two weeks away! If you haven’t already, please register now for this virtual conference and join NAIFA colleagues from all 50 states to hear from members of Congress, industry leaders, and NAIFA lobbyists about the federal issues facing your business and your clients.

The conference will begin on May 25th with speakers, optional training sessions, and an IFAPAC event, and culminate on the 26th with a “Day on the Hill” that will include meetings with Senate offices. These meetings will give NAIFA members the opportunity to speak to lawmakers and staff on issues including tax treatment of life insurance, retirement savings, and worker classification. To give these offices an accurate idea of how many constituents will be attending these virtual meetings, please register ASAP. Your constituent input is vital to a successful defense of the products and programs that underlie middle America’s economic security.

Prospects: It’s looking like the riskiest, most challenging time in years for NAIFA interests. Register now, if you haven’t already, to add your voice to the thousands rallying to protect the important work NAIFA members do to make sure middle America can assure their families and businesses secure financial future.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org, or Maggie Buneo – Grassroots Director, at mbuneo@naifa.org

Biden Speech, Congress’ 2021 Legislative Agenda Pose Many Challenges

Per legislation already introduced, and in light of President Biden’s April 28 address to a joint session of Congress, it appears that there will be many challenges for NAIFA members this year. Among them are multiple adverse tax proposals, the PRO Act with its worker classification provisions, and a national paid leave initiative.

The second of two planned Build Back Better proposals, the $1.8 trillion American Families Plan (AFP), was released on April 28. It focuses on what the President is calling “human infrastructure.” It proposes paid leave, childcare, education, and other “human infrastructure” programs. The AFP’s proposed offsets come from individual tax hikes. They include:

A hike in the capital gains rate for those earning $1 million or more in a year to 39.6 percent.
A repeal of step-up in basis—which likely includes a rule that would characterize transfer as a result of death as a taxable event.
An increase in the top individual income tax rate to 39.6 percent.

The first Build Back Better proposal, the $2.5 trillion American Jobs Act (AJP), focuses on traditional infrastructure spending (road, rail, port, bridge projects, etc.), paid for by proposed corporate tax increases. A key offset proposal would raise the corporate tax rate from 21 percent to 28 percent. The AJP, released this past March, also includes a new corporate minimum tax and proposed changes in international tax rules.

The AJP also includes a call to Congress to enact the PRO Act, which contains a worker classification rule that could prove adverse to most NAIFA members. (Generally, the PRO Act worker classification provisions would force recharacterization of many insurance agents and financial advisors as employees rather than as independent contractors.) The AJP also includes provisions to expand broadband and to improve senior caregiver jobs.

Neither the AJP nor the AFP has yet been put into legislative language and may not be. Instead, it appears likely that the relevant Congressional committees will write the actual legislation, which will reflect the (potentially many) changes to the proposals that lawmakers appear convinced need to be made.

President Biden says his Build Back Better agenda (both the AJP and the AFP, and their offset packages) is open to negotiation. Changes to it “are certain,” he said. He says he is open to alternative ways to pay for the cost of the infrastructure projects contained in his AJP proposal, but not to making it materially smaller. The President has been crisscrossing the country to tout the AJP and the AFP, saying that the plans are needed to rebuild the pandemic-ravaged economy and to create more and better jobs for America’s workforce.

Currently, there are bipartisan negotiations underway on the AJP—Congressional Republicans have crafted a $560 billion traditional infrastructure proposal paid for by “participants” in the projects to be authorized—revenue offsets include things like a miles-traveled fee, a gas tax, and unspent coronavirus aid law funds. Generally, Democrats and the President are insisting on a larger package and are arguing in favor of the corporate tax increases contained in the President’s AJP.

As of now, there is no visible path to a compromise on the AJP—virtually every Republican lawmaker opposes the AJP’s tax increase proposals, and most also want an infrastructure package significantly smaller than the one proposed by President Biden. Democrats want more, both in the size and scope of the infrastructure portion. There aren’t even serious conversations on the AFP—the GOP says the education, childcare, paid leave and other “human infrastructure” proposals in the AFP are a Democratic “socialist” agenda, and they are united in opposition to it. Most Democrats support it, although many want changes to it.

Hearings on the Build Back Better agenda are underway—on May 12, the House Ways & Means Committee’s Subcommittee on Select Revenue Measures held a hearing on how and why “the rich” should pay more taxes. Lawmakers say they will try to forge a bipartisan agreement—or at least make good progress on one—by Memorial Day. After that, they say, they will look to using a process that will sidestep the Senate’s rules that require a 60-vote majority to advance a bill (probably a reconciliation bill, but filibuster reform has not been ruled out).

If Democrats move to a partisan process, they will have to forge consensus among their own ranks. And in this closely divided Congress, that is almost as tall an order as a bipartisan agreement would be. In the Senate, all 50 Democrats would have to agree to support a bill. In the House, only four Democrats saying “no” would scuttle the effort.

Prospects: The Build Back Better initiative is at the top of President Biden’s priority list. And it is something most Democrats strongly support. Accordingly, it would be foolish to bet against the Democrats finding a way—whether it be bipartisan or solely among themselves—to enact it. But it is full of proposals that are controversial even among Democrats, and it is hard to see the contours of an agreement that could win all 50 Senate Democratic and all but three House Democratic votes. And it will take quite some time, with many new (and probably adverse) tax proposals emerging from the process.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

DOL Rescinds Trump-Era Worker Classification Rule

On May 5, the Biden Department of Labor (DOL) officially rescinded the worker classification rule finalized in the last two weeks of the Trump Administration. The now-cancelled rule, using an “economic reality test,” would have expanded the ability of workers to function as independent contractors rather than as employees. Currently, DOL—which says it will beef up enforcement against companies that misclassify their workers—will use the historical multi-factor “control” test that has been established by the courts to determine when a worker/workforce is properly characterized as employee or as independent contractor.

The Biden DOL has not announced a new rulemaking, but one is expected—and it’s expected to substantially narrow the definition of independent contractor, creating a real risk for the many NAIFA members who are not employees of their carriers/broker-dealers. Washington insiders anticipate that the new worker classification rule will closely resemble California’s “ABC” test, which so tightens the definition of independent contractor that most NAIFA members would not be able to comply with it—and thus, unless it is amended to accommodate the special circumstances of insurance agents and financial advisors, would have to be characterized as employees of their insurance companies and broker-dealers.

Prospects: Worker classification is a hot topic these days. It is a live issue in the PRO Act; it is part of a new unemployment system reform measure, and it is likely to be the subject of a new rulemaking initiative at DOL. The narrower new test—the California-originated ABC test—contains an exception for insurance agents in California. And the securities and insurance laws and regulations that govern life insurance agents/financial planners add potency to the argument that this industry merits different rules. This is an issue NAIFA is working hard, along with allies among insurance and other financial services companies.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

NAIFA 2901 Telestar Court Falls Church VA 22042 USA

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