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Winter 2018 Staff Reports

Coalitions .............................................................................................................. Page 2

Government Relations ................................................................................. Page 10

Legal Update .................................................................................................... Page 33

Legislative E-Alert Program ......................................................................... Page 36

Washington Action Network .................................................................... Page 37

NAW Political Action Committee .......................................................... Page 38

Education ............................................................................................................. Page 39

Membership ....................................................................................................... Page 40

Communications ............................................................................................ Page 43

NAW Institute for Distribution Excellence ............................................ Page 44

NAW Service Corporation ......................................................................... Page 45

NAW Senior Staff .............................................................................................. Page 49

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COALITIONS

NAW's COALITION LEADERSHIP AND PARTICIPATION

STRENGTH IN NUMBERS

One of the most effective ways to fight a legislative or regulatory battle in Washington is through

coalitions in which organizations like NAW unite to achieve a common goal. Coalitions multiply

the Washington-based and grassroots power of each organization's members, thereby making the

whole stronger than the sum of its parts. By effectively mobilizing this political power,

coalitions also become a much sought-after resource for legislators and public policy-makers.

For this reason, NAW serves its members by participating in a significant number of coalitions

that deal with a wide range of issues important to wholesaler-distributors. NAW is frequently a

founder of important business coalitions and just as frequently serves them in a managerial

capacity. In recent years, industry goals such as the enactment of tax relief legislation, opposing

parental leave and other government-mandated employee benefits, defeat of the so-called

Employee Free Choice Act or card check legislation, advancing Federal legal reform measures,

and opposition to repeal of LIFO – pocketbook issues affecting a wholesaler-distributor's bottom

line -- all have been furthered by NAW coalition participation.

Each of the coalitions on the following pages has similarly served wholesale distribution more

generally by enhancing NAW's legislative and information networks and by raising the industry's

visibility in Washington. The coalitions to which NAW belongs are grouped under the following

major categories:

• Budget/Tax/Regulation/General Government

• Labor, Health Care and Benefits

• Networking

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LABOR, HEALTH CARE AND BENEFITS

Coalition for a Democratic Workplace (CDW)

• Management Committee

• Steering Committee

A broad-based coalition of more than 600 business groups, trade associations and corporations

originally organized to oppose Organized Labor’s “Card Check” legislation. When EFCA failed

to pass, organized labor turned its attention to an aggressively pro-union regulatory agenda at the

Department of Labor and the National Labor Relations Board; CDW responded by actively

opposing promulgation and implementation of those costly regulations, by filing comments and

amicus briefs and filing challenges to new rules in court. CDW continues to work on litigation,

and is working with the new Labor Department and National Labor Relations Board on efforts to

roll back Obama-era rules.

Coalition for Workplace Safety (CWS)

A coalition of national trade associations, professional organizations, and employers seeking to

improve workplace safety by bringing more fairness and balance to the Occupational Safety &

Health Act through greater emphasis on consultation and cooperation rather than enforcement

and confrontation.

Employers for Flexibility (E4F)

A newly-formed coalition to advocate the adoption of a voluntary, credible, and comprehensive

national workplace flexibility policy that embraces the realities of the 21st Century workplace

and workforce.

Employers’ Health Care Clearinghouse

A group of leading employer trade associations active in the health policy space which meets

monthly to discuss the status/progress of health care-related legislative and regulatory initiatives

in which employers are major stakeholders.

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National Coalition on Benefits (NCB)

• Steering Committee

The National Coalition on Benefits (NCB) is a coalition of national businesses and trade

associations established to support the employer-sponsored health care system and ensure that

companies can continue to provide health benefits in a uniform manner nationwide. NCB works

with Congress and the Administration to ensure that federal and state health reform initiatives

preserve, rather than erode, protections guaranteed by the 1974 Employee Retirement Income

Security Act (ERISA). NCB is the principal coalition advocating repeal of the 40% excise

(“Cadillac”) tax on high-cost employer-sponsored health coverage enacted in the Affordable

Care Act, and is the principal coalition advocating full retention of the current tax treatment of

employer-provided coverage.

National Coalition to Protect Family Leave (NCPFL)

A broad-based, non-partisan coalition of organizations, companies and associations dedicated to

protecting the integrity of the Family and Medical Leave Act (FMLA).

Partnership for Employer-Sponsored Coverage

• Executive Committee

The Partnership for Employer-Sponsored Coverage (P4ESC) is an advocacy alliance for

employers of all sizes and the millions of hard working Americans and their families who rely on

employer-sponsored coverage every day. Employer-sponsored coverage is the backbone of our

nation’s health care system, insuring the lives of nearly 177 million Americans. P4ESC is

working to ensure that employer-sponsored coverage is strengthened and remains a viable,

affordable option for decades to come.

Partnership to Protect Workplace Opportunity

• Management Committee

The Wage and Hour Division of the Department of Labor announced in March, 2014, that it

would issue new regulations under the Fair Labor Standard Act, specifically addressing the

“white collar” exemptions from the overtime payment requirement. A final rule was released in

2016 mandating radical changes in the overtime regulations. The Partnership to Protect

Workplace Opportunity was formed to oppose those new regulations. The 2016 rule was

successfully challenged in court in a case in which NAW was a plaintiff, and PPWO is now

participating in a Labor Department Request for Information (RFI) which will eventually lead to

a new rule-making.

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Stop The Hit Coalition

A coalition organized to advocate repeal of the “hidden” health insurance tax on fully-insured

health insurance plans enacted with the Affordable Care Act.

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BUDGET / TAXATION / REGULATION / GENERAL GOVERNMENT

The Alliance for Energy and Economic Growth (AEEG)

The Alliance for Energy and Economic Growth is a broad-based coalition of more than 1,200

members that develop, deliver or consume energy from all sources. With members in every

state, the Alliance represents consumers; energy companies involved in all phases of energy

exploration, production and transmission; agricultural groups; and business and labor

organizations—all united in support of a comprehensive national energy plan.

Coalition for Affordable American Energy (CAAE)

• Founding Member

• Management Committee

CAAE is a coalition of business consumers of energy and was formed by NAW and several

allied trade associations in 2008 in response to skyrocketing energy prices. CAAE advocates for

the development of all available domestic energy sources including alternatives,

renewables, coal, oil and gas.

Coalition for Fair Effective Tax Rates (CFETR)

• Co-Founder

• Management Committee

CFETR was formed in 2013 to urge that any tax reform legislation be viewed through the lens of

effective tax rates, the amount of taxes businesses actually pay, rather than statutory tax rates.

The coalition advocates for tax reform that levels the playing field, broadens the tax base, and

increases fairness in the tax code by basing reform on effective tax rates.

Family Business Estate Tax Coalition

• Co-Director

A coalition of more than 100 national trade associations committed to permanent repeal of the

estate “death” tax. FBETC will continue to advocate for permanent full death tax repeal.

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Infrastructure Working Group

A broad and diverse coalition of more than 115 associations and business organizations working

with Congress and the Executive Branch to ensure enactment of a robust infrastructure proposal.

The [Last-In, First-Out] LIFO Coalition

• Co-Founder

• Executive Secretariat

• Steering Committee

The LIFO Coalition, organized and led by NAW, was created in May 2006 in response to the

Senate Republican Leadership’s proposal to repeal the LIFO accounting method as part of their

legislation to respond to high gas prices. President Obama proposed LIFO repeal in each of his

budgets and repeal was part of the recent tax reform discussion. The Coalition’s top priority

today is persuading Congress not to include LIFO repeal in any further legislation.

Marketplace Fairness Coalition

• Management Committee

• Steering Committee

A coalition of national, state and local trade associations and companies advocating the

enactment of Federal legislation to empower states to require remote sellers to collect and remit

state sales and use taxes on on-line sales just as “brick and mortar” businesses do.

Mobile Workforce Coalition

Complying with all of the various state requirements is a costly and onerous burden on

employers and employees alike. A coalition of more than 400 business organizations is working

with Congress to pass legislation to simplify and streamline inconsistent state laws applicable to

the income tax treatment of employees working temporarily in a non-resident state, by setting a

single and consistent standard for when non-resident income tax returns and withholding would

be required.

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Parity for Main Street Employers

• Steering Committee

Parity for Main Street Employers was organized in 2016 in response to Congressional debate on

tax reform. The Coalition led the fight to improve the recent tax reform legislation treatment of,

and will continue to fight for parity for, pass-through businesses.

