The VSCPA’s Top Firms Roundtable was held Monday, Nov. 14, six days after the 2016 presidential election, and as you might expect, the name on everyone’s mind was Donald Trump. The future of government in Trump’s America was the main topic of conversation, and while some of the murky questions have taken shape as the cabinet fills out, the country and the CPA community are still waiting to learn just how the Donald will govern.
“We’re all friends here, right?” asked Mark Peterson, executive vice president — advocacy at the American Institute of CPAs (AICPA), during his Beltway Update to 21 representatives of top Virginia CPA firms. “Everybody is redoing all their decks. After each election, there's always the winners and the losers column, and one of the big losers is conventional wisdom.”
Peterson was encouraged by Trump’s choices of Vice President-Elect Mike Pence to lead his transition team and Republican National Committee Chairman Reince Priebus as his chief of staff. While your level of agreement with that reaction will be determined almost entirely by your own politics, it’s important to note that Peterson was largely speaking of the pair’s insider status as an island of predictability in the uncertainty that came with Trump’s victory Nov. 8.
“The names that are percolating are names that have public policy positions that we can follow,” Peterson said.
CPAs will be following certain political appointees with particular interest. One is the new chair of the U.S. Securities and Exchange Commission (SEC), who will replace Mary Jo White when she steps down next month. Peterson named current SEC commissioner Mike Piwowar, a Republican appointed by President Barack Obama, as her likely successor. Another possibility is former SEC commissioner Paul Atkins, now CEO of consulting firm Patomak Global Partners.
“These are known names with good public policy resumes, where you feel pretty good that the names that are going to be floated upstairs are names that the profession can live with,” Peterson said. “You never know who they're going to pick, but these names are good signs.”
Trump’s election was also a good sign for those who prioritize tax reform. With Republicans controlling both houses of Congress, the opening is there to accomplish that priority while rolling back some of President Obama’s signature health care law, the Affordable Care Act (ACA), a priority of House Speaker Paul Ryan (R-Wisc.).
Also working in the GOP’s favor is the 2018 midterm electoral map, where the Democrats will have more seats up for grabs. Combine that with the possibility of some of the more endangered Democrats looking to grab conservative votes and a filibuster-breaking 60 votes in the Senate — currently in Republican hands by a 53–47 margin, assuming Sen. Bernie Sanders (I-Vt.) caucuses with the Democrats — comes into play.
“If they're putting up reasonable reforms, do some Democrats jump on board because they're up for a re-elect?” Peterson asked. “With issues like rate hikes on the ACA, there are going to be some red-state Democrats joining Republicans on these results.
“The way things are lining up, there's an opportunity to break the gridlock. It could all come crashing down spectacularly on the White House, but it could happen.”
Befitting his non-legislative background, Trump is expected to delegate the details of tax reform to Congress, an approach more akin to that of former president George W. Bush than Obama’s detail-oriented nature.
The other entity involved in tax reform is, of course, the U.S. Internal Revenue Service (IRS). Current IRS Commissioner John Koskinen has been a punching bag for the Republicans due to the agency’s perceived “targeting” of conservative nonprofit organizations, and House Republicans began proceedings to impeach him in September.
While Peterson speculated that Trump’s election could alleviate some of the pressure on Koskinen, a hostile Congress is unlikely to increase IRS funding without getting some reforms in return. The AICPA hopes to serve as a broker between Capitol Hill and the IRS.
“Our hope is to get a grown-up conversation about what an agency in the 21st century should look like,” Peterson said. “What does its funding look like? But they have to mend the relationship.”
A third major initiative that could come early in Trump’s presidency is action on the pending U.S. Department of Labor overtime rule change, which was stayed by a preliminary injunction from federal district judge in Texas in late November. Because the change was enacted by executive order, Trump has the power to eliminate it unilaterally, without Congressional approval.
The election left 10 CPAs in the House — seven Republicans and three Democrats — and two non-CPA accountants in the Senate, with a third Senate candidate, Patrick Murphy, CPA, losing to one-time presidential hopeful Marco Rubio (R-Fla.) Three of the House CPAs serve on the Ways and Means Committee, including junior member Tom Rice (R-S.C.), who would have lost his spot on the committee if the Democrats had gained control.
With 54 House members new to Capitol Hill, Peterson hopes the AICPA can serve as a sounding board on tax and financial issues.
“Ideally, what we want is to be a resource,” he said. “We want them to give us a call before they put their ideas on paper.”
The Virginia Perspective
Ryan Dunn, executive vice president of the Virginia Chamber of Commerce, followed Peterson with an update on the Virginia economy from a Chamber perspective. While national election polls weren’t as predictive as many thought, the Chamber conducted its own poll of 500 registered likely voters in October. Results were mixed:
- Is the Virginia economy on the right track? 53 percent yes, 38 percent no, 9 percent unsure
- Is the U.S. economy on the right track? 39 percent yes, 55 percent no, 7 percent unsure
That disconnect reflects a noticeable trend in the two economies, with Virginia being more stable, but slower to recover, due to high federal spending in the Commonwealth.
“Virginia was actually just slower to rebound than the U.S. economy was,” Dunn said. “We did not see the dip the country did, but we have been slower to recover. A lot of that has to do with federal spending being frozen or slow to come back, or at a much slower pace than the private sector.”
That trend persists when you slice the data further. Northern Virginia, packed with businesses that rely on the federal government, had only the second-best economic recovery among Virginia metropolitan areas.. That’s unusual for a region that relies so heavily on federal money. Richmond had the best recovery, followed by Northern Virginia, Roanoke, Hampton Roads and Lynchburg.
On a whole, Virginia is outpacing the federal gross domestic product (GDP) in terms of growth, but the underlying trends don’t paint such a rosy picture. Virginia added 13,500 retail trade jobs, representing 15 percent of overall employment growth. Those jobs tend to come with lower wages, and many are seasonal opportunities. What’s more, Virginia is expected to maintain a steady rate of growth, below the rate of the national GDP, over the next two fiscal years.
“We are hurting in regenerating jobs with high-paying wages,” Dunn said. “…The business community is focusing its energy on creating a skilled, trained workforce, because they know that's where the jobs are going to be. We don't have enough workers in Virginia qualified and trained to meet these demands.”
Accordingly, middle-skill jobs are expected to be the area of greatest demand in the near future. These are jobs that generally require a two-year vocational training program on a specific piece of equipment.
While Virginia remains in the top quarter of business-friendly states by most rankings, the Commonwealth has slipped from the very top of that list. Reasons for that include:
- Competition, notably from North Carolina, although fallout from that state’s controversial anti-discrimination legislation repeal has hurt its business prospects
- Federal budget cuts that disproportionately affect Virginia
- Costs related to health care reform
- The disappearance of traditional industries in Southside and Southwest Virginia
- Neighboring states with lower tax rates
“It's not that our tax rates or anything here are bad,” Dunn said. “We've just been standing still while others have been really moving forward and being very aggressive.”
The Chamber suffered a minor setback in November with the defeat of a statewide ballot measure that would have inserted right-to-work language into the Virginia Constitution. Dunn doesn’t foresee major changes to Virginia’s labor environment, but was disappointed in the optics of the vote. He blamed the complexity of the language, noting that a similar, successful bill in Alabama contained just 18 words.
“Virginia is not going to be a forced union state,” he said. “But it was concerning to see the bill fail. Unions are touting this as a win.
“If this happened in North Carolina, our governor would be using it against them. It's a chink in the armor.”