As government regulation of the roofing industry continues to increase, so, too, does the importance of being engaged in the political process. The outcome of the 2016 elections in November (and the policies implemented as a result) likely will substantially affect how roofing contractors operate their businesses for many years.
After nearly eight years of an activist government led by President Obama, which has produced a host of new regulations and higher taxes for many businesses, the primary question as NRCA analyzes the 2016 elections is this: Will there be more of the same during the next four years or will there be a pivot to rolling back regulations (or at least slowing the pace of new rules), reducing levels of taxation and government involvement in economic matters? The answer will be determined not only by the battle for the White House but also by the fight for control of Congress.
What history says
By most conventional measures, this should be the Republicans' year to capture the White House as they have several factors working in their favor. Neither party has won three consecutive presidential terms since World War II, save for George H. W. Bush successfully riding Ronald Reagan's record of strong economic growth to victory in 1988. History indicates the strongest predictor of who will win a presidential election is the strength of the economy; anything less than 3 percent growth is considered bad news for the incumbent party. With economic growth at an anemic 1.2 percent during the second quarter of 2016, this provides Republican nominee Donald Trump with a potentially winning issue to exploit. And increasing threats of terrorism at home and rising instability abroad traditionally have benefited the party not in power.
However, the Democrats have certain trends working to their advantage in the 2016 race for the White House, which is not one national election but rather a series of 51 distinct contests (the 50 states plus the District of Columbia) to gain a majority in the Electoral College. In recent decades, Democrats have built a significant advantage in the Electoral College (where the winner needs 270 electoral votes to prevail). This primarily is a result of shifting demographics in key states with women and younger and minority voters, all of whom tend to support Democrats in greater numbers. As a result, Democratic nominee Hillary Clinton has more paths to victory in terms of winning enough states to reach 270 electoral votes than does Trump.
These offsetting trends should provide for a competitive race for the White House. However, politics in 2016 has been anything but conventional.
The broad strokes
As has been pointed out by political pundits, the Democrats nominated an "establishment" candidate in Clinton. However, her core policy positions pulled significantly to the left following the unlikely insurgent candidacy of the self-avowed socialist Sen. Bernie Sanders (I-Vt.). Evidence of this is her embrace during the primary of "free" college tuition, a $15-per-hour minimum wage, a "public-option" health plan and flip-flopping on her past support for international trade agreements. Her lurch to these far-left positions could hurt her chances of winning the general election (and may constrain her options in governing if she wins). Additionally, she has the second-highest unfavorable rating of any presidential candidate in the modern era with polls showing about 60 percent of the public view her as "untrustworthy."
The Republicans have countered with Trump, rejecting a crowded field of current and former Republican office holders for an "outsider" who excoriates "establishment" politicians and has capitalized on the anger and anxiety of many Republican voters. Trump's candidacy has been fueled by his strident opposition to illegal immigration, international trade deals and "political correctness." His nomination came as an utter surprise to the political establishment on both sides of the aisle given the extremely unconventional nature of his candidacy. He cruised to the nomination despite (or because of?) having the highest unfavorable rating (70 percent in some polls) among the general public in the modern era.
At press time, Clinton appears to be on her way to a decisive victory based on the most recent polling in battleground states. She leads in the Real Clear Politics polling average by four points nationally, 46.1 to 42.1, though the gap was narrowing as of late August. More ominous for Trump is he is trailing in the polls in all battleground states, in some cases by double digits.
Given that Trump is trailing in the polls, it appears what worked for him in the Republican primary is not working in the general election. To date, Trump has failed to unite Republicans, many of whom remain disaffected from his controversial primary campaign and may cross over to support Clinton, vote for a third-party candidate or stay home on election day. As we saw in 2000 with Ralph Nader, third-party candidates can affect the outcome of a presidential race, and Libertarian Gary Johnson and/or Green Party candidate Jill Stein, or others, could be a factor in this election.
However, anything is possible. Despite her strong lead in the polls, Clinton clearly has serious problems with scandals surrounding her use of a personal email system while secretary of state and the activities of the Clinton Foundation, which could worsen before Nov. 8. Voters are dissatisfied with the status quo with more than 64 percent indicating the U.S. is "on the wrong track" in one recent poll. If Trump is able to run a disciplined campaign this fall that makes the election a referendum on the Obama/Clinton economic record, he still has a chance.
