President Donald Trump’s first address to a joint session of Congress was perhaps his most presidential speech to date. He did not deviate from the populist and nationalist ideas and principles that fueled his ascension to the Oval Office, but he struck a more optimistic and hopeful tone than usual — appealing to the broader public beyond his base and calling on lawmakers from both sides of the aisle to work together. While sparse on specifics, Trump outlined an ambitious agenda that, among other things, sets out to create an economic resurgence, lower the cost of health care, and ensure the safety and security of all Americans.
“For all that is said about President Trump, one thing is certain — he has an innate ability to read a room. In his address to Congress, Trump reaffirmed the broad vision for change he championed as a candidate. But he appeared to understand and appreciate that for the first time, he was standing directly before the legislative body that can make his vision a reality. Therein lies the key to his success as president — the extent to which he is able to work with the elected representatives of the American people. But that responsibility is not his alone. As business leaders and private citizens, we too must be active, engaged and work with Congress to help shape policies that move us forward as a nation.”
Mary Moore Hamrick
National Managing Principal of Public Policy
In this edition of the Washington Update, Grant Thornton LLP’s Public Policy group and select industry leaders offer insights on how the president’s agenda will affect Grant Thornton and the relevant market sectors we serve.
The president called for “a new program of national rebuilding,” asking Congress for one trillion dollars to rebuild the nation's infrastructure, and in doing so, create millions of jobs. Funding for this effort would come from public-private partnerships, and the guiding principle will be to “buy American and hire American.”
“There is a critical need to rebuild our crumbling infrastructure with new roads, bridges and transportation systems throughout the United States. However, this is not unique to the new administration. Progress has been slow as Congress has long grappled with the issue of funding. There appears to be bipartisan support for infrastructure investment, and recent surveys have indicated that a majority of Americans want to see an increase in infrastructure spending. It would provide a boost to the construction industry and create the opportunity to develop a more skilled workforce.
“In addition to infrastructure spending, tax reform and deregulation initiatives could positively impact a number of industries, including construction and real estate. This could lead to more dollars available for investment, lower costs to construct and provide for an increase in home ownership rates.”
National Managing Partner, Construction, Real Estate, Hospitality and Restaurants Practice
Consumer and Industrial Products
President Trump has long sought to usher in a resurgence of American production that would lead to stronger economic growth, more jobs, and improved wages. He intends to do so by enacting reforms that generally serve to level the playing field for U.S. businesses and make them more competitive.
“Most consumer and industrial product companies will likely embrace lower business tax, renegotiated trade deals, reduced regulation, and infrastructure investment — especially those in manufacturing, distribution and transportation. Retailers will like lower income taxes for the middle class because that will lead to greater consumer demand. However, there will obviously be a give and take, and businesses do not yet have the details to determine what the net impact on their businesses will be. The president is clearly leading with the mindset and mission, but he wants others — Congress, state governments and businesses — to put their ideas forward and work toward this goal. It’s hard to assess if they will follow, but I believe there will be some traction toward his stated goals. Proof of this is in the markedly improved attitude and positive outlook we’re already seeing from manufacturing clients. And if the American worker gets behind him, watch out.”
National Managing Partner, Consumer and Industrial Products
“Lower tax rates and less regulation are benefits and can level the playing field for U.S. companies. But tariffs must be carefully evaluated as they may be met with retaliatory action and global trade wars have the potential to hurt businesses and consumers. CIP companies are concerned about the impact of border adjustments on imported components, and these concerns must be factored into the final legislation.
“While growing U.S. jobs is a worthy goal, the industry will need help. Shifting production and assembly to the U.S. would be very costly at first, and businesses would need to know how these costs could be recovered and what tax incentives, if any, would be available. There is also the question of accelerating training and development of the workforce.”
Tax Partner, Consumer & Industrial Products
While President Trump did not propose any specific energy policies, his address did include points relevant to the U.S. energy industry.
“An emphasis on job creation, reduced regulation and a trillion-dollar infrastructure plan should each bode well for the industry. The administration’s recent actions to clear the way for construction of the Keystone XL and Dakota Access pipelines, and his directive requiring that new pipelines be made with American steel, signal a commitment to the energy policies he has proposed in the past.”
National Managing Partner, Energy
President Trump continued to criticize the Affordable Care Act (ACA) and emphasized the need for a replacement. Although he offered few details, he did name several major principles that he wants to see in a replacement plan, such as continued access to coverage for those with pre-existing conditions, the use of tax credits and health savings accounts, and allowing insurance companies to sell across state lines.
