The Generals

On Friday, July 28th, President Trump announced in a tweet,  "I am pleased to inform you that I have just named General/Secretary John F. Kelly as White House chief of staff. "  President Trump's appointment of Secretary of Homeland Security General John F. Kelly has been the most widely praised action of the first six months of his Presidency.  
 
As Secretary of Homeland Security, General Kelly was responsible for carrying out some of the most controversial policies of the Trump Administration including the travel ban, building of a border wall, efforts to increase the number of deportations of undocumented immigrants, and the expansion of deportations to include individuals who do not have any criminal records. Most controversially under General Kelly, DHS started deportations to separate parents from their young U.S. citizen children. 
 
Despite General Kelly's stubborn determination to carry out the Trump homeland security agenda, his appointment was met with praise from many of Trump's fiercest critics on immigration and domestic policies. They almost uniformly praised General Kelly's character, patriotism, and willingness to constructively engage with criticism. 
 
Born and raised in Brighton, MA, educated at St. Mary's High School (Waltham, MA), and a graduate of UMass Boston, General Kelly represents the highest ideals and aspirations of 1950's Boston neighborhood culture. General Kelly is highly disciplined and apolitical, but has a deep sense of patriotism that imbues every aspect of his life. At a time when our political culture is increasingly toxic, General Kelly reflects an earlier era of unity of national purpose, respect for public service, tradition and regular order. 
 
Prior to his retirement from the military, General Kelly served as Commander of U.S. Southern Command. While serving during the Obama Administration, General Kelly was recognized for his dedication to carrying out the government's policies, including significant controversies, such as the hostage trade for Bowe Bergdahl. At the same time, General Kelly was known for his unusual candor and criticism of many of the Obama policies, specifically, efforts to close the Guantanamo Bay prison and the opening up of combat roles to women. 
 
General Kelly has said that all but one of his twenty-five or so Brighton childhood friends has died from alcohol or drugs. The many tragedies of his childhood friends and his time as Commander of U.S. Southern Command have led General Kelly to consider border security an "existential threat." General Kelly has a deep-seated belief that many of the greatest threats to U.S. security come from transnational organized crime, drug and human trafficking, and uncontrolled human migration from Central and South America.
 
In his first few days on the job, General Kelly replaced a number of the most controversial and erratic members of the White House staff, and reached out to Senate and House Minority Leaders Schumer and Pelosi to signal a new openness on the part of the White House to work with Congressional Democrats. It is becoming apparent that General Kelly will be able to manage the White House staff. What is not yet apparent is whether General Kelly will be able to curb President Trump's worst instincts. 
 
On Tuesday, August 8th, President Trump spontaneously and without consultation announced that North Korea would " be met with fire and fury like the world has never seen ." It appears that Chief of Staff Kelly, Secretaries Mattis and Tillerson, National Security Advisor McMaster, and Joint Chiefs Chairman Dunford were not involved in scripting and/or guiding the President's threat against North Korea. 
 
As the threat level for potential nuclear war increases, both the Republican leadership in Congress and most of the national security community appear relieved that there are experienced, mentally balanced adults that offer some buffer between the President's twitter finger and the nuclear codes. There are three loose and informal alliances within the Administration who appear to see themselves as "an unofficial committee to protect Trump and the nation from disaster." The most important of these alliances is among the current and former Generals: Kelly, McMaster, and Dunford, along with Defense Secretary Mattis. The second group, "The New Yorkers," includes Economic Advisor Cohn, Deputy National Security Advisor Dina Powell, and Treasury Secretary Mnuchin. These individuals have worked closely together to prevent trade wars and erratic decisions that could upend markets. The final group is the Republican Congressional Leaders. They have been the most timid of the three, but with President Trump's increasing provocations towards Majority Leader McConnell, the Republican Congressional leadership has become more forceful in their criticism of Trump policies and behavior (and, it should be said, Senator McConnell's wife, Secretary of Transportation Elaine Chao, is perhaps the most uncomfortable person in Washington).
 
In addition to the growing crisis on the Korean Peninsula, Congress will return from its recess on September 5th to face the most daunting agenda of any Congress since the 93rd Congress dealt with the Nixon resignation in August of 1974.
 
In particular, during the month of September, Congress will need to pass an appropriations bill to avoid a government shutdown on October 1st, and pass an increase in the debt ceiling to avoid a default on the U.S. government debt.
 
