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Washington Retail Insight

NRF Election Update: GOP Majority in House, Gains in Senate Will Affect Broad Range of Retail Issues

By J. Craig Shearman
Washington Retail Insight
November 3, 2010

In an election that will have significant implications for a wide range of public policy issues facing the retail industry, Republicans rode a tide of voter discontent over job losses and the economy to win control of the House on Tuesday, while Democrats saw their majority narrowed in the Senate.

Republicans gained at least 60 seats to secure a 239-183 majority in the House, which has been controlled by Democrats since the 2006 elections. Thirteen seats remained undecided.

The GOP picked up at least six seats in the Senate, narrowing Democrats’ majority to 51-46, with races in Alaska, Washington state and Colorado undecided. Besides narrowing the majority, the outcome leaves Democrats nine votes short of the 60 votes needed to overcome filibusters, which could make major legislation more bipartisan as they solicit Republican input and support.

The switch in House majority will mean changes in the chamber’s leadership when new Republicans are seated in January, along with changes in powerful committee chairmanships. Current Minority Leader John Boehner, R-Ohio, is expected to replace Nancy Pelosi, D-Calif., as speaker while Minority Whip Eric Cantor, R-Va., is expected to take over from Steny Hoyer, D-Md., as majority leader.

“The American people have sent an unmistakable message to (President Obama) tonight, and that message is: change course,” Boehner said. "Make no mistake, the president will find in our new majority the voice of the American people as they have expressed it tonight.”

“Now that Republicans have more members in both houses of Congress, they must take their responsibility to present bipartisan solutions more seriously,” said Senate Majority Leader Harry Reid, D-Nev., who survived a challenge by Tea Party favorite Sharron Angle. “Simply saying 'no' will do nothing to create more jobs, support our middle-class and strengthen our economy.”

Obama acknowledged voters’ concerns about the economy during remarks at the White House this afternoon.

“Clearly, too many Americans haven’t felt that progress yet and they told us that yesterday,” Obama said. “I am very eager to sit down with members of both parties and figure out where we can move forward.”

With Democrats still holding the Senate and White House, Republicans will not be able to completely control the congressional agenda. But the change in the House majority and expanded membership in the Senate will nonetheless give Republicans far more power than they have had in years and force the parties to compromise more often if they want to avoid gridlock.

Before Republicans take control of the House in January, Congress must complete the lame duck session scheduled to begin November 15. One of the biggest issues will be whether to extend Bush era tax cuts for all taxpayers as supported by Republicans, or only for families making up to $250,000 a year, as sought by President Obama. Without action, tax rates will return to Clinton-era levels on January 1. Congress also needs to act if it wants to keep the federal estate tax, which was phased out as of the beginning of this year, from returning in January. The annual tax extenders package, including renewal of real estate depreciation rules important for retailers, also expired almost a year ago and is still waiting to be renewed.

In addition, the Senate is expected to vote on a China currency bill similar to a measure passed in the House in September that could lead to higher tariffs on merchandise imported by retailers. Senators are also expected to approve extension of trade preferences programs that are a priority for retailers, and House-passed legislation backed by NRF that would create an Organized Retail Crime unit at the Department of Justice could see a vote as well.

Following is a synopsis of key issues that could be affected during the 2011-2012 session of Congress.

Health Care Reform – The House is likely to take a vote on repeal of the Patient Protection and Affordable Care Act health care reform law for the sake of politics. But the Senate is unlikely to go along, and President Obama would certainly veto any outright repeal. More realistically, retailers may be able to push for action on the size or existence of employer mandate penalties, fine points of eligibility for health coverage, the auto-enrollment requirement and the Form 1099 reporting requirement.

Taxes – The divided government resulting from the Republican takeover of the House provides an important backstop against potential tax increases over the next two years. In particular, it makes it far less likely an add-on Value Added Tax will be enacted as a revenue raiser to reduce the deficit. In particular, incoming Ways and Means Committee Chairman Dave Camp, R-Mich., has been outspoken in opposition to a VAT. Retailers still need to be cautious because incoming Budget Committee Chairman Paul Ryan, R-Wisc., has introduced legislation to replace the corporate income tax with a business consumption tax, which is a form of a VAT with similar impacts on consumer spending.

Labor – The Republican House majority will bring about a dramatic change in priorities on labor-related issues. The House Education and Labor Committee will be chaired by Representative John Kline of Minnesota, who has a 9 percent AFL-CIO lifetime voting record compared with current Chairman George Miller’s 93 percent score. Controversial pro-union legislation such as the Employee Free Choice Act “card check” bill will not be considered by the House in the next two years. Rather, Kline is expected to focus on oversight of the Labor Department’s aggressive regulatory and enforcement activities, as well as anticipated action by the National Labor Relations Board to enact EFCA provisions administratively.

Trade – After two years of avoiding action on trade, the Obama administration will push a more proactive trade policy emphasizing expansion of exports while continuing tough rhetoric on imports. It is unclear how responsive a divided Congress will be when free trade remains unpopular with the American public, most congressional Democrats and organized labor. In addition, many Republican gains came in Southern states with protectionist business constituencies such as textiles. Tea Party candidates, meanwhile, have no clearly articulated position on trade. U.S.-China trade will remain a hot topic, especially if China currency legislation is not completed in the lame duck.

Credit and Debit Card Swipe Fees – Winning passage of additional credit or debit card reform measures during the upcoming session of Congress could be tougher given the amount of Wall Street money that poured into the 2010 campaign. But divided government also means financial industry efforts to repeal or scale back reform retailers and consumers have already won – such as the Durbin Amendment requirement for “reasonable and proportional” debit card fees – are likely to fail.

Internet Sales Tax Collection
– The Main Street Fairness Act, which mandates sales tax collection by all sellers via any channel of sale, will be rewritten to be simpler and win broader support among Republicans. Its language may be combined with other business bills such as the Business Activity Tax Simplification Act to gain final approval. New House and Senate sponsors are being cultivated.

Organized Retail Crime – House-passed legislation defining ORC as a federal crime and creating an ORC unit at the Justice Department could win final approval by the Senate during the lame duck. NRF will work with retailers, lawmakers and online marketplaces to building upon that measure and develop more comprehensive legislation during the 112th Congress. Republican House control is expected to help with efforts to fight the multibillion-dollar problem of ORC.

Supply Chain – A Republican majority in the House is expected to help ensure a focus on development of a national freight program and strategy – as sought by NRF – as Congress considers a multi-year reauthorization of a highway bill. The key sticking point for both parties will be the funding. While an increase in the gas tax makes the most sense, politically neither party is likely to support it. NRF will oppose any user fees not applied to all users of the system. A Republican majority will also help block efforts to amend federal law to allow local ports to ban independent truck drivers under the guise of environmental and clean truck programs. Republican control should also make it easier to amend a 100 percent scanning requirement for maritime cargo containers included in the 9/11 Act but opposed by the Department of Homeland Security. Finally, the recent terrorist incident involving packages on cargo airlines will lead to a refocus on supply chain security but a Republicans might be more thoughtful on how proposed solutions would affect the supply chain.

Privacy – While hearings and legislative proposals on both online and offline privacy issues are expected again in the new session of Congress, the Republican majority in the House likely means the issue will not be a top priority for new House committee chairmen. The Administration is expected to continue to focus on privacy, however, with reports expected from the Federal Trade Commission and Commerce Department and activity from a recently formed interagency subcommittee on Internet issues.

© 2010 National Retail Federation

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