In 2016, U.S. voters have a choice between the two candidates with the highest negative ratings in modern history going head to head to lead the U.S. for the next four years. Although much attention has been focused on the personal temperaments and leadership qualities of the candidates, their positions on policy issues are critically important and relevant to the roofing industry. What follows is an overview of the positions of Trump and Clinton regarding key issues of interest to NRCA members, as well as a look at the congressional elections.
Tax issues usually are an important component of a presidential election, and the leadership of a new president could be decisive to the direction of tax policy in 2017 and beyond. After winning in 2012, President Obama successfully got Congress to approve tax increases on high-earning individuals, including many business owners. As a result, in 2013 the top tax rate rose from 35 to 39.6 percent, tax rates on capital gains and dividends increased, and new taxes authorized by the Affordable Care Act (ACA) took effect.
The tax plans of the presidential candidates differ significantly. Trump has proposed dramatic rate cuts as part of the largest tax overhaul since 1986, and his plan mirrors some key components of the House Republican tax reform blueprint released in June. In contrast, Clinton seeks to raise taxes and use the increased revenue for new spending on infrastructure and social programs while also providing new tax breaks for certain constituencies.
Trump's tax plan has three rates on the individual side of the code at 12, 25 and 33 percent based on income levels and would slash the corporate rate to 15 percent with active business income in pass-through companies also being taxed at this rate. Clinton's plan would maintain the current individual and corporate tax rates, and she proposes a new 4 percent surtax on incomes greater than $5 million for individuals and a new "exit tax" on companies that move their headquarters outside of the U.S. Clinton also would adopt the so-called "Buffett rule" (named after investor Warren Buffett) by imposing a minimum 30 percent effective tax rate on those earning more than $1 million annually.
Trump has said he would provide for full expensing of capital investments but has not released a specific proposal to date nor proposed any change in tax rates on capital gains and dividends. Clinton would increase the current expensing limits for qualifying business investments from $500,000 to $1 million and would raise rates on "medium-term" capital gains (investments held for less than six years) to between 24 and 39.6 percent. Trump proposes to repeal the 3.8 percent tax on net investment income for high earners, which was authorized by the ACA, while Clinton supports continuation of this tax.
Regarding the estate tax, which affects many family-owned businesses in the roofing industry, Trump proposes full repeal. In contrast, Clinton would increase the rate to 45 percent and lower the exemption level from the current $5 million ($10 million for couples) to $3.5 million ($7 million for couples).
The Trump plan would phase out all itemized tax deductions except for the charitable and mortgage interest deductions, exclusions for employer-provided health insurance and tax-exempt interest. Clinton would place a 28 percent cap on itemized deductions. She also would establish a new $1,500 apprenticeship tax credit for every new worker a business hires and trains, as well as a 15 percent credit for employers that share profits with workers.
When considering a candidate's tax plan, another factor that must be considered is the effect on the federal deficit given the government's perilous budgetary situation as projected for the next 10 to 20 years. Under current law, the budget's long-term trajectory is unsustainable with annual budget deficits projected to increase indefinitely into the future.
According to the nonpartisan Tax Foundation, the Trump plan would cut taxes by $11.98 trillion during the first decade on a static basis (that is, without considering the dynamic effects on economic growth that result from implementation of the policies). The Tax Foundation also estimates the Clinton plan would increase taxes by $498 billion during the next decade, again on a static basis.
Given the potential fiscal implications of both candidates' tax plans, promises of increased spending by Trump and Clinton, and their lack of discussion of spending cuts, it appears the government's debt problem would further deteriorate if either plan is implemented as proposed. The unwillingness of either candidate to put forward a plan for reform of entitlement programs such as Social Security and Medicare, the key drivers of long-term deficits, is particularly troubling because the failure to undertake such reforms could adversely affect U.S. economic growth significantly in the years ahead.
Another key issue for the roofing industry is the ever-expanding regulation of virtually every aspect of business operations. Regulations from federal agencies, most notably the Occupational Safety and Health Administration, have had significant effects on roofing contractors in recent years. Given the president's vast influence on executive branch regulatory activity, the outcome of the November election will dramatically influence regulatory policy during the next four years.
In campaign rhetoric, many Republicans portray a Clinton presidency as "Obama's third term." With respect to regulatory policy, this certainly could be the case as her campaign proposals have largely parroted the Obama agenda across a wide array of federal agencies, including "card check" union organizing rules and new paid-leave mandates.
