WASHINGTON — Gridlock or progress?
That’s the question hanging over Tuesday’s congressional midterm elections, the outcome of which will either coax progress on the industry’s key issues, involving trade-preference programs and the Internet sales tax, or else more bickering between Republicans and Democrats as they battle for control and candidates begin to campaign for the 2016 presidential elections.
Democrats currently hold a majority in the Senate, while Republicans have control of the House. Political experts generally feel that control of the Senate, where a third of the seats are at stake, is in play, while the House should stay in GOP hands.
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Despite the expected outcome, industry executives remain skeptical that Congress will pass much legislation in the lame-duck session after the elections. They are optimistic, though, that legislation might inch forward in the first half of 2015, when the 114th session of Congress begins.
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“To me, the things that seem big and hard but possible are trade and immigration, as opposed to tax reform [and] Social Security or Medicare reform, which are too difficult. Those will be left for the next president,” said Phillip Swagel, a professor of international economic policy at the University of Maryland. “Once the election is over, legislating will be done with an eye toward the 2016 election.
“People understand that, if the Senate flips, then Republicans would try to put together votes that would have some appeal to Democrats. Republicans will also have to think about what they can do to put pressure on the president in the direction they want without overreaching,” Swagel added. “I like to put immigration and trade on that agenda.”
Retailers are hoping their top priority — a federal fix to what they argue is an Internet tax loophole — will finally get its day on Capitol Hill in the lame-duck session.
Joe Rinzel, senior vice president for government relations at the Retail Industry Leaders Association, said there is “a lot on the wire in terms of what they can do in a lame-duck session. Probably everyone in this town wants to get their priority issues done and illustrate a path forward. Some paths are stronger than others, and I feel reasonably confident that e-fairness is one of those paths.”
U.S. companies have been fighting for more than a decade for federal legislation that would enable states to collect sales taxes from out-of-state online sellers, but several measures have stalled over the years despite wide bipartisan support in both chambers. Observers believe that, in order to have a better chance of passing during the lame-duck session, the Internet sales-tax bill that passed the Senate in May 2013 should be combined with a separate, House-passed bill that extends a permanent ban on states taxing Internet access.
Under current federal law, retailers are required to collect sales tax from out-of-state customers only if they have a “physical presence” in the customer’s state. E-tailers such as eBay and others that don’t have distribution centers or offices in a certain state have relied on that decision to avoid collecting sales tax on online orders. Brick-and-mortar retailers argue that practice puts them at a competitive price disadvantage and have lobbied for federal legislation to resolve the issue.
“The prospect for Internet sales-tax passage is as good in a lame duck as it has ever been,” said David French, senior vice president for government relations at the National Retail Federation. “We’re through the Senate, and I think our Senate sponsors are pushing back over to the House…a version that is challenging for the House to say no to.”
Rinzel said, “For our part, we will continue to [assert] loudly that we need to get this addressed and that it can no longer be ignored by Congress.”
One hot-button issue with significant implications for retailers and their employees that is not expected to gain much traction this year is an increase in the federal minimum wage. President Obama’s efforts to increase the federal minimum wage to $10.10 an hour from the private sector’s current $7.25 have been blocked by Republicans, and many are skeptical there will be any movement on the issue after the elections. “With the economy improving, I don’t see any way that the minimum-wage increase will pass,” said Swagel. “Something will happen on immigration, however. We just won’t know until after the election whether it will be legislation or, instead, executive action by President Obama.”
Celeste Drake, trade and globalization policy specialist at the AFL-CIO, said, “We don’t have any real optimism, unfortunately, for either [immigration reform or minimum wage] coming up in a lame duck. In fact, we think there is a chance for negative things for immigrants, like defunding some programs that are helpful in dealing with the surge in immigration, being attached as a rider to [a government spending] bill, and we are on the lookout for that.”
Drake said that if the Republicans do take control of the Senate, they will have even less of an incentive to cooperate on issues — such as minimum wage — that they don’t view as a “must pass.”
“Our view is not that [Senate Majority Leader] Harry Reid isn’t a good friend of working people. It is more about getting [legislation] done in a rancorous environment in which Republicans generally have taken an obstructionist view,” she said.
On the trade front, industry officials are keeping a close eye on expiring trade-preference programs and ongoing trade negotiations.
“If the Senate flips, then you can expect more progress on trade: [the Trade Promotion Authority] first and then possibly the two trade negotiations with Asia and, separately, with Europe,” Swagel said. “If it doesn’t flip, it is hard to imagine Democrats going along with TPA. It doesn’t seem very popular on their side.”
TPA, which expired in 2007 under President George W. Bush, is seen as vital to completing several trade deals, including the Trans-Pacific Partnership negotiations between the U.S. and 11 other countries and the trans-Atlantic trade deal between the U.S. and European Union. Under TPA, Congress can’t amend trade pacts negotiated by the executive branch but only vote up or down on them.
Juanita Duggan, president and chief executive officer of the American Apparel & Footwear Association, said she doesn’t expect action any time soon.
“A lot of people who are in the trade world think there’s going to be a secret trade package,” Duggan said. “I don’t believe it.”
Referring to whether renewal of the presidential TPA or a vote on the TPP would happen first, Duggan said it was a “chicken-and-egg”situation.
“Republicans in the House say there hasn’t been much presidential leadership on TPP,” Duggan said. “You know from past experience that every trade agreement requires the President to be on this 24-7 and forcing the Congress to do it. That hasn’t happened so far. Maybe it will happen when some of these trade agreements are closed, but there’s disagreement [on] when should TPA be presented.”
Julia Hughes, president of the U.S. Fashion Industry Association, said, “The bottom line is, it is hard to see how Congress will have the desire to spend a long time in Washington talking about new issues versus coming in after the election and acting on a [continuing resolution to fund government agencies]” and possibly funding the fight against Islamic State militants in Iraq and Syria.
Among the industry’s top priorities for congressional action are TPA; an extension of the Generalized System of Preferences, which expired in July 2013; an extension of the Nicaragua Tariff Preference Level program, set to expire on Dec. 31, which allows apparel companies in Nicaragua to use a certain amount of fabrics and yarns outside of the Central American Free Trade Agreement area, and an extension of the African Growth and Opportunity Act, set to expire on Sept. 30, 2015.
Hughes said there may be more of an opportunity for advancing trade negotiations and bills next year, though it would be a tight window, likely just the first six months of the year, due to the looming 2016 presidential elections. She said, “In talking to people on the Hill, both Democrats and Republicans, there’s a lot of sensitivity that you can’t close TPP until you have TPA.”
Nate Herman, vice president of international trade at the American Apparel & Footwear Association, noted that Nicaragua’s tariff preference levels are about to expire, even though the program has been “wildly successful for exporters and importers, supporting 1,000 U.S. textile exporter jobs.” Herman said, “The only chance we have to do something about it before the end of this year is during the lame-duck session of Congress, and we’re working very hard to try to get it in, and, if not, we’re looking at trying to do it early next year and make it retroactive.”
Herman said the next round of TPP is set for Australia and will lead up to an Asia-Pacific Economic Cooperation meeting next month, with the idea to try to close it then.
“But they are nowhere near an agreement, including major issues in apparel and textiles,” he added.