Prior Approval Reform Coalition

A coalition formed in 2015 to advocate for enactment of legislation to strike the Federal Election

Campaign Act’s requirement that trade association PACs must obtain separate and specific

approval from their member corporations before soliciting the shareholders and executive or

administrative personnel of such corporations.

Tax Relief Coalition

• Co-Founder

• Executive Secretariat

• Management Committee

• Steering Committee

• Legislative Working Group

A coalition of more than 1,000 organizations, representing 1.8 million businesses, which worked

to help enact the 2001 and 2003 tax cuts. TRC was very active in support of extension of the

2001 and 2003 rates in the 111th Congress.

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NETWORKING

Government Liaison:

Powerscourt Group

A group of private sector government relations executives who meet regularly with Capitol Hill

and Administration officials to discuss pending public policy issues.

Political:

The Business-Industry Political Action Committee (BIPAC)

The Business-Industry Political Action Committee works to elect pro-business candidates to

Congress. BIPAC is engaged in both political action and political analysis. In 1999, they formed

Project 2000, which sought to encourage businessmen and women to register to vote, to secure

absentee ballots when needed, and to vote on Election Day. Project 2000, renamed “The Prosperity

Project,” substantially increased the number of organizations participating in the project in each

subsequent election cycle. They now focus on early voting, have initiated state-specific Prosperity

Fund programs in most states, and dramatically increased the number of contacts with likely pro-

business voters.

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Government Relations

A GOVERNMENT RELATIONS OVERVIEW: WRAPPING UP THE FIRST

YEAR OF THE TRUMP PRESIDENCY [January 2018]

In already-polarized America, the divisions post-Trump are extraordinary –

As we begin the second year of the Trump presidency, the divisions in the country seem

more pervasive and bitter than ever. Geographically, as the 2016 election map clearly

shows, we are divided into Blue America on the East and West Coasts, and Red America in

the vast fly-over country in-between. And we are divided culturally, economically, and

socially as well as geographically. We only listen to news that reinforces our beliefs, we

only socialize with people with whom we agree. Moreover, we don’t just disagree with

other opinions, we reject those opinions and dislike those who hold them.

Pew released a poll last October that put numbers on these divisions: 95 percent of

Republicans are consistency more conservative that the median Democrat, and 97 percent

of Democrats are consistently more liberal than the median Republican. In 1994 those

numbers were 33 percent and 30 percent.

CNN’s Chris Cillizza insightfully translated that Pew data into political reality: While lots

of Americans insist they are tired of partisanship and lack of accomplishments in DC, they

really aren't. They are sick of others not agreeing with them. They support compromise,

but only if the compromise comports with all of their beliefs. Which isn't compromise.

As Chris put it: the Pew poll has “some very bad news for people who believe in a sensible

center in politics: It doesn't exist.”

Columnist/humorist Dave Barry said it well in his annual year-end column, writing that

January began with “ . . . the nation still bitterly divided over the 2016 election . . .

Nevertheless as the year progresses, the two sides will gradually find a way — call it the

open-minded generosity of the American spirit — to loathe each other even more.”

The Democrats –

The 2016 presidential campaign exposed deep divisions in the Democratic Party. The

insurgent campaign of Socialist Senator Bernie Sanders was first seen as a quixotic effort,

but he gave Hillary Clinton a run for her money. And Sanders supporters believe that had

the Democratic establishment not rigged the system against them, he could have won.

Those internal Party divisions burst into public view last November when former interim

Democratic National Committee (DNC) Chair Donna Brazile published a book, Hacks:

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The Inside Story of the Break-Ins and Breakdowns That Put Donald Trump in the White

House, in which she argued that the system was in fact rigged for Clinton. Brazile wrote

that the Clinton fundraising arrangement with the DNC “was not illegal, but it sure looked

unethical. If the fight had been fair, one campaign would not have control of the party

before the voters had decided which one they wanted to lead. This was not a criminal act,

but as I saw it, it compromised the party's integrity.”

Brazile’s book invoked intense response from Democrats, making it clear that the intra-

party wounds will be slow to heal. CNN’s Chris Cillizza summarized the situation well in

a blog post, noting that when a CNN reporter asked left-wing icon Senator Elizabeth

Warren (D-MA) if she believed the 2016 nomination campaign was rigged, she said “yes.”

Cillizza wrote: “Brazile's book – and Warren's "yes” – amounts to spraying a can of lighter

fluid onto a bonfire burning between liberals and the establishment. And it's only going to

get hotter from here on out.”

And the Democrats have an additional problem: during the eight years of the Obama

Administration, about 1,000 elected Democrats at the state and local level were defeated.

As a result, the Democrat party has an aging leadership in Washington and a very shallow

bench of young elected officials from the states to move up through the ranks.

In a CNN poll taken last fall, Democratic voters named the Democratic leader who they

believe best reflects the values of their Party. The top five Democrats named were Barack

Obama, Bernie Sanders, Hillary Clinton, Joe Biden and Elizabeth Warren. Sanders is 76

years old, Clinton is 70, Biden is 75, and Warren is 68. And House Democratic Leader

Nancy Pelosi and Whip Steny Hoyer are 77 and 78 years old respectively; Senate

Democratic Leader Chuck Schumer and Whip Dick Durbin are 67 and 73.

As a Democratic operative colorfully put it in a story last summer: “We have 80-year-old

leaders & 90-year-old [Committee] ranking members. This isn’t a party. It’s a giant

assisted living center. Complete with field trips, gym, dining room and attendants.”

Some Democrats are now beginning to challenge that leadership. Last fall Congresswoman

Linda Sanchez (D-CA-38) called on Pelosi, Hoyer and Assistant Democrat Leader Jim

Clyburn (age 77) to all step down after the 2018 elections to make way for up-and-coming

lawmakers. She said:

I do think it’s time to pass the torch to a new generation of leaders, and I want to

be part of that transition. They are all of the same generation, and, again, their

contributions to the Congress and the caucus are substantial. But I think there

comes a time when you need to pass that torch. And I think it’s time.

The Republicans –

After the 2010 election, the GOP was roiled in an intra-Party battle between the

conservative Tea Party and the “establishment” in Washington. The Tea Party and the

more-recently-organized right-wing House Freedom Caucus frequently demand ideological

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purity and oppose compromise, repeatedly causing legislative stalemates and leaving the

GOP majority unable to govern.

That intra-Party battle took on a whole new dimension during and after the 2016 election.

The established Republican Party did not nominate Donald Trump, and a significant

number of them still do not support him. While it would be hard to deny today that the

Republican Party is the Party of Trump, the Trump “base” is not the traditional GOP

electorate, and many Republicans today say they do not recognize their Party.

Last year the Congressional GOP majority had to come to terms with reality and attempt to

find a way to deal with the unexpected and often hostile presidency of Donald Trump. The

President had very few personal relationships with Congressional Republicans, and seemed

oblivious to the fact that the legislative success of his presidency depended on the GOP

majority in Congress. As a result, he frequently turned his hyperbolic “drain the swamp”

rhetoric on the GOP. Exacerbating the problem, the Trump base voters delighted in his

attacks on the GOP “establishment.”

While Senate GOP Leader Mitch McConnell (R-KY) has been the most frequent target of

Trump’s hostile tweets, he is far from alone. The President has also publicly criticized the

GOP Congress as a whole, and personally rebuked numerous specific GOP members of

Congress, including House Speaker Paul Ryan (R-WI) and Senators Jeff Flake (AZ), Bob

Corker (TN), Lisa Murkowski (AK), John McCain (AZ) and Lindsay Graham (SC). And

most astonishingly, he attacked his own Attorney General Jeff Sessions, the first Senator to

support his candidacy and his most enthusiastic backer throughout the campaign.

Trump’s frequent attacks on fellow Republicans led to a telling headline in a Washington

Post blog: “Trump attacks Republicans on Twitter, but Democrats? Not so much.”

The intra-Party conflict continued into the fall, finally erupting into a public Twitter battle

between the President and Tennessee GOP Senator Bob Corker who, after a few Trump

tweets attacking him, responded in kind tweeting that "It's a shame the White House has

become an adult day care center. Someone obviously missed their shift this morning.”