Clinton's need to tack further to the left in response to Sanders' primary challenge does not bode well for shifting away from Obama's aggressive pursuit of more mandates on businesses under a Clinton presidency. Then again, Clinton's record from her time in the Senate and that of her husband's administration is more pragmatic than the Obama approach, so there could be some degree of moderation in regulatory policy if she is elected.
Trump, on the other hand, has bemoaned the excessive regulatory approach under Obama. He has proposed a moratorium on new federal regulations and indicated his administration would review all existing regulations to evaluate their effectiveness and effects on jobs and the economy. Clearly, a moratorium on new regulations and the general thrust of Trump's approach to regulatory policy would be a welcome respite for roofing contractors from the status quo.
Given the torrent of new regulations affecting the roofing industry, NRCA has made passage of regulatory reform legislation by Congress a high priority. Among other reform initiatives, NRCA has supported the Regulatory Accountability Act, which would strengthen protections for businesses against intrusive regulations by providing for more rigorous cost-benefit analysis and transparency in the agency development process. The bill was approved by the House in 2015 but has stalled in the Senate because of opposition from Democrats despite numerous efforts to develop bipartisan support. Additionally, the Obama administration has indicated the president would veto this bill on the grounds its reforms would prevent agencies from issuing new regulations in a timely manner.
The Regulatory Accountability Act or similar legislation is certainly needed to provide long-term regulatory relief for roofing contractors and other businesses. Legislation of this nature would have a better chance of passage with the election of Trump and with Republicans maintaining control of the House and Senate. With Democrats in control of the Senate and/or a Clinton presidency, the enactment of effective regulatory reform legislation likely would face insurmountable obstacles.
As the construction economy has improved in recent years, many NRCA members have experienced great difficulty finding quality workers. Indeed, nearly all NRCA members indicate workforce development is the biggest challenge facing their businesses, and NRCA is working to address workforce issues on several fronts.
One component of addressing workforce issues involves immigration reform that curbs illegal immigration and provides an avenue for workers to come to the U.S. legally when economic conditions warrant. Immigration reform that provides access to a reliable supply of labor has been a priority for NRCA for more than a decade, and Congress may attempt to address this issue in 2017.
Immigration has played a larger role in the 2016 presidential contest than in previous elections. In 2012, Republican nominee Mitt Romney took a hard-line position on immigration in the primary campaign but downplayed the issue in the general election. However, Romney's hard-line position on immigration and the resulting low level of support among Hispanic voters were several key factors that cost him the election, according to many political observers and a post-election analysis by the Republican National Committee.
Trump has taken an even harder line on immigration in the Republican primary and made it one of his signature issues. He famously said he would "build a wall" on the Mexican border and create a "deportation force" that would deport the estimated 11 million undocumented immigrants currently in the U.S. He also accused other Republican contenders who would do anything less as supportive of "amnesty" during the primary. Trump largely has held firm on his hard-line position on immigration reform since securing the nomination in May.
But in late August, Trump equivocated on the issue of deportation and indicated he might "soften" his approach to illegal immigrants if elected. He then appeared to double down on his hard-line approach in a speech after meeting with the president of Mexico only to say the following week "I'm not ruling out anything" when asked by reporters whether he could rule out working with Congress to grant a pathway to legal status for undocumented immigrants.
Regardless of how the specifics of Trump's position evolve, his hyper-emphasis on illegal immigration means his priority if elected likely will be on border security. This presumably will include an effort to mandate the use of E-Verify for all employers and could entail other workplace enforcement initiatives that may be problematic for employers. Additionally, given Trump's "enforcement-first" approach to immigration, he may not be receptive to legislation NRCA has long supported to create a guest worker program that enables employers to legally hire immigrant workers when necessary to fill job openings. Then again, the fact that his businesses have used the H-2B seasonal guest worker program may create an opening for his consideration of this approach.
Clinton's position on immigration reform differs markedly from Trump's in nearly all respects. Clinton has said she will introduce "comprehensive immigration reform" within her first 100 days in office, which would be designed to fully overhaul the U.S. immigration system. This likely will include provisions to strengthen border security, expand workplace enforcement and provide a pathway to citizenship for undocumented immigrants. NRCA has supported various forms of comprehensive immigration reform during the past decade depending on the details.
