The ADS Ventures Newsletter
Not So Fast

Democrats have been jubilant about the election returns in Virginia and New Jersey. While the results from this year's off-year elections certainly bode well for the Democrats and ill for the Republicans, a closer review of the election results indicates that Democrats would do well to keep their champagne on ice. The big surprise from the November 7th elections was the huge Democratic wave in Virginia's House of Delegates; however, of the 16 districts that Democrats won, Clinton won 15 of them and received 49.7% of the votes in the 16th district. Clinton won 12 of those 15 districts by five points or more. College educated, white voters (especially women) swung hard away from the Republicans, but the Democratic gubernatorial nominee, Lieutenant Governor Ralph Northam, didn't even come close to matching Governor Terry McAuliffe, Senator Tim Kaine, or President Obama's percentages in rural western Virginia. The Virginia results show an accelerating realignment of political preferences with Democrats improving their support among minority voters, women, and college educated suburbanites, while continuing to lose support among working class whites and rural voters.
 
To gain majorities in the House of Representatives, the U.S. Senate, and win back control of more state governments, Democrats will need to do (much) better than they did in the elections this November. The combination of partisan gerrymanders favoring the Republicans and the Democratic concentration of voters in urban areas makes it imperative that Democrats establish a message that resonates not just in the urban upscale enclaves but also in rural and working class communities that continue to suffer from the impact of globalization and slow wage growth. There are only eleven Republican-held Congressional districts where Clinton won by five points or more. Even if Democrats sweep those eleven districts, they will still be thirteen seats short from achieving a House majority.
 
This November's elections provide further proof that we are living in an age of global populism as our two parties undergo the most radical realignment they have faced since 1968 and indeed since 1905. Political geographies, identities, and divisions are changing in a way that is much bigger than the Trump phenomenon and is caused by a global populist movement that has spread throughout western Democracies. It is important to place the changes in American politics within the context of the decline of center-left parties across Europe and the West. Center-left parties in Western democracies have lost touch with working class voters and are finding it increasingly difficult to replace them with what The New York Times columnist David Brooks refers to as "a mixture of identity politics and faculty lounge populism." In Germany, France, Australia, India, Mexico, and beyond, we are witnessing the decline of major political parties, and the fragmentation of political parties both in presidential and parliamentary democracies.
 
The question for both parties is: Will they decide to double down on their base voters and attempt to win in 2018 by increasing the enthusiasm of their core supporters or will they try to appeal to a broader, more inclusive constituency? President Trump and the Republican Nominee in the Alabama Senate Race, as well as Bannon's War on the more moderate, "establishment" Republicans, have made it almost impossible for all but a handful of Republican members to meaningfully engage with the broader electorate. This has given the Democrats a huge advantage, but the Democratic leadership continues to be seriously challenged in delivering a consistent message of economic fairness, security, growth, and opportunity that appeals to voters in places like Johnstown, PA, Waukesha County, WI, Maricopa County, AZ, and Macomb County, MI. 

Chet
Tax Cuts, Tax Reform... Will Anything Really Happen?

Tax cuts have become the animating issue for the Republican majorities in the House and Senate, and for the Trump Administration. It is one of the few issues - and maybe even the only issue - that has the capacity to unite all factions of the Republican Party. The Trump Administration and Congressional Republicans have put all their "eggs" in the tax cut "basket," indicating that without passage of tax cut legislation, the Republicans are likely to lose their majority in the House and perhaps in the Senate. The Republican leadership also fears that without at least one major legislative victory in 2017, many incumbent members will choose to retire because they will have run out of patience with the Congressional gridlock, infighting, and lack of accomplishment. Already, two of the eight Senate Republicans who will defend their seats in 2018 (Tennessee Senator Bob Corker and Arizona Senator Jeff Flake) have announced their retirement at the end of the current Congress, and a number of Republican House members have joined them.
 