Fortunately for the GOP, their warring factions called a cease fire in the final quarter of the

year. Their new-found alliance resulted in successful collaboration on tax reform [See

Separate Staff Report on Taxes], and early indications of cooperation on a legislative

agenda in 2018. We will have to wait and see how long the détente lasts.

The Media –

The President’s unorthodox behavior no doubt gives the press plenty of material to cover,

but there is also no doubt that the negative press coverage of this President is

unprecedented. According to an analysis done by Pew, 62 percent of the press stories

about the President in his first 60 days in office were negative, only 5 percent positive.

Conversely, only 20 percent of the stories about President Obama were negative while 42

percent were positive.

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While there is virtually no press coverage of the Administration’s accomplishments – the

lack of coverage of his robust regulatory reform agenda is case in point – the coverage of

Trump campaign alleged collusion with Russia is constant.

Press focus on the Russia story is so intense that on the night of the terrorist attack in

Manchester, England, last summer, MSNBC gave the attack just 10 seconds of coverage

before pivoting to a Russia story. Worse still, CNN didn’t even mention the attack in their

top-of-the-hour news coverage, leading instead with stories about Russian collusion.

CNN’s obsession with the Russia story merited biting humor from columnist Dave Barry in

his year-end column in December: “You can tune in to CNN any time, day or night, and

you are virtually guaranteed to hear the word “Russians” within 10 seconds, even if it’s

during a Depends commercial.”

(In fairness, it should be noted that some Fox News Channel hosts – Sean Hannity and

Jeanine Pirro come to mind – have become virtual spokesmen for the Administration.)

The President responds to negative press coverage by calling it “Fake News,” and his

supporters accept his assertion that critical stories are untrue – they simply do not believe

them. Unfortunately, the press itself reinforces the “Fake News” criticism by reporting

stories that are in fact untrue. Erroneous reporting and subsequent retractions embarrassed

major media outlets repeatedly last year.

In a December 28th story in The Hill, Jonathan Easley described the high-profile retractions

that give credence to the Trump “Fake News” battle cry:

The Post had to correct a story claiming that Russians had hacked the U.S.

electrical grid. Former FBI Director James Comey told Congress under oath that a

New York Times story titled “Trump Campaign Aides Had Repeated Contacts

With Russian Intelligence” was “almost entirely wrong.”

The press had a particularly rough stretch in early December, when ABC News

suspended its top political reporter Brian Ross for incorrectly reporting that

Trump had directed his former national security adviser Michael Flynn to contact

the Kremlin during the 2016 campaign.

Later that same week, CNN had to retract a story claiming that WikiLeaks had

given Trump’s son, Donald Trump Jr., early access to stolen Democratic emails.

It was one of three major reporting errors on the Trump-Russia connection that

the outlet admitted to this year.

The President and the White House at the end of year one –

The President – Donald Trump ended 2017 as he began it: his approval hovers at an

unprecedented low of just under 40 percent, the left and the media hate him, the GOP

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“establishment” longs for a more orthodox presidency, and Trump supporters resolutely

stand with him.

While most polls show that the Trump base remains loyal, pollsters have repeatedly argued

that there is mounting evidence of cracks in that support. They report a measurable drop in

support among non-college-educated white voters . . . voters who had been more anti-

Clinton than pro-Trump . . . traditionally Democratic blue-collar voters who had voted for

Trump. . Evangelicals . . . men . . . whites . . . voters over 50 years old.

Perhaps as evidence of a shrinking Trump base, VA GOP gubernatorial candidate Ed

Gillespie lost his race last November by a much wider margin than anyone expected.

Trump is widely seen as the cause of that defeat, perhaps because of falling popularity, but

more likely because dislike of him has motivated a powerfully energized opposition.

Polling proved to be completely unreliable in the 2016 campaign, so it’s difficult to know

how much of any of it to believe. But two things are certain: (1) After the stunning defeat

in Virginia last November, Republicans are very worried that Trump’s low approval rating

will cause a similar result in the mid-term elections this November, and (2) the President

knows his base still loves him and he will continue to feed them the raw-meat populist

rhetoric that fills his Twitter account and brings them to their feet at campaign-style rallies.

A keen observer might note that these two certainties are not compatible.

Staff turmoil in the White house – Consistent with his promise to “drain the swamp,”

President Trump filled his White House primarily with staff who were not part of the

Washington “establishment.” While “drain the swamp” was an effective campaign

promise, keeping that promise produced a White House staffed mostly by people with no

experience relevant to their jobs – and resulted in staff turmoil that continues today.

It was clear from the outset that Chief of Staff Reince Priebus was establishing no rational

chain of command in the White House. Staff walked into and out of the Oval Office at will

and meetings were staffed by whoever wanted to be there irrespective of their expertise or

knowledge of the issue being discussed. This became a top-tier concern when the President

announced that controversial Breitbart executive Steve Bannon would attend highly

sensitive national security briefings, but that the Director of National Intelligence would be

allowed to attend only on an as-needed basis. Fortunately, that decision was quickly

reversed.

The organizational chaos in the White House resulted in inevitable staff infighting and

abnormally high staff turnover. As the Wall Street Journal reported on December 28th,

there was a 34 percent turnover in the White House staff in year one of the Trump

presidency – the next highest turnover rate in the last 40 years was 17 percent in President

Reagan’s first term in 1981.

National Security Director Michael Flynn was fired after less than a month, followed by his

Deputy KT McFarland. Controversial political advisors Steve Bannon and Sebastian

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Gorka are gone, and is Press Secretary Sean Spicer. Chief of Staff Reince Priebus was

replaced by General John Kelly by the end of the summer. There have been four

communications directors including the amazing 10-day tenure of Anthony Scaramucci.

As further evidence of dysfunctional staffing, it was just announced that the Director of the

Office of White House Personnel, Johnny DeStefano, will now also oversee the Office of

Public Liaison, the Office of Political Affairs and the Office of Intergovernmental Affairs;

a portfolio clearly larger than any one individual, no matter how competent, can handle.

As one DC lobbyist humorously suggested, “Evidently there will be no White House staff

in 2018 – just Johnny DeStefano in various disguises.”

It is widely reported that Chief of Staff John Kelly has imposed some order on the

personnel chaos in the White House: stopping the open-door policy in the Oval Office,

requiring staff to schedule appointments with the President, limiting and controlling

participation in meetings. Kelly is also responsible for firing some of the more

controversial staff and imposing strict discipline on those who remain. Hopefully, the

President will continue to allow his Chief to bring order to the chaos.

Executive Branch staffing outside the White House – President Trump made a campaign

pledge to shrink the size of the Federal bureaucracy, and it is another pledge he has kept.

According to an analysis published on December 30th by the Washington Post, most

Federal agencies have fewer employees today than at the beginning of last year. Overall,

the number of Federal employees shrank by about 16,000 by the end of September,

contrasted to an increase of 68,000 in the first nine months of the Obama Administration.

While there’s a lot to be said for a shrinking bureaucracy, there is another side to this story.

There are approximately 1,200 senior positions in the Federal government that are filled by

Presidential appointments that require Senate confirmation. Among them, approximately

600 are considered key political positions, including Cabinet Secretaries and Deputy

Secretaries, and virtually all of the top administrative and policy-making jobs in the

Executive Branch departments and agencies.

The Trump Administration has been painfully slow in filling these critical positions. The

Washington Post and the non-profit Partnership for Public Service collaborate on tracking

the progress of filling critical positions in the government, and according to their analysis,

as of January 5th, 2018: only 241 Trump nominees have been confirmed to top positions,

74 additional nominees are awaiting confirmation, and 16 individuals are expected to be

nominated soon. Most troubling, there are 295 positions for which there is no nominee.

The glacial pace of presidential nominations is due in no small part to the cumbersome

White House vetting process, especially in the critical first months of the Administration.

The President’s “drain the swamp” mission was a huge problem – it’s very difficult to find

qualified individuals to nominate to critical government positions when experience in the

Washington “establishment” was a disqualifying credential. Additionally, potential

nominees were carefully screened to determine if they had ever posted anything critical of

candidate Trump on social media, and some were disqualified based on that scrutiny.

https://ourpublicservice.org/

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Adding to the problem, Senate Democrats broke with the historical tradition of affording a

new President quick confirmation of his key appointments. Instead, they slow-walked

virtually every nominee, even highly-qualified and non-controversial candidates. With

Senate rules providing for up to 30 hours of debate on each nominee, each confirmation

could take almost a week of floor time.

