After the Elections
With Obama and a divided Congress, what's on the political docket?
To Pay or Not to Pay
For retailers with more than 50 full-time employees, there is a mathematical question to calculate: to pay a penalty or not?
“Say you have 100 full-time employees,” Kirke says. “Under the law, you get 30 for free. So you only pay the $2,000 penalty for the 70.”
Sounds too good to be true? Yep. “What you have to consider is [penalties] are taxed dollars,” Kirke says. “The premium you pay on your employee benefits is a writeoff.”
While it’s more time-consuming than calculating the cost of paying the penalty, it could be worthwhile to map out the actual cost of offering a minimum essential benefit (a bronze plan).
“Every employee is not going to enroll in the plan,” Kirke says. “They could potentially go to the exchange, based on their family income, and have a subsidy there. We believe we can get a lot of people off your program and onto the exchange.”
The key is determining whether or not it’s financially beneficial for a retailer to offer a program that meets the minimum benefits requirement, encouraging lower-income employees to seek a better deal through the exchange while still making coverage available to higher-paid employees who would not receive such subsidies on the exchange.
“We use the $2,000 penalty as a baseline and run an analysis to show what it would look like to stay in the game,” Kirke says. “Rather than paying the government $2,000 after tax penalties, let’s use that as a contribution to the employees, where it can be written off.”
Whether a retailer chooses to pay the penalty or “stay in the game,” it’s time to get those plans in motion. The ACA will greatly affect a retailer’s bottom line—but a well-prepared plan of action could soften the blow.
How the PAC Money Rolls Out
Pragmatism over zealotry, judiciousness over ideology: A look at how our national trade associations seek to influence federal policy suggests a conservative bent but not a full tilt toward the right.
CSP looked into how NACS, SIGMA and PMAA invested their political action committee (PAC) money—which congressional and Senate races they wagered in, who received the largest sums and the possible reasons why.
For an industry that is reflexively conservative, the PAC spending may at first seem surprising. Why would SIGMA and NACS each give $10,000 to U.S. Sen. Kirsten Gillibrand (D-N.Y.), or PMAA kick in $7,500 to Colorado Sen. Michael Bennet?
The answer to these questions underscores a consistent strategy. “A few years ago, we really modified how we talk to Congress,” says Jeff Lenard, NACS vice president of industry advocacy. “We agreed to focus on the issues first. Because of that, when you look at how most government relations is done, usually you say, ‘No, no, no’ in stopping stuff.
“We found you get a lot more accomplished if you say, ‘How can we work with you?’ ”
PMAA president Dan Gilligan echoes that approach. “In terms of PAC support, you can see that we are very bipartisan and we consciously work at being bipartisan,” he says. “In the lobbying business, a senator who was your opponent in the morning might be your strongest supporter on another measure in the afternoon. We look to support candidates, both Republican and Democrat, who are leaders among their peers and have good relationships with marketers back home.”
That said, Republicans do receive the lion’s share, including key playmakers in both the House and Senate such as House Majority Leader Eric Cantor (R-Va.), Rep. Joe Barton (R-Texas), Rep. Tom Cole (R-Okla.) and Sen. Rick Berg (R-N.D.).
“If you want to make a friend, you need to be a friend,” says a veteran political insider familiar with the three trade associations. “What this is all about is to identify your industry group as part of their (congressional members’) constituency so that you ensure a seat at the table.”
Beltway sources talked to CSP on condition of anonymity because of the sensitivity of lobbying. They said a look at the PAC distributions of NACS, SIGMA and PMAA show a preference toward certain House and Senate committee members who wield great influence on matters most important to these industries: specifically, the House Energy and Commerce, Financial Services, and Ways & Means. On the Senate side, greater consideration is given to Energy and Natural Resources, Environment and Public Works, and Finance.
Taxes and Rules
Although retailers in Missouri had reason to celebrate— avoiding the 73-cent cigarette tax increase in Proposition B by less than 100 votes—President Obama’s re-election and a Democratic majority in the Senate has many U.S. retailers concerned about implications for their tobacco business.
“Elections have somewhat higher relevance for tobacco than many other consumer sectors,” wrote Deutsche Bank research analyst Andrew Kieley in a Nov. 5 report. Like many, Kieley predicted Republican victories in the Presidential and some Senate races would benefit tobacco retailers. But that didn’t happen.
So what now? “A Democratic win may be slightly negative overall for the tobacco sector due to the likelihood of increased tobacco taxes and regulation,” says Bonnie Herzog, managing director of beverage, tobacco and consumer research for Wells Fargo Securities LLC, New York. “Tobacco could be an area of focus for increased tax revenue, particularly to pay for national health care.”
History certainly suggests the Obama administration could look to cigarette taxes to generate revenue: In 2009, federal excise taxes on cigarettes were increased from 39 cents per pack to $1.01 per pack to expand health-care coverage for children, a move that won some bipartisan support.
However, Herzog doesn’t fear a drastic bump, saying “the chance for another substantial federal excise tax increase is minimal, given the large increase in 2009.”
Taxes, of course, are just one part of the tobacco equation. “We’re expecting under the Obama administration, the FDA will publish deeming regulations that would apply Chapter 9 of the Tobacco Control Act to all currently unregulated tobacco products, which includes cigars, electronic cigarettes, and lot of the new products coming down the pike,” says Bill Godshall, executive director of Smokefree Pennsylvania.
Actions prior to the election suggest the FDA was moving forward with these regulations, regardless of who would occupy the White House in 2013.
“About a month before the election, I heard that the FDA had already sent the deeming regulation to the Office of Management and Budgets to get it to sign off on,” says Godshall. “There was no way they were going to propose the regulation before the election, but ... it could come any day, week or month now.”
Fending Off a Swipe
Protect and expand: That’s NACS’ strategy as it seeks to preserve the critical victory it and merchant groups scored in 2011 when the Durbin Amendment on debit-card swipe fee reform passed as part of the Dodd-Frank law.
But NACS enters 2013 confronting immediate assaults on this laborious legislative victory. As CSP went to press, a federal district court was to decide whether the Federal Reserve overstepped by conceding to the banks and setting debit swipe fees at 21 cents, after initially reducing the average 42 cents per transaction to 12 cents. In addition to the 21 cents, the Fed tacked on 0.05% of a transaction and another cent for fraud prevention.
“We want to ensure that debit-card reform remains,” says Jeff Lenard, NACS vice president of industry advocacy. “We don’t have any hint that it would not stay, but we do want to make certain that debit reform truly becomes debit reform. And the final rule (of the Fed) was very different from the proposed rule.”
And retail groups are fighting a proposed $7.25-billion class-action antitrust
settlement against Visa, MasterCard and the major banks. Merchant groups, including NACS and SIGMA, fear that the settlement fails to address structural cracks that give the major credit-card companies virtual oligopolistic power over plastic.
While merchant groups line up to protect gains achieved after a 10-year battle on debit fees, NACS is also taking the offensive, aiming to launch a similar—and longer-shot—crusade for credit-card reform. “Seventy percent of Congress is entering into a new term,” Lenard says, referring to members of the House and Senate elected either for the first time or to another term. “That gives us a good opportunity to start anew. … Chief among [our tasks is] how you reform credit-card fees.
“The issues will be reminiscent to the trench warfare on debit-card swipe fees—to achieve transparency, drive greater competition against the major credit-card companies and banks, and drive down transaction fees.”
“We understand competition. We compete for a penny [of gasoline margin] on the street,” Lenard says. “So it’s frustrating to see an industry that is permitted to function without competition and get away with it.”