Can Trump implement his policies (and a word on DOL)

by Andrew H. Friedman of The Washington Update, 11/11/16

Let’s start with the obvious. We were wrong in predicting Hillary Clinton would win the presidential election. We noted that, to win the Electoral College, Donald Trump had to win every one of the toss-up states. In fact he did that, and added some traditionally blue states to his column for good measure.

Although we knew that Trump’s supporters felt strongly, we failed to apprehend how widespread this dissatisfaction was. Trump’s supporters are deeply concerned about income inequality, stagnant wages, and cultural changes they feel have minimized their importance. They feel alienated, lost amid the wave of globalism and multiculturalism. They see a political system that at best has ignored them and at worst is stacked against them.

Because Barack Obama has relied so much on implementation by executive order since the 2010 midterms, Trump can roll back unilaterally many of the president’s actions. We have a good idea of what Trump wants to undo, but less idea of what he wants to do. Many of Trump’s plans are sketches rather than specific policy proposals. This lack of specificity makes them hard to evaluate until we learn more.

We do know that, with Republicans also taking control of House and Senate, Trump should have little trouble implementing much of his agenda. But we note two checks on Trump’s plenary ability to do so:

First, in the Senate sixty votes are required to overcome a filibuster and pass most legislation. The Republicans have a majority in the Senate, but not sixty votes. Congress has adopted a procedure called “reconciliation”, which if followed permits the Senate to pass most spending and tax legislation with a simple majority. Paul Ryan already has said he plans to use this procedure to pass much of Trump’s fiscal agenda, such as tax reform. This procedure also could be used to undermine the fiscal underpinnings of the Affordable Care Act, such as eliminating the subsidy given to lower-income purchasers of insurance and the 3.8% surtax on investment income. But the procedure cannot be used for non-budgetary items such as repealing the ACA's individual mandate or many of the prescriptive provisions of the Dodd-Frank legislation. Those measures still will require sixty Senate votes.

Second, the deficit hawks in the House, of which Paul Ryan is one, are wary of actions that will add significantly to the federal deficit. Trump is proposing additions to defense spending and deep tax cuts. These proposals have the prospect of dramatically increasing a federal deficit that already is growing due to mandatory spending on entitlement programs such as Social Security and Medicare -- programs Trump has said he is unwilling to change. Ryan may push to reign in the scope of these proposals to lessen the budget deficit effects.

Before Trump takes office, we will prepare a white paper that discusses in more detail his policies and their likelihood of enactment, including how the policies could affect individual economic sectors.

The DOL fiduciary rule for financial advisors. One of Obama’s executive actions is a controversial Department of Labor regulation that imposes on financial advisors new obligations when dealing with client IRA accounts. Although many financial advisors agree with the goal of the rule, they believe the onerous compliance requirements do not assure that result, and in some cases actually work against it. The regulation is scheduled to go into effect in April.

Trump has not mentioned the DOL rule during his campaign. One of his aides, however, has said that this is the type of regulation that Trump will want to overturn.

There are three ways in which repeal of the DOL rule can be accomplished. The first is an act of Congress. There is support in the new Republican-led Congress to overturn the rule; sixty votes will be needed in the Senate, but some Democrats also have expressed concern about its purview. Whether Congress can focus on this matter before April, when the DOL rule goes into effect, is uncertain. Trump will have an ambitious agenda of wide-ranging legislation he wants to enact in his first 100 days, and, as important as it is to our industry, the DOL rule might not make the list.

A regulation also can be overturned without Congressional action by following the same procedures used to promulgate the regulation in the first place. These procedures require the issuance of a proposal to repeal the rule, followed by a months-long period during which comments are collected and testimony given. That process would not be completed before the April effective date. In extreme cases, a new administration may dispense with these lengthy procedural requirements by issuing an “interim final rule” overturning the regulation -- or at least postponing its effective date. With the DOL rule about to go into effect, use of such a procedure could be warranted here. It is subject to challenge that the agency did not have “good cause” to circumvent the typical notice and comment requirements.

One last, unlikely route: The Trump Administration could simply concede the court actions instituted against the rule, permitting a court to overturn it. Whether a court would do so is uncertain.

The bottom line is this: If overturning the DOL rule is a high priority of the new administration, it will happen one way or another. On the other hand, if taking action is far down the list of priorities, it is possible the new rule could take effect before repeal procedures are finalized.

Can Trump implement his policies (and a word on DOL)

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