The Administration filled many of the staff positions by appointing people to those jobs in

an “acting” capacity, permitted under the Federal Vacancies Reform Act, but that’s a

temporary fix. Under the FVRA an official can serve in an acting capacity for no more

than 300 days, after which any actions he/she takes can be deemed null and void. As the

end of the year approached, hundreds of acting officials reached that point.

Compounding the problem, when Congress adjourns sine die at the end of a First Session

of a Congress, any nominations still awaiting Senate confirmation are returned to the White

House unless unanimous consent is reached to hold those nominations over to the Second

Session of that Congress. Under normal circumstances unanimous consent is given and the

nominations are held over. But these circumstances are not normal, and when Congress

adjourned in December, Democrats refused to give consent to holding over about 100

nominations. Those whose nominations were returned to the White House have to begin

the nomination process all over again – assuming that the President re-nominates them.

Among the positions that therefore remain vacant for the foreseeable future are: One

Cabinet Secretary; two Deputy Secretaries; half a dozen Under and Deputy Under

Secretaries; more than fifteen Assistant Secretaries; Five CFOs/General

Counsels/Solicitors; more than two dozen judges and a handful of Assistant Attorneys

General; nine Ambassadors; and dozens of Board and Commission Chairs and members.

This is no small matter. By insisting that nominations be returned to the White House,

Senate Democrats ensured that almost 100 senior policy positions in the Trump

Administration remain vacant – with the obvious result that the agencies that should be

implementing the Trump agenda are crippled or, worse, still staffed with Obama

Administration appointees.

Despite partisan opposition and self-imposed obstacles, the Administration does have a

record of accomplishment –

With the President’s unfortunate tendency to provide a constant stream of off-message

tweets, and the intense media focus on Russia, there has been little attention paid to the

policy initiatives of the Administration. And there have been significant accomplishments:

The most lasting legacy of the Trump Administration will be the confirmation of

judges – Neil Gorsuch to the U.S. Supreme Court and twelve additional appellate

court judges who will impact our judiciary for generations;

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America’s energy independence is more secure today with the approval of the

Keystone and Dakota Pipelines, his reversal of a drilling ban in Alaska, opening up of

a small slice of the Alaska National Wildlife Refuge to energy exploration, and the

expected repeal of the ban on fracking on public lands;

ISIS is on the run, occupying today a tiny fraction of the land mass they controlled a

year ago;

The President’s Executive Orders on regulations and the enactment of 14 separate

Congressional Review Act resolutions have been virtually un-reported, but are

responsible in significant measure for the improved business climate today [See

Separate Staff Report on Regulatory Agenda];

An Executive Order cut the time for infrastructure permit approvals;

An Executive Order expanded apprenticeships in a public-private partnership which

is now being implemented by Labor Secretary Alex Acosta;

The appointment of pro-business members of the National Labor Relations Board

began the process of reversing the actions of almost a decade of pro-labor Obama

Boards [See Separate Staff Report on Labor and Legal Update];

The most significant tax bill in decades was signed into law at the end of December

[See Separate Staff Report on Taxes];

The stock market is hitting new records – while some would argue that the Trump

Administration cannot take credit for the good economy, there is no doubt they would

be blamed for a weak one!

The year ahead – what to expect in 2018 –

With the tax bill in their rear-view mirror, Congressional Republicans and the White House

are faced with a new internal debate about their agenda for 2018. They of course have

must-do legislative items – a budget, spending bills, a debt limit extension. But while those

issues have to be addressed, they are not the cause of the differing political priorities of the

House, Senate or White House.

Senate GOP Leader Mitch McConnell (R-KY) is calling for a more bi-partisan approach to

legislation in the Senate this year. His call is as much pragmatic as philosophical – with

the election of Democrat Doug Jones in the December special election in Alabama,

McConnell’s GOP now has just a one vote majority.

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Speaker Ryan is trying to quiet persistent rumors that he will step down at the end of the

year, knowing that “lame duck” status would make managing the disparate elements of the

House GOP caucus an even greater challenge. As it is, he has to balance the ideologically

rigid House Freedom Caucus with the increasingly anti-Trump “establishment”

Republicans. His first challenge will be on the spending issues, with Democrats and

moderate Republicans demanding a lifting of spending caps, a move adamantly opposed by

House conservatives.

The White House is still contending with the continuing internal staff turmoil, with

qualified candidates increasingly unwilling to fill critical vacancies precisely because of the

unrelenting reports of turmoil. So they are trying to help shape the 2018 legislative agenda

with inadequate staffing and conflicting priorities among the existing senior advisors.

So how does it play out on key issues?

Immigration: There can be no resolution to the on-going immigration fight without

bipartisanship. Democrats and many Republicans want to stop the deportation of the so-

called “dreamers” who were brought into the country as children by parents who entered

the US illegally. The President and most Republicans want improved border security, and

the President continues to call for a border wall. The President also calls for an end to chain

migration and other reforms. It is most likely that a fix to the “dreamers” issue will be

passed, and in a rational world a broader compromise would be achievable, but strongly

held views both in Washington and in the country make it difficult.

Infrastructure: This is the most likely area for bipartisan cooperation, but there are serious

challenges. First, they will need to define terms and conditions: will “infrastructure” be

limited to roads and bridges or include energy, broadband, airports, veterans’ hospitals,

etc.; and will public/private partnerships be part of the proposal. Just as important, they

will need to get bipartisan agreement on how to pay for a proposed $1 trillion package.

Welfare and entitlement reform: Entitlement reform has long been a priority for Speaker

Ryan, and he has argued that Congress should tackle it this year. Leader McConnell has

been firm in his opposition to taking up controversial entitlement reform this year,

especially following tax reform which the Democrats argue was a tax cut for big

corporations and wealthy Americans at the expense of the lower and middle class

taxpayers. At the conclusion of a Camp David meeting with GOP Congressional Leaders

the first weekend of January, the President seemed to put welfare reform on a back burner,

telling the press that the GOP priorities are immigration reform and infrastructure.

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FEDERAL PROCUREMENT OF COMMERCIAL PRODUCTS [January 2018]

Last spring, House Armed Services Committee Chairman Mac Thornberry (R-TX-13)

introduced defense acquisition reform legislation (H.R. 2511, Defense Acquisition

Streamlining and Transparency Act). Included in the Chairman’s bill was a provision

authorizing the Department of Defense (DoD) “to buy commercial off-the-shelf (COTS)

products through the same online marketplaces that businesses use to acquire goods.”

NAW engaged this issue, pulling together a working group comprised of companies from

various lines of trade which had expressed interest in working with us on this topic.

There were several broad issues that provided the glue that held the working group

together:

Concern that just one company (Amazon) would qualify as a “marketplace.”

Concern that marketplaces would have too much leeway to charge access fees to, and hold too much sway over features critical to, “third-party” vendors operating

through the marketplaces.

Concern that the language permitted marketplaces (particularly in instances where the marketplace was also a competitor) virtually unlimited access to and use of

“third-party” vendors’ transactional data.

Skepticism regarding the appropriateness of the application of the online purchasing model in certain lines of trade.

An expanded (i.e., federal government-wide) version of the COTS online purchasing

provision was included in the House Armed Services Committee’s FY ’18 defense

authorization bill (Sec. 801, H.R. 2810, National Defense Authorization Act (“NDAA”))

which was passed by the House shortly after the July 4th recess. The Senate Armed

Services Committee subsequently reported and the Senate passed its version of the NDAA

without any provision corresponding to Sec. 801 of the House-passed bill.

As a result of the advocacy efforts of the NAW working group, a government-wide but

clearly improved – and what has been described as a “workable” – online purchasing

regime was included in the conference report and enacted on December 12th (PL 115-91).

With the legislative process complete, focus now shifts to the mandated three-phase

implementation process. Here is the legislative language) detailing Phase 1:

“Not later than 90 days after the date of the enactment of this Act (emphasis added), an

implementation plan and schedule for carrying out the program … including a discussion

and recommendations regarding whether any changes to, or exemptions from (emphasis

-20-

added), laws that set forth policies, procedures, requirements, or restrictions for the

procurement of property or services by the federal Government are necessary for effective

implementation of this section.”

On December 15th, the General Services Administration (GSA) published a notice in the

Federal Register launching Phase I, announcing that on January 9, 2018 GSA and OMB

will host a “modified town-hall style public meeting to help inform the Phase I submittal.”

