HARDI Advocacy 2018 Midterm Election Recap & 2019 Outlook

By Palmer Schoening, Vice President of Government Affairs & Alex Ayers, Director of Government Affairs

Happy post-election day. Votes are still being counted but it looks likely that 1) Democrats have taken the House of Representatives 2) Republicans will hold the Senate.

What does this mean for HARDI priorities? Generally, we will likely see slower progress and more partisan politics as House Democrats seek to use their new power to investigate the President, force the release of his tax returns and generally set up the best set of circumstances for the Democratic Presidential candidate in 2020.

Why did Democrats take the House? Record turnout and enthusiasm helped Democrats but the gains were no “blue wave”. Over the past 21 midterm elections, the President’s party has lost an average 30 seats in the House, and an average 4 seats in the Senate. The GOP yesterday lost 26 House seats but picked up a few seats in the Senate. Historically speaking this election was not so much a referendum as a correction.

Past divided Congress’s have accomplished great things but our hopes are lower for this new group. Presidential election season officially kicks off today and each party will be weary of giving the other side a big win. Mutual wins could include building infrastructure and locking in some individual tax rates. We’ll be seeking to solidify and build on many of the wins gained in the 115th Congress (2017–2018).

The 115th Congress brought some exciting gains that we are eager to lock-in through bipartisan legislation. New regulations are at an all-time low and for each new regulation created, 22 have been eliminated. HARDI helped lead the charge to eliminate the Section 2704 death tax regulations affecting business valuation. This change would have disallowed discounts for lack of control and marketability when selling or passing on small businesses, hiking estate and gift tax bills by up to 30%. On, October 20, 2017 the Department of Treasury eliminated this pending regulation, saving family owned businesses almost $20 billion according to the FY2013 budget. Agencies are also more open to working with business groups on future regulations, EPA continues to work with the industry on future SNAP 20 regulations.

Legislatively, the Tax Cuts and Jobs Act that passed last December made huge improvements to policies affecting HVACR distributors. The amount families can protect from the estate and gift tax was doubled to nearly $12 million per family and $24 million per couple, individual tax rates were cut, a new small business deduction of 20 percent was created, expensing of HVAC equipment became a first year write-down versus the 39-year schedule that previously existed, 529 savings plans were expanded, the child tax credit was increased, the standard deduction was doubled, and the economy is roaring partly because of this package. Our team will be advocating for deals between both parties that lock in many of the Tax Cut and Jobs Act improvements permanently. Many, including the estate and individual tax reductions are currently scheduled to expire in 2026. This fall the House passed “Tax Reform 2.0” which locked in the tax cuts permanently. We expect some deal making on taxes to occur in the 116th Congress.

Both parties agree on improving education in the trades. The Strengthening Career and Technical Education Act for the 21st Century Act was signed by the president this summer. One of the most pressing issues for the industry as a whole is having enough qualified professionals to install and service machines. This bill provided nearly $2 billion to high school and technical school programs across the country. Many HARDI members partner with these institutions to help prepare the next generation of HVACR professionals for productive and lucrative careers in the field.

What’s coming up? Our team has been eager to enshrine the new HVACR expensing improvements into law via the Treasury Department. We expect Treasury to issue guidance in the next few months solidifying the broad intent of the law. We’ve been working with the supply chain and staff at the Treasury Department to make sure the law is defined as broadly as possible. Individual states are likely to move on phasing down HFCs and enforcing internet sales tax laws. We continue to work with Senators and the Administration to ratify the Kigali Amendment. The problem there? An international climate treaty still divides the Republican conference and although they may be able to muster the votes, Senator McConnell will probably use his precious few legislative days for other priorities. In the meantime, some states are likely to enact their own laws. Several states have recently announced plans to institute their own HFC phase-downs. California is the first state to begin regulating HFCs with the first draft regulation coming next year.

The Supreme Court struck down the prohibition on states collecting sales tax from online purchases. Those annoying blinking banner ads selling HVAC equipment with no sales tax will disappear. HARDI will be advocating for the Remote Transactions Parity Act which establishes standard rules of the road for all states the follow in taxing online sales, but until the bill is passed, like HFC regulations, individual states are likely to go their own way.

The Department of Labor overtime rule could be coming back into play next year. During the Obama Administration the Department of Labor increased the the minimum salary threshold for overtime pay by over 100 percent. The wage increase was untenable for employers from across the nation, luckily the regulation was struck down by the courts. DOL plans to reissue the regulation next year with a more realistic wage threshold. Look for HARDI updates as this regulation is published.

Trade continues to be an important priority for HARDI members. We are encouraged by the signing of USMCA which keeps most of NAFTA intact, and expect more multilateral and bilateral trade agreements to start during the 116th Congress. China may be close to coming to the table in a more committed way. Based on input from our members, HARDI wrote to the US government with concern over tariffs and highlighted the importance of our trading relationships to the industry. Secretary of Commerce Wilbur Ross responded to our request to let us know he had received our concerns and was working hard to solve the trade divide between Canada, Mexico and the US. We will continue to push Congress and the administration to support free trade.

In sum, the new divided 116th Congress may slow down some of our priorities, but like the 115th Congress there is a lot of opportunity to accomplish positive things for the industry throughout the government at the federal and state level. We’ve made some huge gains and we look forward to working with both parties to lock those into permanent law. Please stay engaged for more post-election analysis from our team in Washington, DC and plan to attend the HARDI Congressional Fly-in on May 15–16, 2019.

Your government relations team,

Palmer Schoening & Alex Ayers

This article was published in the November 2018 issue of the HARDI Thermostatus monthly newsletter. For more information, visit hardinet.org.