The Trump Administration has sent mixed signals about a government shutdown and on passing a "clean" increase of the debt ceiling. The so-called House Freedom Caucus, Senator Ted Cruz, R-TX, and other members of Congress who favor chaos and anarchy, are all already threatening to hold up appropriations bills and the debt ceiling increase.
 
In addition to "cleaning up" after President Trump's "impromptu threats to North Korea" General Kelly faces a daunting task in finding a path forward for the debt ceiling and the budget. He will need Democratic support and both the Administration and the House leadership on board with a strategy. Success will, out of necessity, require near-unanimous Democratic support, and some modest number of moderate Republicans to vote to raise the debt ceiling and keep the government funded on time. A tremendous task to say the least. 
 
While the verdict is in on General Kelly's competence, capability, and patriotism, the verdict is still out on General Kelly's ability to control President Trump's tendency to create chaos, discord, and crises.

Chet

The Only Certainties in Washington are Gridlock and Taxes

Following last month's health care showdown, Congress and the Administration have now shifted their attention to comprehensive tax reform. Last successfully tackled in 1986, White House officials are pushing to accomplish this monumental task by the end of the year, ideally before the Thanksgiving break. If all goes according to plan, tax reform legislation will receive House hearings and a markup in September, full House passage in October, full Senate passage in November, and the President's signature shortly thereafter. 
 
This is an aggressive and optimistic timeline. With the general paralysis and dysfunction that have defined this Administration and Congress aside, let's keep in mind that the last major overhaul of our nation's tax code took over a year of painstaking negotiations before eventual agreement between then-President Reagan and then-Speaker of the House Tip O'Neill, D-MA 8. While the then-President and Speaker were a Republican and Democrat respectively, these two leaders had a mutual respect for one another and a sincere desire to achieve major legislative reforms. Fast-forward to present day: Republicans and Democrats can't sit down for an adult conversation, and Republicans, who control the White House and Congress, can't even find common ground on an Obamacare repeal pledge on which they all have been in lockstep over the past 7 years.
 
Reconciliation - Again?
Republican leadership has stated publicly that it is their hope to achieve tax reform with Democratic support, but, just as in their attempts at Obamacare repeal, the GOP is focused on using the reconciliation process to pass tax legislation out of the Senate. The driver behind this strategy is that the Senate could move a tax package without the threat of a filibuster, and, thus, would only need the support of 50 Senators to pass the legislation, with Vice President Mike Pence's tie-breaking vote.
 
In order to use the reconciliation process to move tax reform out of the Senate, GOP leadership is working to pass an FY18 budget resolution that includes instructions for a deficit-neutral tax overhaul. Accordingly, just prior to the break for the summer recess, the House Budget Committee passed an FY18 budget resolution that sets reconciliation instructions for a deficit-neutral tax overhaul and $203 billion in cuts to mandatory spending. As it stands, this resolution lacks the support to pass the House (and, realistically, the Senate). Republicans in the moderate "Tuesday Group" have concerns with cuts to mandatory spending programs, and the conservative "Freedom Caucus" is demanding more tax reform details before supporting. No Democrats are expected to vote in favor of the resolution. It is therefore unlikely to go to the House floor in its current form - adding another delay to the aggressive timeline.
 
The Senate Budget Committee, meanwhile, has yet to put forth their FY18 proposal, and there is speculation that Senate leadership may cut out the Budget Committee and bring a measure to the floor without committee scrutiny - a somewhat risky move given the results of bringing Obamacare repeal to the floor without committee vetting committee first. In sum, the lack of a final FY18 budget resolution stands as a major obstacle to GOP tax reform efforts because passage of the measure is necessary for the use of reconciliation.
 
How Health Care's Failure and the Demise of BAT Impact Tax Reform
Despite wide criticism that Republican leadership started with health care as its first major reform effort, the simple fact is that the GOP was counting on the tax and entitlement cuts included in the American Health Care Act of 2017 (AHCA) and Better Care Reconciliation Act of 2017 (BCRA) to give the GOP a significant head start on tax cuts and aide in reducing the overall federal deficit.
 