Recommendations under Phase II are due “not later than one year after the date of the

submission of the implementation plan and schedule required” in Phase I. The guidance

required under Phase III is due one year after that.

The NAW-led working group will remain “in business” throughout this process.

HEALTHCARE [January 2018]

Following an unrelenting seven-year battle waged by Congressional Republicans to

repeal/de-fund/delay/alter former President Obama’s signature domestic policy and

legislative achievement and the sweeping Republican victory in the 2016 elections, the

GOP effort to repeal and replace the Affordable Care Act (“ACA” or “Obamacare”) fell

dramatically short during the 115th Congress’ first session (although subsequent enactment

of the Tax Cuts and Jobs Act includes repeal of the ACA’s individual mandate penalties).

In the aftermath of an initial false start, the House of Representatives in May 2017 passed

the American Health Care Act (“AHCA”) by a vote of 219 to 213 (with 20 Republicans

joining all 193 Democrats in opposition).

Senate Republicans were not able to produce a bill capable of garnering the 51 votes

needed for passage, and the legislative process aimed at repealing and replacing Obamacare

came to a grinding halt prior to Congress’ annual August/Labor Day/ District work period.

Nonetheless, progress was made on building support for several issues long on the NAW

agenda in this space. For example, the House-passed AHCA included

Elimination of the employer mandate penalties applicable to employers with 50 or more full-time employees.

Extension of the delay in implementation of the 40% excise tax on high-cost employer-sponsored health plans (the “Cadillac Tax”).

Full repeal of the annual fee on health insurance providers (the “health insurance tax” or “HIT”).

Expanded use of health savings accounts (“HSA”) and flexible spending accounts (“FSA”).

-21-

Of crucial importance was the absence of any limitation on the exclusion from income of

the value of employer-sponsored health benefits.

Two additional NAW-supported health bills passed the House in the spring: the Small

Business Health Fairness Act authorizes the formation and multi-state operation of both

self-funded and fully-insured association health plans (“AHP”); and the Self-Insurance

Protection Act (“SIPA”) shielding stop-loss insurance from being regulated as health

insurance. SIPA’s enactment would reaffirm long-standing policies to ensure employers

can continue to offer workers flexible, more affordable health care plans through self-

insurance.

It is not clear whether/when consideration of ACA repeal/replace legislation will take

center stage. For the moment, the focus of activity in the Obamacare space has pivoted to

legislation to stabilize the ACA exchanges. NAW’s focus is fixed on extending the pause

in the HIT (which went back into effect on January 1, 2018 following a one-year hiatus)

and extending the Cadillac Tax delay (now set to expire in 2020).

In addition to the previously-mentioned legislative action on association health plans,

AHPs were the subject of significant regulatory action as well. On October 12, 2017, the

President issued an Executive Order directing, among other things, the Secretary of Labor

to “consider proposing regulations … to expand access to health coverage by allowing

more employers to form AHPs.” On January 5, 2018, the Department of Labor’s

Employee Benefits Security Administration fulfilled the President’s directive by publishing

a Notice of Proposed Rulemaking that would significantly change the way AHPs are

regulated. NAW is in the process of reviewing the NPRM and plans to comment.

LABOR – Department of Labor and National Labor Relations Board

[January 2018]

The Department of Labor:

The Secretary of Labor, Alex Acosta, was not confirmed until April; the last of the Trump

Cabinet members to be sworn in. And there are key positions in the department that remain

vacant today, including the Deputy Secretary (the # 2 position) and half a dozen Assistant

Secretaries. But despite the late start and lack of staff, the Department undertook major

policy initiatives in 2017.

The Persuader rule: The Persuader rule – which would have made it difficult for an

employer to obtain advice and/or legal counsel during a union organizing campaign – was

enjoined in late 2016 by a federal court in Texas.

Last May, DoL sent to the Office of Management and Budget’s (OMB) Office of

Information and Regulatory Affairs (OIRA) a new proposed rulemaking rescinding the

Persuader rule. Under the standard process, OIRA reviews a new rule and, assuming they

https://www.reginfo.gov/public/do/eoDetails?rrid=127373

-22-

approve it, the regulating agency then publishes the proposed rule in the Federal Register

and opens it up for public comment.

OMB/OIRA completed its review of the rescission rule on June 6th, and on June 13th

DoL’s Office of Labor-Management Statistics issued a new notice of proposed rulemaking

(NPRM). The public comment period on the rescission rule ended on August 11th. NAW

participated in this new rulemaking through the Coalition for a Democratic Workplace.

A final rule rescinding Persuader is expected as early as January 2018.

The FLSA/Overtime Rule: The Fair Labor Standards Act Overtime Rule has also been

halted by the courts. The Labor Department published a Request for Information on the

issue in September, 2017, and NAW participated in that process through the Partnership to

Protect Workplace Opportunity, the business coalition on the issue which we help manage.

DoL has announced that they will issue a new Notice of Proposed Rulemaking in October

2018, and NAW will submit comments. We expect to address not only the salary levels,

but the related issues of how bonuses and commissions are treated, and we will yet again

fight to have the antiquated provisions covering inside sales personnel modernized so that

both inside and outside professional sales staff can be treated as exempt.

OSHA “Walk Around Rule:” In February, 2013, the Occupational Safety and Health

Administration issued a controversial “opinion letter” announcing that a non-employee

union representative could accompany an OSHA official in an inspection of a worksite

even if the company is not unionized and has no collective bargaining agreement. In early

May, just weeks after Secretary Acosta’s confirmation, the OSHA directive was rescinded.

The National Labor Relations Board (NLRB):

The NLRB is a five-member independent agency, on which there must be at least three

seated members for them to conduct business. There were only three seated Board

members when President Trump took office – two Democrats and one Republican –

leaving two vacancies for President Trump to fill. In addition, the powerful office of

General Counsel became vacant in October.

It took the President months to act to fill the Board vacancies, but in mid-June he finally

nominated two additional GOP Board members – Marvin Kaplan and William Emanuel; it

wasn’t until late September that both were confirmed to finally give the Board a GOP

majority. In early November the Senate confirmed Peter Robb as the Board’s new General

Counsel, and for the first time in a decade the GOP had full control of the Board.

But that was short-lived. GOP Chairman Miscimarra had already announced that he would

not seek a second term on the Board; when his term expired in December his seat became

vacant and the Board was back to a 2-to-2 tie. We are again now urging the Trump

Administration to quickly send a new Board nominee to the Senate so the pro-business

majority can be restored; we are told a nomination could be made as early as late January.

-23-

Although the Republicans had a working majority for only a matter of weeks, they quickly

began the process of reversing Obama-era rules and precedents. In addition to the Board

actions, the new General Counsel aggressively and effectively joined the effort, issuing a

memorandum that promised dramatic reversal of Obama-Board actions.

In the last days of Chairman Miscimarra’s term, the Board reversed the Obama Board’s

decisions on the Joint Employer Standard, Specialty Health Care micro-bargaining units,

and Employee Handbook/protected concerted activity [See our Legal Update]

The Board also published a Request for Information seeking comment on whether the

Obama Board’s Ambush rule – which facilitated faster union certification elections and

limited employer rights in the process – should be retained without changes, retained but

modified, or rescinded.

In additional to these and other specific Board actions, General Counsel Peter Robb issued

a Memorandum on December 1st in which he outlined controversial decisions of the

Obama-era Board and opened the door for reconsideration of those decisions. In addition

to the issues described in our Legal Update, GC Robb made note of:

The Purple Communications rule that gave employees a right to use their employer’s email system to engage in union organizing activity;

Decisions requiring that employers provide access to work premises to off-duty employees;

Expansion of the range of permissible conduct by union representatives;

Requiring an employer to provide witness statements to unions; and

Requiring an employer to continue dues check-off after the expiration of a collective bargaining agreement.

While the current Board can do little more to reverse the pro-union decisions of the last

decade until a third Board member is confirmed breaking the current 2-to-2 tie, their

aggressive actions in the last weeks of former Chairman Miscimarra’s term suggest that we

can look forward to more pro-business initiatives once a majority is re-established.