“Many of Trump’s proposals can be found in the various GOP plans under consideration, which generally favor keeping the good things from Obamacare while getting rid of the bad — easier said than done, with all of the intertwined complexities of the law. The use of tax credits and health savings accounts to help people afford insurance, for instance, is controversial, as the tax credits may not be as generous as the federal subsidies offered under Obamacare. Several prominent Republicans have also voiced opposition to the idea.
“There was no mention of Medicaid expansion and whether there would be different funding for expansion versus nonexpansion states, but the president made it clear that he wants the Medicaid program to be largely state-run. This would be accomplished by a fixed block grant or per-capita funding and would likely result in reduced funding for Medicaid, and people losing Medicaid coverage if expansion funding is eliminated.
“The president’s tort reform proposal could gain traction. It has been a popular topic among GOP lawmakers and physicians for a long time and could reduce malpractice costs by 25% or more, according to some estimates, which could be a positive step toward lowering overall health care costs.
“Whether allowing insurance companies to sell across state lines would actually lower insurance costs or allow more people to buy insurance has yet to be determined, but the provisions of Obamacare that allow some selling across state lines have not generated a great deal of multistate activity.
“All in all, most of the principles that the president discussed would be positive for Americans, but the devil, of course, is in the details. How this will happen, and how it will be funded, is yet to be determined.
“Hospitals are concerned that their revenues will decrease if many Americans lose health insurance coverage. Insurance companies are concerned that their risk pools will be affected if the individual mandate is lifted. Employers are concerned about coverage requirements, continuation of the Cadillac tax, and rising premium costs. Consequently, health care is a concern to all of us, and the next few months will likely bring change that will affect the way health care is delivered to all Americans. Stay tuned.”
National Managing Partner, Health Care
The president did not address not-for-profits broadly, but U.S. colleges and universities are a magnet for foreign faculty and students and could potentially be affected by the administration’s “improved vetting measures.”
“Higher education institutions are concerned that broad-stroke actions to restrict travel to the U.S., or even uncertainty as to eventual U.S. policy, could inhibit enrollment of international students, reduce the ability to attract foreign academics for teaching and research opportunities in the U.S., and restrict the mobility of U.S. faculty to overseas campuses. This would have the effect of putting U.S. colleges and universities at a disadvantage relative to competitor institutions in other countries, and has the potential to impact both academic quality and fiscal health. We would encourage the administration to work with Congress on sensible restrictions that improve safety, while still welcoming the best and the brightest from around the world and supporting academic freedom.”
National Managing Partner, Not-for-Profit and Higher Education
While no specific mention was made to rolling back particular regulations of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which affect the private equity industry, the president made reference to reducing regulatory burden and business tax reform — two issues that are top of mind for the private equity industry.
“Proposals in the House to reduce the regulatory burden of Dodd-Frank on middle-market private equity firms didn’t get far under the previous administration. However, the possibility of relief looks promising under President Trump. Tax reform would also be welcome news for all industries, including private equity. The reduction of taxes could free up cash at portfolio companies for capital investments, including mergers and acquisitions. While the particulars of tax reform have yet to be finalized, the private equity industry will be closely watching proposed provisions concerning the elimination of interest deductibility on corporate debt and the reclassification of carried interest as ordinary income.
“The president’s infrastructure plan could be a significant opportunity for private equity as a private capital provider to support investments in infrastructure to fill the gap in funding between public and private partnerships.”
Partner, Transaction Advisory Services; Private Equity Leader
President Trump specifically called for cutting taxes, but he neither specified how he intended to do that nor did he endorse the current House Republican proposal.
“Tax reform clearly remains a priority for the administration. It does not look like the administration will rubber-stamp the package the House Republican leadership has presented, and it will be interesting to see where the two diverge. However, the speech also made it clear that the ACA will be addressed before tax reform, and any delay or complication in that effort could push tax reform back to later in the year.”
Partner, Washington National Tax Office
There were no direct references to the technology industry in the president’s address to Congress, but several themes should have a positive impact.
“The light touch on regulations and lowering of business tax rates would be welcomed by the technology industry. Additionally, it could benefit from any broadening of the definition of infrastructure to include the technology infrastructure that enables digital commerce. Given the industry’s global footprint, and reliance on skilled engineering talent from overseas, we will also be watching closely for further clarifications on trade and immigration policies. The president’s mention of ‘merit-based immigration’ could presage an increase in the number of H1B visas — an important talent acquisition tool for the technology industry.”
National Managing Director, Technology Industry Practice