While it may appear that Congress is on the verge of passing a massive tax cut, the underlying dynamics indicate a very difficult path forward. The Trump Administration and its Treasury Department originally outlined a tax cut plan that would cost between 5 and 6 trillion dollars over the next decade. Meanwhile, the Senate and House passed a budget resolution that would allow a tax cut costing "only" about $1.5 trillion over the next decade. However, Senate rules complicate matters, requiring budget neutrality outside of the ten year budget window; neither the House nor the Senate has crafted a proposal that would achieve this requirement.
 
In order to bridge the huge gap between the current proposals and budgetary reality, Congress will need to either repeal popular deductions or significantly reduce the scope of other tax cuts. With each week that passes, however, it is becoming more and more evident how deep the divides are between just the House and the Senate, let alone the Administration. For example the original House proposal to repeal the state and local tax (SALT) deduction has been eliminated in the lower Chamber's bill, with Chairman Brady reiterating just yesterday that he will not include an elimination of the deduction. The Senate version, however, keeps this elimination in place and is unlikely to strike the provision. Since those states most impacted by the deduction are represented by Democratic Members in the Senate, there is little incentive to find another "pay for" in the Senate. However, the dynamic is opposite in the House, where many Republicans represent wealthy suburbs in otherwise liberal states. Those Members, from states like New York, New Jersey, and California, are crucial to passing the overall bill but are put in a very difficult place politically if they vote to scrap the SALT deduction.
 
The mortgage tax credit and retirement contribution tax credits are still on the chopping block, with the House bill including a provision that would limit the mortgage deduction at $500,000 while the Senate would maintain the maximum of $1 million. On the other hand, while the House bill would scrap the deductions for tuition, student loan interest, and high medical bills, the Senate's version would leave them in place.
 
And yesterday , President Trump threw in a wild card that the Congress had seemed keen to avoid so far in the tax debate - calling on Congress to include a repeal of the Affordable Care Act's individual mandate as part of the tax legislation. While the repeal of the mandate would provide a significant deficit reduction, the inclusion of said repeal is something GOP leadership has been extremely hesitant to touch based on the fact that it would likely jeopardize several key Republican votes. At this point it appears Senate GOP leadership is doing a whip-count on rank-and-file Members to see if they have the 50 votes needed to support the repeal of the individual mandate, and if they do, they will include it.
 
While the Congress did pass a budget resolution this year that allows tax reform legislation to be passed via the now famous reconciliation process, matters are complicated in the upper Chamber for two reasons. First, Senate rules require any bill passed via budget reconciliation to be revenue neutral beginning ten years after passage. As noted, neither the House nor the Senate bill are likely to pass this test, known as the Byrd Rule, so both bills will need additional revenue. That means all the deductions that seem to be off the chopping block now may end up front and center again as the House and Senate try to come to a consensus.
 
Second, the Senate Finance Committee has just begun their deliberations on how to square the forthcoming tax reform measure with the 2010 statutory Pay-As-You-Go (PAYGO) Act. Under PAYGO, the Office of Management and Budget compiles a scorecard of the budgetary effects of bills passed. If a new law increases the deficit over a 5-year period, the Administration must enact across the board cuts to federal programs, including Medicare, Medicaid, and Defense spending. Congress does have the capacity to issue a waiver for its own actions (no surprise there). While this may seem a modest impediment, many of the deficit hawks in the House and Senate have made a huge investment in PAYGO, which has become almost theological particularly for the House Freedom Caucus. Having to waive the PAYGO rules will be a bitter pill for Republican Members who have spent their careers fighting against increased federal deficits.
 
So, will Congress pass tax reform legislation by the end of this calendar year and provide tax breaks as early as next year? While the House is likely to pass their bill as early as this Thursday, the Senate's recently released bill sets corporate tax reform for a start in 2019 - which, in our opinion, is the earliest you might see real tax reform take place. The Senate started marking up Chairman Hatch's bill yesterday, and will likely need at least this week to do so. Imagining an extremely aggressive timeline, if the Senate Finance Committee were to finish marking up this week and pass the bill next Monday, that would leave us with 14 legislative days in the House and 15 in the Senate prior to the end of the year. Given the gaping holes in between what we expect to pass the House and what we expect to pass the Senate, even if both Chambers added the 8 potential additional working days to their calendars, we find the odds to be pretty slim that all differences can be worked out in Conference Committee and votes secured prior to the start of 2018.
 