MARKETPLACE FAIRNESS [January 2018]

Twenty-five years ago in Quill v. North Dakota, the US Supreme Court ruled that the lack

of a physical presence (“substantial nexus”) in a State by an out-of-state seller prevents that

State from compelling the remote seller to collect and remit that State’s sales tax. While

states may audit in-state purchasers who may be penalized for failing to remit their owed

use taxes to their states, the enforcement of state sales/use tax laws has proven extremely

difficult to achieve as states with sales/use tax laws are collectively foregoing an estimated

-24-

$26 billion in revenue annually. In its 1992 decision in Quill, the Court invited Congress to

resolve this issue, stating, “The underlying issue here is one that Congress may be better

qualified to resolve and one that it has the ultimate power to resolve.”

Since the Court’s disposal of Quill, the volume of e-commerce has exploded and continues

to grow as a result of online sales via the internet. According to the 2013 NAW Institute

for Distribution Excellence/IBM Facing the Forces study, in the same way that the shift

toward e-commerce is “rapidly transforming the retail landscape … e-commerce will now

continue to transform wholesale distribution … by 2017 … the proportion (of online

orders) is expected to surge … by 130%.” The evolution of this marketplace dynamic

places “brick and mortar” sellers, which must collect and remit states’ sales taxes at the

point of purchase, at a clear price-generated disadvantage with remote online competitors.

The issue has been the subject of Congressional attention for several years. Most recently,

the U.S. Senate in May 2013 passed the NAW-supported Marketplace Fairness Act

(“MFA”) by a bipartisan vote of 69 – 27. However, House consideration of the MFA was

successfully blocked due to the opposition of the Chairman of the Judiciary Committee,

Rep. Bob Goodlatte (R-VA-6). A modified version of the MFA authored by former Rep.

Jason Chaffetz (R-UT-3) and supported by NAW (the Remote Transactions Parity Act

(“RTPA”) also failed to advance due to Chairman Goodlatte’s opposition. Chairman

Goodlatte prefers an approach to this issue that would base the permissible sales tax

treatment of remote online sales on the tax rate of the state in which the purchaser is

located (the “destination” state) and the tax base of the state determined to be the location

of the seller (the “origin” state). NAW cannot support an approach that includes an origin

component because the necessity of achieving parity at the point of purchase is frustrated.

The MFA (S.976) and the RTPA (H.R. 2193) were introduced in the Senate and House

respectively in April; however, the legislative path forward in the current 115th Congress

has yet to clarify itself despite bipartisan support for both bills. Complicating the picture is

the introduction of the NAW-opposed “No Regulation Without Representation Act,” (H.R.

2887) a bill that codifies Quill. Among the cosponsors: Rep. Bob Goodlatte. A hearing on

H.R. 2887 in the House Judiciary Subcommittee on Regulatory Reform, Commercial &

Antitrust Law was held on July 25th. No action has been taken or is scheduled in either

chamber on the MFA/RTPA.

Litigation:

South Dakota v. Wayfair: At issue is the validity of a South Dakota statute requiring sellers

with “economic nexus” to collect and remit state sales tax regardless of physical nexus.

South Dakota acknowledges the statute in question runs afoul of the standard enunciated in

Quill. (A parallel case challenges the validity of the South Dakota statute on the grounds

that it violates the Federal Constitution’s Commerce Clause and due process guarantees.)

In mid-January a Federal District Court rejected the companies’ request that the case be

heard in Federal court, and in early March the State court ruled as expected against the

South Dakota law on the basis of Quill. The South Dakota Supreme Court found the

statute invalid on September 14th, and the State filed a petition seeking US Supreme Court

-25-

review on October 2nd. NAW filed an amicus curiae brief in support of South Dakota’s

petition on October 23rd. The Court may rule on the State’s petition for a Writ of Certiorari

in January. The Court granted the State’s petition for a Writ of Certiorari on January 12th.

The Court having granted certiorari, the case may well be heard and finally decided in the

current Supreme Court term (see separate Legal Update on this litigation).

REGULATORY AGENDA [January 2018]

Immediately after the Inauguration the Administration, Congressional Leaders and the

business community worked together to begin the process of rolling back the aggressive

regulatory agenda of the Obama Administration. Some Obama Executive Orders were

quickly reversed by Trump Executive Orders, some rules would be reversed by an agency,

and some were unraveled by withdrawing the government from ongoing litigation.

Significantly, rules were also reversed legislatively using the Congressional Review Act

(CRA). The CRA was enacted in 1996 to allow Congress to repeal rules issued by a

president late in his/her term. Prior to 2017, the CRA had been successfully used only

once; last year Congress and President Trump repealed 14 rules using the CRA.

The regulatory reform effort has been successful by any measure. On October 2nd

Investor’s Business Daily reported on a study by the Competitive Enterprise Institute

showing that:

Trump ends the fiscal year as America's least-regulatory president since Reagan.

It's no exaggeration. The Federal Register, the bible of federal rules, peaked at

record high 97,110 pages under President Obama in 2016. Today, under President

Trump, it stands at 45,678 pages.

Even more notable, on January 5th this year American Action Forum (AAF) published a

comprehensive report entitled “2017: THE YEAR IN REGULATION.” AAF reported

that 274 regulations were finalized in 2017 with an economic cost of $30.6 billion, but that:

81 percent of all regulatory costs finalized in 2017 came during President

Obama’s final weeks in office. . . Of the $30.6 billion in finalized costs last year,

$24.8 billion came from 38 rules published from January 3-19, 2017, in the

waning days of the Obama Administration . . . [T]he imposition of just $5.8

billion in new regulatory costs in nearly a year is a considerable feat for the

Trump Administration.

AAF further reported that seven of the ten most expensive rules implemented in 2017 came

from the Obama Administration; as did five of the six rules imposing the greatest

paperwork burden. And most of the ten rules providing the most regulatory cost savings

came from the Trump Administration. They concluded their report noting that

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2017 marked a sea change in the regulatory paradigm. . . [T]he Trump

Administration’s latest regulatory agenda and proposed deregulatory measures

heading into 2018 point to a continued shift towards reducing regulatory costs

and new paperwork mandates. [You can read AAF’s full report here:

https://www.americanactionforum.org/research/2017-year-regulation/]

Press coverage of Trump regulatory reform –

This success story should have merited press coverage, especially since the business-

friendly regulatory climate almost certainly contributed to economic growth and the record-

breaking stock market. But the story has gone mostly untold, with two exceptions.

Politico took note in a May 28th story headlined: “Inside Trump's war on regulations . . .

The push to block, rewrite and delay scores of Obama-era rules may be the

administration's biggest untold success.” They wrote that:

The chaos of President Donald Trump's first four months as president has

overshadowed a series of actions that could reshape American life for decades —

efforts to rewrite or wipe out regulations affecting everything from student loans

and restaurant menus to internet privacy, workplace injuries and climate change.

But Trump is going after even bigger targets, setting bureaucratic wheels in

motion that could eventually ax or revise hundreds of regulations as agencies

reorient themselves toward unwinding red tape and granting speedier approvals to

projects. If successful, these efforts could represent the most far-reaching rollback

of federal regulations since Ronald Reagan's presidency.

The goal of the effort is "systemic reform," said Andrew Bremberg, director of the

White House's Domestic Policy Council — aiming for results that last well

beyond Trump's presidency.

The only other major media coverage of the Trump regulatory reform agenda stands in

stark contrast to the Politico story. On December 11th Bloomberg published a story with

the headline: “Trump Takes Credit for Killing Hundreds of Regulations That Were

Already Dead . . . Overblown claims of sweeping deregulation.”

And just in case anyone might have missed it, Bloomberg ran a virtually identical story

three days later, on December 14th headlined: “Trump Boasts of Bringing a ‘Screeching’

Halt to Growth of Regulations.”

In their stories, the Bloomberg reporters argue that the Trump regulatory reform claims are

“exaggerated” and they attempt to debunk the Trump claims of killing or stalling 860

regulations. While they do give the Administration credit for withdrawing 271 of the 860

regulations, they nit-pick the other claims: 282 regulations were just reclassified as long-

term, meaning only that they will not be considered this year; 109 were just re-classified as

https://www.americanactionforum.org/insight/fall-regulatory-agenda-confirms-commitment-deregulation/https://www.americanactionforum.org/research/2017-year-regulation/http://go.politicoemail.com/?qs=8e542e73b08e59e41e68d6cf7a0c03054159f926f465e4f47b826356ec2e9ec95cc0d3d7d0ad42581faf198b96d2c8a0http://go.politicoemail.com/?qs=8e542e73b08e59e4b7499165ef0afce77ff7ceafcda6d6795531c1b69cb027c5cd0a672fd5c200b07d86d19ddaca184c

-27-

inactive, meaning they are dormant but could be revived; 183 were listed as withdrawn,

but they weren’t really under consideration by the Obama Administration anyway.