Further complicating matters, the group of Administration and Congressional officials leading tax reform, known as the "Big 6," recently announced that, for the time being, they are shelving the controversial import tax known as a border adjustment tax (BAT). The BAT was expected to raise over $1 trillion in tax revenue over 10 years. The loss of potential BAT revenue coupled with over $1 trillion in tax cuts the GOP was hoping to repeal as part of an Obamacare repeal leave Republicans with more taxes to cut than anticipated, and an incredibly significant lack of offsets. This leaves Republicans looking at the repeal and/or modifications of existing tax deductions and exemptions as the only path forward to cut corporate and/or income taxes.
 
So What Will Tax Reform Actually Contain?
Absent other budgetary offsets to "pay for" lower overall income tax rates, many experts suggest curbing or eliminating various tax expenditures, including popular income exemptions and deductions. Some of the expenditures that have been targeted by various stakeholders across the ideological spectrum include the mortgage interest deduction, the employer-sponsored health insurance deduction, various retirement-related deductions, the local and state tax deduction, the Earned Income Tax Credit, the charitable donations deduction, the tax exemption on municipal bonds, the Alternative Minimum Tax Credit, and others. While eliminating or scaling back these tax expenditures would serve to simplify the tax code, and in theory could create a more "fair" system (always a loaded term, ideologically), these credits have entrenched stakeholders, and the elimination of each would surely enrage parts of the population, including large segments of the Republican base. Homeowners, for instance, benefit immensely from the mortgage interest deduction, and the 49% of Americans who receive their health insurance from their employer benefit from its tax deductibility. For many middle-income families, even a significant cut in overall tax rates would not offset the loss of these popular provisions. Moreover, powerful special interest groups, like the National Association of Realtors and America's Health Insurance Plans, will fight tooth and nail to protect them. Every element of the tax code, no matter how seemingly arcane, has a constituency, and lawmakers will be sure to hear from those constituencies should their preferred deductions be on the chopping block.
 
Therefore, the specifics of a tax reform plan remain elusive. Speaker Ryan's, R-WI 1, blueprint covering domestic and foreign policy, dubbed "A Better Way," once touted as the GOP answer for comprehensive tax reform, has received little attention of late. In a July statement, the "Big 6" provided the following themes, on which they will focus subsequent talks:
 
  • Reducing tax rates on American families and businesses;
  • Allowing unprecedented capital expensing;
  • Prioritizing permanency of the changes;
  • Creating a system that encourages American companies to bring back jobs and profits trapped overseas.
 
President Trump and Congressional Republicans have been optimistic that they'll be able to achieve "permanent comprehensive tax reform" this year. We agree that it needs to happen this year for any chance in the 115th Congress, considering the fact that 2018 is an election year. However, we are much more pessimistic as to what can cross the goal line this year. In our opinion, there are two more likely scenarios: a package of temporary tax cuts, similar to the Bush tax cuts of 2001 and 2003, which includes large tax breaks for a temporary period of time, or, a permanent series of more moderate cuts.
 
Will the Senate Block Tax Reform?
Given the Senate's recent role in blocking health care repeal/reform, there is general concern that the Senate may bring tax reform to meet the same fate. There are, in fact, several factors going against tax reform in the Senate. The most pressing issue is that the Senate has already committed to handling three major issues in September: (1) raising the debt ceiling; (2) funding the government (most likely to result in a "mini-bus" for national security spending and a short-term continuing resolution, given that the Senate Appropriations Committee has yet to even mark up half of its annual funding bills); and (3) continuing work on health care. As we have said many times in this article - this adds another delay to the tax reform timeline.
 
That being said, the Senate's dynamics are much more friendly to passing a tax code overhaul than they were to passing health care reform, as long as it can be done without tremendous entitlement cuts. Let's not forget two things: first, despite a Republican majority, the 2003 Bush tax cuts, known as the Jobs and Growth Tax Relief Reconciliation Act of 2003, passed out of the Senate with only 50 'ayes.' The deciding ballot was cast by Vice President Dick Cheney, after a contentious...you guessed it... reconciliation vote. And interestingly enough, of the 100 current U.S. Senators, a whopping 25 were sitting U.S. Senators casting votes on the 2003 Bush tax cuts. The vote brought three defections from each caucus, essentially negating any defections. Senators Collins, R-ME, and Murkowski, R-AK, two Senators now famous for their steadfast opposition to the BCRA, both voted in favor of the tax cuts; Senator John McCain, R-AZ, however, is the one Republican Senator still serving that voted against the bill. The fourth no, which necessitated Vice President Cheney's vote, came from Senator Jim Jeffords, I-VT, who was initially elected on a Republican ticket, but soon after registered as an Independent, caucusing with the Democrats.
 