Overall, the chances for immigration reform that meets the roofing industry's workforce needs likely would be better under a Clinton administration. However, labor unions have been stridently opposed to guest worker programs for the construction industry. Given the support of organized labor for Clinton's campaign, Clinton may be reluctant to support such a provision as a component of immigration reform. However, she might be willing to accept it as part of a compromise if such legislation gains traction in Congress.
The battle for control of Congress is every bit as important to the future direction of government policy as who wins the presidency. The stakes in the 2016 congressional elections couldn't be higher.
The major prize is majority control of the Senate in the new Congress that will convene in January 2017. Republicans took control of the Senate after the 2014 midterm elections for the first time in eight years and currently have a 54-46 seat advantage in the upper chamber. Democrats must win a net of five Senate seats to take back the majority though the number slips to four if Clinton wins the presidency (because the vice president also serves as president of the Senate and can break tie votes).
As we head toward Election Day, Democrats clearly are within striking distance of achieving this goal. Republicans face the daunting task of defending 24 seats up for re-election whereas Democrats are defending 10 seats. Moreover, seven Republican seats are in states President Obama won twice: Florida, Illinois, Iowa, New Hampshire, Ohio, Pennsylvania and Wisconsin. All but one of these races either slightly favor the Democrat candidate or are considered toss-ups.
In addition, the race in Indiana recently became competitive with the entry of former Sen. Evan Bayh (D) into the contest. Political observers also are closely watching races that currently favor Republicans but which may become more competitive in the final months in at least three other states (Arizona, Missouri and North Carolina). It appears the only realistic chance for a Republican to win a seat currently held by a Democrat is in Nevada where NRCA-supported Rep. Joe Heck (R) has a narrow lead in the polls.
Based on polling through mid-August, the Real Clear Politics website predicts a net Democrat pickup of four seats—just enough to take control of the Senate if Clinton wins the presidential election. It is possible several Republicans currently trailing narrowly in the polls could pull out victories, but the probabilities do not favor them.
What Republican operatives and many in the business community who favor Republican control of the Senate fear most is a potential wipeout of Senate Republicans in the event of a major drag from the top of the ticket. Given Trump's high negative ratings among voters, the unconventional nature of his campaign and the decline of ticket-splitting voters in recent years, a poor performance by the Trump campaign could undermine numerous Senate Republican candidates. In the worst-case scenario, Democrats could gain anywhere from eight to 12 seats, possibly bringing them close to achieving a filibuster-proof majority of 60 seats in the Senate.
In the House, the Republican majority appears to be relatively safe. Republicans now have a 30-seat majority, and there are only a few dozen House seats that are truly competitive given the gerrymandering of congressional districts and the power of incumbency. Based on polling results, the Real Clear Politics website predicts Democrats will garner a net pickup of only five seats, far short of the 30 needed to take control of the House.
However, it is plausible Democrats could pick up 10-15 or even more seats in the House, and such gains could have significant ramifications for the Republican policy agenda in 2017. Even with their current 30-seat majority, House Republicans have had great difficulty passing legislation on key issues because a group of about 40 highly conservative Republicans (known as the Freedom Caucus) opposes many initiatives favored by other Republicans. If Republicans lose a substantial number of House seats, the Freedom Caucus could wield even more power in 2017, providing them with virtual veto power on the House agenda, particularly on immigration reform.
Clearly there is much at stake in the congressional elections. Keep in mind, barring a wave election, neither party is likely to command the 60 votes needed to pass most legislation in the Senate. As such, bipartisan cooperation still is going to be necessary to address the U.S.' major policy challenges, including issues important to NRCA members, no matter who resides at 1600 Pennsylvania Ave.
NRCA, through its political action committee ROOFPAC, has been supporting pro-business candidates in numerous Senate and House races for the 2015-16 election cycle but is remaining neutral in the presidential race. ROOFPAC will continue to be active in key races this fall. All NRCA members concerned about the effects of government policies on their businesses should be actively supporting ROOFPAC to maximize NRCA's influence in Washington, D.C.
Up in the air
In 1996, President Bill Clinton famously said: "The era of big government is over." But that does not appear to be the case 20 years later as government policies imposed on businesses have accelerated in recent years. The 2016 elections could determine whether this trend continues or is reversed. NRCA is engaged in the political process on behalf of its members and is working in support of policies that enable entrepreneurs to start and build businesses in the roofing industry.
Duane L. Musser is NRCA's vice president of government relations.