From a business community perspective, 574 regulations that are now postponed, inactive

or withdrawn are regulations that won’t be imposed on them or slow the economy. And

one supposes that to the Trump Administration, the Bloomberg stories are just more

examples of “Fake News.”

TAXES [January 2018)

The Back Story on Tax Reform:

The ink is barely dry on Tax Cuts and Jobs Act of 2017, and it is likely to be months

before we fully understand all of its provisions. The IRS has a huge challenge in trying to

write the regulations and rules necessary to enforce the new law, and Congress will have to

consider at least one “technical corrections” bill to fix the problems with the legislation that

are certain to be discovered as it is implemented.

Numerous summaries of the bill’s provisions have been written since its enactment, and we

are not attempting to duplicate those efforts, although we provide a summary of some of

the key business provisions at the end of this memo. Instead, we thought we would share

with you some of the back story that was unreported as the bill moved through the

legislative process.

NAW has been involved in the fight for tax reform for many years, and as reform finally

became a real possibility, we had clear priorities critical to the distribution industry:

leveling the uneven playing field in terms of effective tax rates for both corporations and

pass-through companies and the preservation of Last-In, First-Out (LIFO) inventory

accounting, which is widely used in our industry.

In the decades since the last major tax reform, the tax code had become filled with

preferences that resulted in some industries, like wholesale distribution, paying effective

tax rates at or close to the statutory 35 percent rate, while other industries paid rates in

single digits – some even routinely enjoying negative tax rates. Several years ago NAW

helped organize the Coalition for Fair Effective Tax Rates

(http://faireffectivetaxrates.com/who-we-are/) to fight for reform that would level that

playing field so that high-rate industries like wholesale distribution no longer paid a

disproportionate share of the business tax burden. As NAW President Dirk Van Dongen

told President Trump at an October White House meeting, “I represent an industry with

very high effective tax rates; frankly, they're tired of paying the other guys' taxes.”

https://www.youtube.com/watch?v=Dxv123ZOQtA&feature=youtu.be&t=7m1s

http://faireffectivetaxrates.com/who-we-are/https://www.youtube.com/watch?v=Dxv123ZOQtA&feature=youtu.be&t=7m1s

-28-

LIFO:

NAW has managed the LIFO Coalition (http://savelifo.org/about-lifo-coalition/) since

repeal was first proposed in 2006 by a Republican senator and repeatedly sought by the

Obama Administration and Republican tax writers since. We long believed that the threat

of repeal was far greater in the context of comprehensive tax reform than it had ever been.

Our battle to preserve the use of LIFO was rewarded when neither the House nor the

Senate included repeal in their tax reform legislation, even though we had been clearly told

by Senate Finance Committee staff that repeal was likely to be included in their reform bill.

As we have done multiple times over the last decade, NAW and our colleagues in the LIFO

Coalition asked our member companies to contact the Senate Finance Committee members

to urge them not to include repeal in their bill. NAW member companies rose to this

challenge, and to good effect. The Finance Committee opted to leave LIFO alone, a clear

and notable win for wholesale distribution and a case study in how businesses can impact

public policy by actively engaging.

NAW will continue to manage the LIFO Coalition since repeal could come up again, but

keeping LIFO out of the this tax reform bill was a huge success – thanks to each of you

who helped us preserve LIFO.

Business Provisions in the Tax Reform Bills:

While Republican tax writers made significant changes to the individual tax code, and

argued that their bill was a middle class tax reform initiative, the fundamental goal of both

the House and Senate tax reform bills was significant reform of the corporate tax code.

Both the original House and Senate bills provided for a corporate tax rate of 20 percent,

reduced from 35 percent, along with significant “base broadening” provisions. The

corporate tax reform proposals also included significant changes to international tax law,

including moving to a territorial system and imposing a “deemed repatriation” tax on

foreign-held assets.

With the House, Senate and White House fully and firmly committed to corporate reform

that both dramatically reduced the corporate income tax rate and eliminated many of the

preferences that had created inequities in effective rates, our mission to achieve a level

playing field in corporate effective tax rates was close to becoming a reality from the outset

of the debate. However, parity in effective rates for the pass-through industry was more

elusive.

While reduction in the corporate tax rate was their priority, the “Blueprint” for tax reform

released earlier in the year by the “Big Six” Republican tax leaders from the House, Senate

and White House had also called for a maximum tax rate of 25 percent on pass-through

businesses. However, it quickly became apparent that pass-through businesses wouldn’t

see anything close to the promised 25 percent top rate. There are about 30 million pass-

through businesses, about 4.5 million of them S corps, and only 1.6 million C corps, so the

http://savelifo.org/about-lifo-coalition/

-29-

disparate treatment of pass-throughs was very surprising. NAW members are

approximately 65 percent pass-throughs, making this a major issue for us.

The House proposal: The House bill technically provided a 25 percent top pass-through

rate, but in their effort to provide “guard rails” to ensure that the low rate didn’t encourage

tax avoidance, they effectively made the 25 percent meaningless. They provided for the

reduced rate only on “qualified business income” to ensure that salaries and wages

continued to be taxed at the individual tax rate. And they arbitrarily assigned a fixed ratio

of 70/30 to a pass-through’s income – 70 percent to be considered wages and only 30

percent eligible for the 25 percent tax rate.

The bill also provided a “prove-out” option for companies to prove that more than 30

percent of their income should qualify for the 25 percent rate. This alternative would

“measure the capital percentage based on a rate of return (the Federal short-term rate plus 7

percent) multiplied by the capital investments of the business.” Capital investments were

narrowly defined as “depreciable assets.”

The Senate proposal: Under the Senate bill, pass-through businesses would not be

separately taxed as businesses but would continue to be taxed on the individual side of the

code, with a new top tax rate of 38.5 percent. To compensate for the wide gap between

their proposed 20 percent corporate rate and the 38.5 percent individual rate, they provided

a broad 17.4 percent pass-through deduction from qualified business income, not to exceed

50 percent of the company’s W-2 wages.

The Sausage-making: The treatment of pass-through entities in both reform proposals

was widely rejected by the pass-through community because both proposals left pass-

through businesses with effective tax rates well above 30 percent – significantly higher

than the tax reform “blueprint” promise of 25 percent – and with a wider gap between C

corps and pass-throughs than under current law.

NAW and our allies in the pass-through community lobbied for changes in the House

formula, arguing both that the 70/30 ratio did not reflect the circumstances of most

businesses, and that the “prove-out” formula was inadequate. We argued that capital

investments in wholesale distribution are significantly higher in inventory and accounts

receivable than in depreciable assets.

Disappointingly, the House tax writers acknowledged that our argument had merit, but

admitted that their goal was to help capital intensive industries – specifically manufacturing

– and that the revenue loss from including inventory as a capital investment was too high

for them to consider.

Our bargaining position was stronger in the Senate – with only 52 GOP Senators and 50

needed for passage, every Senator had the opportunity to influence the legislation. We

found allies in our battle for better treatment of pass-throughs in GOP Senators Ron

Johnson (WI) and Steve Daines (MT), both of whom told the Senate Leadership that

-30-

improvements in the pass-through provisions were necessary to ensure their votes for the

bill.

Intense back-and-forth among the senators and determined lobbying followed. At one

point an increase in the pass-through deduction to 20 percent from 17.4 percent was

offered, but with a top marginal rate of 38.5 percent, that still left pass-throughs with an

effective rate above 30 percent, a full ten points above the C corporation rate even before

adding the 3.8 percent Net Investment Income Tax imposed in the individual tax code. We

were told any additional increase in the deduction would “cost too much” in lost revenue.

There were numerous other disparities between the treatment of C corporations and pass-

throughs in the Senate bill, among them: state and local income taxes remained deductible

to C corporations but not to pass-throughs, and the C corporation rate cut was permanent

while changes to the tax code related to pass-throughs were temporary and would expire in

2025.

