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1 This Webcast Will Begin Shortly If you have any technical problems with the Webcast or the streaming audio, please contact us via at: Thank You! 1

2 Why Elections Matter: How Will Business Fare After November 6th? November 8, 2012 Presented By: Mark Hubbard, Jerry Kilgore, Ronald Platt, & Marty Machowsky McGuireWoods Consulting 2

3 Election Results 3

4 What Happened Tuesday? In Washington Status Quo Wins President Barak Obama re-elected Democrats add to Senate majority, picking up seats in Maine, Indiana, Massachusetts and Connecticut 2 Independents Sen.-elect Angus King (ME), Sen. Bernie Sanders (VT) are expected to caucus with Democrats 55D/I-45R in the Senate, Democrats short of 60 vote supermajority needed to fully control the agenda Republicans add to edge in the House With Sen. Scott Brown s (MA) defeat, the ranks of Republican moderates in the Senate dwindle further (Sen. Susan Collins (ME)) The 2016 election is four years away! 4

5 What Happened Tuesday in the States? Republican Pat McCrory elected governor of North Carolina 30 Republicans/19 Democrats/1 Independent Democrats win more state legislative seats than Republicans Democrats win control of New York Senate Colorado House Oregon House Minnesota House and Senate Maine House and Senate Republicans win control of Arkansas House and Senate Alaska Senate 5

6 What Does It Mean? Elections Matter Boehner plans to hang tough on taxes if Obama wins. Politico election day headline Boehner: Focus on common ground to help avert fiscal cliff. The Hill headline the following morning 6

7 2012 Election and Federal Tax Policy 7

8 What Happens in 2012? Major Tax Policies for the Lame Duck session Bush tax cuts including individual income tax rates, capital gains, dividends, and estate tax expire. Alternative Minimum Tax and Expiring tax credits expired at the end of Expiring tax cuts lead to revenue increase of about $580 billion for Debt ceiling expires mid-march 2013 and Sequestration begins on January 2,

9 Sequestration Annual cuts will be about $109.3 billion per year split 50/50 between defense and non-defense spending. $54.7 billion in cuts in defense and an equal amount in domestic spending. 2% in reduced expenditures for Medicare provider payments ($92 billion) Reductions in 2013 are automatic cuts of all programs by the same percentage. 9

10 It s Their Fault! Congress has not done anything about the fiscal cliff other than use it as a political cudgel against each other. Republicans want to halt defense cuts by replacing them with even steeper cuts in non-military spending. Democrats would like to roll back both cuts but only if Republicans agree to revenue increases. WHY COMPROMISE NOW!! 10

11 What Will Congress Do in the Lame Duck? Let s do a Little Deal? Option 1: Nothing. We fall off the cliff because neither side blinks. Option 2: Kick-the-can-down-the-road, i.e. extend current tax law and postpone sequestration and expiring tax provisions for up to one year with a provision requiring tax reform and a deal on the budget involving both increasing revenues and spending cuts. 11

12 Kicking the Can to 2013: Tax Reform? It is hard to see such a polarized Congress actually accomplishing a major overhaul of the tax code. This is not But if they act: Rates won t be as low as some are projecting. There is a reason that President Obama would not endorse Simpson/Bowles. 12

13 Hot Potatoes!!! Home mortgage deduction. Cap at $500,000 or eliminate. Employer deduction for providing health care coverage eliminated. Wipe out most if not all deductions and credits. Tax dividends and capital gains at ordinary income tax rate. 13

14 Or Over the Cliff We Go? House Republicans still demanding no revenue increases. President has said he will not sign into law another extension of the tax cut for higher incomes. Deadlock means we fall off the cliff. About 50/50 odds. Lose 0.5% in GDP. 14

15 Election 2012 and State Attorneys General 15

16 Importance of State Attorneys General in the Coming Year Continued activism on consumer protection issues (following mortgage multi-state model) Marketing Practices/Advertising Billing Practices Disclosures Continued cooperation with the CFPB targeting companies in financial arena CFPB more active with President s re-election Agency won t go away Actively seek state AG cooperation 16

17 Importance of State Attorneys General in the Coming Year (cont.) Any companies dealing with consumers seniors, military consumers get added protection Public hearings by CFPB on particular industries (already pay day lending, student loans, student credit cards) Continued work on privacy issues (data breaches, etc.) NAAG issue for New Reporting Requirements (to AGs for data breaches) AGs will investigate, require, credit checks for consumers and fines/penalties 17

18 State Attorneys General Pre-Election: 25 Republicans, 25 Democrats Post-Election: 24 Republicans, 25 Democrats, 1 TBD Democrat pickups in Pennsylvania (Kathleen Kane); Washington (Bob Ferguson) (Brings a more activist AG to these states) Republican Pickups in Montana (Tim Fox); West Virginia (Patrick Morrissey) Outstanding: Maine appointed by the State Senate 18

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