Finally, don't forget that during this same time frame, Congress needs to fund the government, raise the debt ceiling, "fix" DACA, and make a decision on whether or not to authorize and appropriate funds for Cost-Sharing Reductions (the now infamous insurance subsidy). Each of these elements carries a hard and fast deadline, while tax reform is accompanied only by a desired (and self-imposed) timeline. While tax reform may be the sole animating principle of the Republican party in Congress, there is still significant governing to be done before the end of 2017.
Commonwealth Corner: A Woman's Place is On The Ballot

On November 7th, voters turned out across the Commonwealth to elect new leaders from School Committee, to a State Senate Primary, to Mayor. While voter turnout was low, around 9% in cities like Holyoke and only 27% in Boston, the results were noteworthy.
 
Bostonians re-elected Mayor Marty Walsh by a margin of nearly 2:1 against City Councilor Tito Jackson. It was hardly a surprise given Mayor Walsh's success record, bipartisan support, and fundraising capabilities. Mayor Walsh has vowed to focus his next four years on affordable housing, economic growth, equality, and improving Boston Public Schools - dubbing his platform, "A City for All of Us." As for the seat Councilor Jackson gave up, come January it will be filled by Kim Janey, one of six women of color elected to the Council last week, making the upcoming City Council the most diverse in Boston's long history.
 
Framingham made news in April when its citizens voted to change the form of government from a town to a city. This paved the way for the election of Framingham's first Mayor, along with an 11-member City Council. The wave of voting in powerful and diverse women made its way from Boston's City Council to Framingham's municipal executive in the form of Mayor Yvonne Spicer, who bested one-time State Representative John Stefanini (D-Framingham).
 
The narrative of women running for and winning office is a powerful one. For example, Newton voters elected their first female mayor, Ruthanne Fuller, and elected 11 women to the City Council out of 25. Voters elected four women to Cambridge's City Council , including Sumbul Siddiqui, the city's first female Muslim Councilor. And in Leominster, Susan Chalifoux-Zephir was selected to face off against Dean Tran in a State Senate Primary to replace Senator Jennifer Flanagan. The numbers certainly aren't staggering, but when you consider that of the 351 cities and towns in the Commonwealth, 97 have no elected women, this shift toward female candidates in an off year feels significant. According to Blue Lab, a student-run political think tank, in 2016 there were only 430 women holding an executive level office (i.e., mayor, city councilor, aldermen, etc.) in Massachusetts, or about 24% of the total elected positions available. If current trends are any indication, perhaps we will see that percentage increase to at least 30% come 2019.
 
The impact on Beacon Hill is minimal from the municipal elections of 2017. There were two special elections held on the 7th; one for the seat of the late Representative Gailanne Cariddi in North Adams, and one for the seat vacated by former-Representative Brian Dempsey in Haverhill. North Adams voted in former Mayor John Barrett III, who served as mayor of the city for 26 years, to carry on Representative Cariddi's legacy and champion the needs of Northern Berkshire County. Haverhill elected 24-year old Andy Vargas to the House of Representatives. Representative-elect Vargas has agreed to resign his seat as on the City Council in order to focus on filling the shoes of the powerful former House Ways and Means Chairman Brian Dempsey.  
 
As two new faces join Beacon Hill, two known entities will depart -- maybe. Representative Heroux won the mayoral seat in Attleboro but has publically stated he does not intend to give up his State House seat. The move is widely seen as an attempt to keep the seat in Democratic hands and away from Republican City Councilor Julie Hall, a likely candidate to replace Heroux. While this political gamesmanship has naturally drawn criticism from folks like Governor Baker, others including Speaker DeLeo have declined to comment one way or another. The decision to hold both elected offices is not unprecedented, but it is unusual.
 