While all of these issues were being debated, another critical problem in the Senate bill was

brought to our attention: trust income would not be eligible for the deduction. While there

are many different types of pass-through trusts, the language of the legislation did not make

any distinctions but simply excluded trust income. A quick survey of some NAW S corp

members made it clear that this was a huge problem – in some companies, all of the S corp

income is trust income.

Given the gravity of the trust issue, the pass-through community began an intense lobbying

effort to fix the problem. Again, we found allies in the Senate; in this case Senator Jim

Inhofe (R-OK) took up the trust income cause joining forces with Senators Johnson and

Daines.

After frantic days and nights of coordinated effort, Senate tax writers and Senators

Johnson, Daines and Inhofe reached a compromise: Additional revenue would be made

available to improve the pass-through proposals by increasing the tax rate on the “deemed

repatriation” that multinational firms would pay; the pass-through deduction would be set

at 20 percent and the top individual tax rate set at 37 percent rather than 38.5 percent thus

reducing the effective pass-through rate to under 30 percent, and trust income would not be

excluded. Additionally, rules for conversion to C corp statues by S corps were somewhat

liberalized.

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KEY BUSINESS PROVISIONS

C corporation income tax rate reduced from 35 percent to 21 percent. Corporate AMT repealed. Both changes permanent.

Pass through businesses provided a 20 percent deduction from business income, not to exceed 50 percent of W-2 wages, and pay 37 percent on the balance for a blended business rate of 29.6 percent, down from 39.6 percent. Provisions expire at the end of 2025.

LIFO preserved.

Bonus depreciation increased to 100 percent for 5 years, reduced by 20 percent per year thereafter; expiring at the end of 2027.

Liberalized small business expensing.

Death tax exclusion doubled to $22.4 million per couple, $11.23 million per individual. Stepped up basis retained. Provisions expire at the end of 2025.

Transition rules eased for those converting to C corporation status.

An international territorial tax regime is established along with a “deemed repatriation” tax.

This legislation is extremely complex. It is very important that you consult with your tax

advisors to determine your tax planning strategy going forward.

Additional information on the new tax law can be found at:

https://home.kpmg.com/content/dam/kpmg/us/pdf/2017/12/tnf-new-tax-law-dec22-2017.pdf and https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf

https://home.kpmg.com/content/dam/kpmg/us/pdf/2017/12/tnf-new-tax-law-dec22-2017.pdfhttps://home.kpmg.com/content/dam/kpmg/us/pdf/2017/12/tnf-new-tax-law-dec22-2017.pdfhttps://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf

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WORKPLACE FLEXIBILITY/PAID LEAVE [January 2018]

In recent years, more than one-half dozen states and nearly three dozen local jurisdictions

have enacted paid sick leave laws, and a handful of additional states have paid leave

insurance laws on their books. Experts expect the trend to continue. This will create an

ever-mounting burden for employers which now must comply with an already complex

patchwork of federal, state, county and municipal paid leave mandates with varying rules

governing coverage, eligibility and benefits.

NAW is affiliated with a recently-formed coalition – Employers for Flexibility (E4F) – to

address this issue. The goal of this new coalition is the enactment of legislation that would

establish a voluntary yet credible and comprehensive Federal paid leave and workplace

flexibility policy which, if adopted by an employer, would preempt the myriad state and

local paid leave mandates.

On November 2nd, Rep. Mimi Walters (R-CA-45) was joined by Reps. Elise Stefanik (R-

NY-21) and Cathy McMorris Rodgers (R-WA-5) in introducing the NAW-supported

Workflex in the 21st Century Act (HR 4219). If enacted, employers who voluntarily choose

to provide their employees with a certain minimum number of days of paid time off and

options for flexible work arrangements through an Employee Retirement Income Security

Act (ERISA)-authorized Qualified Flexible Work Arrangement Plan (“QFWA”) would be

exempt from the patchwork of local and state mandated paid leave laws. To qualify as an ERISA plan and thus preempt all state and local paid leave laws, the employer’s QFWA must

include both a paid leave and a flexible work arrangement component.

Alternatively, employers may choose to remain subject to state and local paid leave laws.

Employers participating in a voluntary Federal paid leave program would face a

substantially-reduced regulatory burden imposed by fragmented state and local paid leave

laws; employees would have a guaranteed level of paid leave and increased opportunities to

take advantage of workflex options.

The bill has been referred to the House Education and Workforce Committee.

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Legal Update

NAW Amicus Brief Urges U. S. Supreme Court to Revisit Rules for State Sales Taxation of

Interstate Sales

NAW has urged the U. S. Supreme Court to re-examine and overturn a 1992 ruling that blocks

states from collecting sales and use taxes from remote sellers who do not have a physical

presence in the state (South Dakota v. Wayfair, Inc., et al., Docket No. 17-494).

In its “friend-of-the court” brief, NAW supports the petition by South Dakota to have the Court

overturn its decision in Quill Corp. v. North Dakota, that unfairly imposes state sales tax

collection obligations on sellers with an in-state presence, while exempting sales made by

internet and other out-of-state sellers from taxation.

The state sales tax issue affects wholesaler-distributors – not just retailers. In fact, any business

that makes a sale at retail under the various state tax laws has a vital stake in the outcome of this

case. The brief cites substantial economic consequences for the community-based brick-and-

mortar wholesaler-distributor:

NAW member companies who have a distribution center, a sales

office, a branch office, make deliveries in a state, or have some

other form of physical presence in a state are forced to operate at a

clear and substantial economic disadvantage vis-à-vis remote

internet sellers competing in the same markets. This disadvantage

results in lost sales revenue and hampers the ability of locally

present wholesaler-distributors to grow their businesses, invest in

the community, and produce in-state employment opportunities.

The NAW brief agrees with Justice Kennedy who declared in a 2015 case that the Quill decision

was “questionable even when decided,” and that the Court should find an appropriate case to

reexamine it.

The time has come, and this is the appropriate case. NAW concludes by urging the Court to grant

South Dakota’s petition for review (four Justices must vote to approve the petition). On January

12, 2018, the Court did approve the petition and the Court will hear the appeal.

To view the NAW brief, go to:

https://www.naw.org/abrief/

https://www.naw.org/abrief/

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The Rules Have Improved for NLRB Scrutiny of Employee Handbook Restrictions

Section 7 of the National Labor Relations Act (NLRA) grants employees the right to discuss or

criticize management, their wages, hours and other working conditions. An employer’s

interference with these so-called section 7 rights can result in an unfair labor practice charge for

adjudication by the National Labor Relations Board (NLRB). The Act applies to employers,

whether or not your employees are represented by a labor union.

A favorite target for employee or union complaints has been the employee handbook and

company policies applicable to employee conduct – such as social media, use of email,

workplace recordings, confidentiality and conflicts of interest.

The assault on employee handbooks and company policies is likely to ease – as a result of The

Boeing Company case. In a 3-2 decision under the new Republican majority (the first in 9

years), the NLRB articulated a new standard for the evaluation of company policies or rules that

are facially-neutral (i.e., rules that don’t expressly interfere with NLRA rights).

In the Boeing case the NLRB overruled its 2004 decision in Lutheran Heritage Village-Livonia,

which held if a workplace rule could be “reasonably construed” by employees as interfering with

the exercise of protected rights it violated the NLRA. Under this vague standard, practically any

rule was subject to challenge. (Example: “Be respectful of others and the Company” was found

illegal by the Board because an employee might possibly refrain from criticizing a supervisor,

co-worker of the employer.)

New Boeing Test

The “reasonably construed” standard has been scrapped in favor of a new test. “When

evaluating a facially-neutral workplace policy, rule, or handbook provision, that when reasonably

interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate

two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate

justifications associated with the rule.” According to the Board, this new test strikes “the proper

balance between employees’ rights and business justifications.”

The Board goes on to delineate three categories of employment policies, rules, and handbook

provisions. These categories represent a classification of results from that new test:

Category 1: “Will include rules that the Board designates as lawful to maintain, either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the

exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is

outweighed by justifications associated with the rule.” The NLRB declared that rules

requiring that employees foster “harmonious interactions and relationships” or abide by

basic standards of civility are lawful, as are rules like Boeing’s which prohibited the use

of cameras in the workplace without a valid business need and permit. All prior cases to

the contrary were overruled.

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Category 2: “Will include rules that warrant individualized scrutiny in each case as to whether the rule, when reasonably interpreted, would prohibit or interfere with the

exercise of NLRA