As we look ahead to new tax reform legislation, we anticipate the Senate passing legislation so long as it does not contain major entitlement cuts (this really puts the onus back on the House to craft said legislation). Similar to the 2003 vote, there are three Democrats likely to vote with Republicans on tax reform: Joe Manchin, D-WV, Heidi Heitkamp, D-ND, and Joe Donnelly, D-IN. And while we expect Independent Senator Angus King to vote with the Democrats on tax reform, we are hard pressed to find three Republicans that will vote against it, potentially setting a scenario where the 2015 Senate provides more support for tax cuts than it did in 2003.
 
While we may be in unprecedented territory with regard to the White House and Trump Administration, we certainly aren't with Congressional politics, especially in the Senate. For now, we'll wait to see what the House produces for tax reform legislation, and how the timeline unfolds. 

Remember the Ladies

Following a decisive special election, the Massachusetts Senate recently welcomed its newest State Senator, Cindy Friedman (D-Arlington). Senator Friedman's election boosts the percentage of women serving on Beacon Hill to 26% (13 in the Senate; 39 in the House) - a high watermark for the General Court.
 
A leader on many issues, Massachusetts remains barely above average (24th) in terms of legislative leadership at the State level. What's more, we have yet to elect a female governor and have sent just six women to Congress, electing our first female U.S. Senator just five years ago.
 
This week, Congresswoman Niki Tsongas announced that she will not seek reelection in 2018 to the Massachusetts 3rd district, a seat formerly held by ADS' own Chet Atkins. In 2007, Congresswoman Tsongas' election marked the first time in 25 years that the state elected a woman to Congress. Reflecting upon her election in a statement released by her office, Tsongas remarked,
 
"Since that door cracked open, the Commonwealth has elected another female member of Congress, our first female US Senator, and in my district, 50% of our state legislators are now women, paving the way for even more women from our state to serve in political office bringing their voices to all we value as a country."
 
Two sitting female State Senators and one sitting female State Representative have already had their names floated for a potential run - Senator Barbara L'Italien, D-Andover, Senator Eileen Donoghue, D-Lowell, and Representative Jen Benson, D-Lunenburg. Ellen Murphy Meehan, the former wife of Marty Meehan and co-chair of Niki Tsongas' first campaign in 2007, has also expressed an interest in adding her name to the ballot. Proof positive that the loss of Congresswoman Tsongas' leadership and the race to fill her seat will undoubtedly reverberate not only on the federal level, but on the state and local level as well.
 
Research demonstrates that businesses with greater gender diversity at the top maintain a competitive advantage in the global economy. Women and minorities bring with them unique perspectives and experiences that make companies stronger. Likewise, female policymakers expand the character and content of political discourse - affecting not only the range of issues discussed, but also the policymaking process itself. After all, it was two female Senators, Susan Collins, R-ME, and Lisa Murkowski, R-AK, who had been cut out of health care reform discussions that ultimately killed the repeal of Obamacare.
 
While few in number, female policymakers on Beacon Hill have already made an indelible mark on the Commonwealth's political landscape. The Massachusetts Women's Political Caucus has successfully advocated for passage of landmark legislation encouraging pay equity and requiring pregnant worker protections. As one of her first acts, Treasurer Deborah Goldberg created the Office of Economic Empowerment, which supports, advocates, and facilitates policies to close the wage gap, increase access to financial education, improve college affordability, and invest in STEM careers and education. The Treasurer has also taken the fight beyond Beacon Hill to the boardroom, calling for Massachusetts corporations to reach at least 30% board diversity.
 
As we approach the often-hectic rush to the finish line of the state's two-year legislative session, we should expect female policymakers to continue to wield outsized influence. On criminal justice reform, House Judiciary Chairwoman Claire Cronin, D-Brockton, and Senate Ways and Means Chairwoman Karen Spilka, D-Ashland, will shape both the debate and the ultimate outcome. On cannabis regulation, Treasurer Goldberg and Attorney General Maura Healey will name the majority of members of the state's oversight entities and will remain actively involved in the oversight of the bourgeoning industry. And on health care, Secretary Marylou Sudders, Commissioner Monica Bharel, and Director of the Bureau of Substance Abuse Services Allison Bauer will influence the implementation and development of new opioid-related policies and will negotiate the Commonwealth's move to an Accountable Care Organization model. 
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