Morgan Lewis Analysis: The 2014 State of the Union Address

January 30, 2014

President Obama used the opening of his State of the Union address to acknowledge the current political divide in Washington. One of his first attempts to move the government from partisanship to partnership was a brief reference to tax reform. In many ways, the difficult task of enacting comprehensive tax reform is less about partisan politics and much more about convincing the public that the trade-off between lowering individual and corporate tax rates and the elimination of tax deductions and credits to pay for those rates will be worth the effort. That challenge is no more evident than with the proposal to eliminate the deduction for charitable contributions. Last year, Morgan Lewis lawyer Alex Reid presented testimony to the Ways and Means Committee as part of its deliberations on comprehensive tax reform highlighting the value of the charitable deduction, in the process quoting both Alexander Hamilton and Chief Justice John Marshall.

Prior to the State of the Union address, there was a great deal of speculation about how much time President Obama would devote to the issue of immigration reform. Last summer, the Senate passed a bipartisan version of immigration reform (for a detailed primer on S. 744, see here) but no further action occurred in the House of Representatives. In a recent speech to the Ripon Society, House Speaker John Boehner indicated that he plans to push for a vote on immigration reform in the coming months, most likely in the form of a series of bills rather than a single comprehensive package. It has also been reported that Speaker Boehner has advised the White House that in the case of House action on immigration reform, the less said the better. Thus the President’s tone and brevity on the subject may indicate the potential for a breakthrough in the coming months.

Not surprisingly, the President vigorously defended the Affordable Care Act and defiantly challenged House Republicans from scheduling any more votes to repeal the law. On perhaps no other issue is there a greater divide between the White House and Congressional Republicans: the White House refusing to negotiate any changes in the law and House Republicans refusing to put forth any proposals beyond outright repeal. That is indeed unfortunate because there are very real problems for sectors of the American economy posed by the implementation of the Affordable Care Act that need to be addressed. Morgan Lewis Partner Greg Needles highlighted one of those sectors – education – in his recent testimony before the House Education and Workforce Committee.

One area of potential cooperation and partnership was included in the President’s address: the Nation’s infrastructure. The President emphasized the benefits of addressing the Nation’s crumbling infrastructure and suggested a new approach toward the thorny issue of financing those improvements: using repatriated foreign profits of multinational firms. While President Obama did not provide the full details, there is currently a bipartisan proposal that has been introduced in both the House (H.R. 2084) and Senate (S. 1957) that may provide insight into what this proposal may look like. The Partnership to Build America Act was introduced in the House by Rep. John Delaney, a freshman Democrat from Maryland and now has 50 cosponsors – both Republicans and Democrats – and would create a $50 billion infrastructure bond fund. S. 1957 was recently introduced in the Senate by Democrat Michael Bennet (CO) and Republican Roy Blunt (MO). As the President stated, “in today’s global economy, first class jobs gravitate to first-class infrastructure” and that’s a concept that both Democrats and Republicans may be able to agree on.