One face that will definitely be leaving the Legislature is long-time Senator Tom McGee (D-Lynn) who won the Lynn mayoral race. The Senator's move from Beacon Hill to City Hall will trigger a special primary election and a general sometime this winter, with possible candidates including current State Representative Brendan Crighton, and former Mayor Judith Flanagan Kennedy.
 
If the 2017 cycle lacked much of the election drama we've all come to appreciate, that is certain to change in 2018. The even-year state-wide election cycle will be a doozy, with several ballot initiatives including the "Millionaire's tax," the Governor's race, contests for Senator Elizabeth Warren's seat and all nine Massachusetts seats in the US House of Representatives, along with all 160 State House and 40 State Senate seats. 
Beacon Hill: The Promise of Reform 

The Legislature will slip into holiday mode tomorrow, Wednesday, November 15th. We can expect to see informal sessions for both chambers, but there will not be any formal sessions until January, under joint legislative rules. While bills can and will be heard in informal session, any bill can die in an informal session if one member objects, whereas formal sessions allow for recorded votes. This technicality will be important if Senators intend to pass a $244 million capital bond bill or override the remaining 25 budget vetoes the House sent over in October. As for the House's formal session docket, they intend to deal with scores of criminal justice reform amendments, including a bill emerging from the Council of State Governments review and a House Ways and Means redraft of the Senate's sweeping Criminal Justice Reform.
 
In typical Beacon Hill style, eleventh hour legislative packages have emerged in each chamber dealing with complicated issues - the Senate passed health care reform and cost containment, and the House released its version of criminal justice reform. The implications of both packages are drastic on their respective industries, but the road to implementation is long.
 
The Senate voted to advance an omnibus health care bill on a party line 33-6 vote last Thursday. According to Senators, the bill addressed "broken" elements of the health care system while saving money for consumers and the state. Issues such as reducing hospital readmissions, cutting down out-of-network charges, increasing telemedicine and mobile integrated health, enrollment of eligible seniors in the home care program Senior Care Options and a comparison on the current spending on health care for all residents against an estimated cost through a single-payer system were successfully adopted. For its part, the House intends to develop its version of health care reform sometime in early 2018. We can expect a conference committee to hash out the differences, hopefully before the last day of the 190th General Court on July 31, 2018. No one doubts the necessity of health care reform and cost containment in the Commonwealth, where more than 40% of the state's annual budget is spent on health care; the difficulty comes in finding consensus among the two legislative chambers and the executive branch.
 
Speaking of hashing out the differences, the House Ways and Means Committee released a redrafted version of the Senate's Criminal Justice reform last week.  This is a reform package the House seems determined to move before 2018.  The members of the House filed 200+ amendments for debate addressing racial disparities, curbing recidivism, repealing additional mandatory minimum sentences and updating wiretapping laws, among many others.  Using a familiar procedural tactic, the House will dispense with several amendments in packages, allowing them to quickly and efficiently move through all 212 amendments by the November 15th recorded vote deadline. Once voted on, leadership will establish a conference committee to merge the Senate bill and the House bill together, and submit a final version to the Governor for his signature sometime in early 2018.
 
It's worth noting that when motivated, the Legislature can work together remarkably quickly. In an interesting response to President Trump's recent executive order to allow employers to reject birth control coverage on moral grounds, the House fast-tracked a bill that would keep birth control free in the Commonwealth. The Senate immediately followed suit on the ACCESS bill, clearing it in an informal session on Monday.  As Beacon Hill starts the holiday revelry, we should see less and less legislating. Come January though, we can expect the aforementioned reform packages to be taken up, the FY 2019 state budget to be debated, bond bills to surface, several local priority bills to pass and lots of stump speeches be made touting political progress in the 2018 election year.
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