Minimum Wage Update: Elections Driving Legislative Activity
The last federal minimum wage increase – to $7.25 per hour, from $6.55 per hour – occurred on July 24, 2009. In the years since Congress last increased the minimum wage, state and local leaders across the country have introduced countless minimum wage proposals, activists have worked to place ballot measures before voters, and companies have taken it upon themselves to increase wages for workers.
This year is no different. In 2018, legislators in 33 states and Congress have introduced nearly 150 bills to increase the minimum wage and ballot measures are possible in four states thus far.
Currently, 29 states and Washington, D.C. have minimum wages above the federal minimum wage. In January, 18 states saw their minimum wages rise. Of those 18 states, eight index their minimum wages to rise with inflation (Minnesota indexed its minimum wage starting this year after scheduled increases), which resulted in incremental increases this year. The remaining states increased their minimum wages on schedules laid out in statutes passed in previous sessions.
Increases range from a dollar or more in two states – Rhode Island (+$1.50) and Maine (+$1.00) – to only a few cents in states that index their minimum wage to inflation ($0.04 in Alaska to $0.20 in South Dakota).
And, according to legislative consultancy MultiState Associates, the 2018 elections are driving activity this year, as minimum wage increases are popular with voters. This encourages legislators to take action on minimum wage to gain favor with the electorate, while activists place measures on the ballot, where the increases may face better odds of passage.
In 2014, a Pew Research Center poll found that 73 percent of those surveyed favored a minimum wage increase to $10.10 per hour. A 2016 HuffPost/YouGov survey found that 66 percent supported an increase to the same amount, and 59 percent supported an increase to $12 per hour. Election night results from 2014 and 2016 support these findings. In 2014, voters in four states – Alaska, Arkansas, Nebraska, and South Dakota – increased the state minimum wages via ballot. In 2016, ballot measures were successful in an additional four states – Arizona, Colorado, Maine, and Washington. These ballot measures account for most of the states that have not introduced legislation to raise the minimum wage this year, along with California and Oregon, which increased their minimum wages legislatively in 2016.
Though popular with voters, minimum wage increases via the ballot are not always popular with legislators. Currently, legislation is pending in Arizona, Maine, and Washington to roll back the measures that voters passed in 2016.
In 2016, California, New York, and Oregon passed legislation to incrementally increase the states’ minimum wages to $15 per hour or near it. After these increases, $15 per hour became the new standard for legislation.
California’s increase raises the wage statewide to $15 per hour in 2022, while New York’s incremental increase to $15 per hour varies by location. Large employers in New York City are subject to a $15-per-hour minimum wage this year, but rates in Nassau, Suffolk, and Westchester counties will reach $15 per hour in 2021. The new law in Oregon also established location-based wages, with the wage gradually rising to $14.75 per hour in 2023.
Many proposals have included formulas for location-based increases, taking into account the differences in costs of living between urban and rural areas.
Economists continue to disagree on the effects of these minimum wage increases, which may have an impact as states and localities consider how to structure various proposals. One study, based on the 2015 minimum wage increase in Seattle, where wages increased 37 percent over a nine-month period for some workers, found that the increase led to a $125 monthly decrease in wages for the average low-wage worker as employers reduced staff and employee hours or put off new hiring.
Overall, however, a new study on the effects of 137 minimum wage increases since 1979 found, “on average, minimum-wage increases eliminated jobs paying below the new minimum, but added jobs paying at or above the new minimum. The two changes effectively cancel each other out.” In conjunction, these studies seem to favor a phased-in increase to the minimum wage and encourage lawmakers to take into account that these increases may have the potential to hurt the very workers that they attempt to help, particularly if the increase rises too high, too quickly, or occurs during a period of economic downturn.
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Texas City Passes First Paid Sick Leave Law in State History
The Austin City Council has voted to become the first city in Texas to require local employers to offer paid sick leave to their employees. Specifically, the ordinance requires that “all private sector employers… provide a minimum of one hour of earned sick time for every 30 hours worked,” with the potential to earn up to 64 hours (or eight days) of paid sick leave per year.
The only exemption is for “micro-businesses,” which employ five or less employees. Clearly, this exemption will include a large number of self-service laundries; however, that exemption is set to expire in October 2020.
The ordinance will take effect on October 1, 2018.
Missouri City Passes Ordinance to Help Job Seekers with Criminal Pasts
The City Council of Kansas City has passed an ordinance barring local employers from inquiring about an applicant’s criminal history until after an in-person interview. In 2013, the council passed a similar law that applied only to city employees.
This ordinance takes full effect on June 9, 2018. Penalties for violations will include confiscation of business licenses, fines up to $500, and/or imprisonment up to 180 days – depending on the frequency of violations.
State Policy Preview: What’s Ahead for Business Owners
According to the CLA’s legislative analyst, MultiState Associates, here is what small-business owners can expect from their lawmakers this year:
Last year was a difficult time for state finances, but there are at least modest signs that 2018 will be a little easier. In its most recent report, the Rockefeller Institute of Government found that state revenue growth has been relatively strong compared to the recent past, though revenues were down in 12 states. Furthermore, the report’s authors argue that there is evidence to suggest that 2016 revenues were depressed as taxpayers moved returns to 2017 to take advantage of tax reform. In its own report, MultiState Associates found that 25 states will face deficits in 2018.
However, there is still trouble on the horizon. Economists are still debating how federal tax reform may affect state finances. Additionally, oil-producing states could continue to struggle because the Organization of the Petroleum Exporting Countries has decided to extend production limits, at least temporarily.
Employment and Labor.
Lawmakers will continue to debate and enact right-to-work, salary history, paid sick and family leave, and predictive scheduling laws in the 2018 legislative session. Keep a close eye on states where these bills passed one or both chambers of the legislature.
In addition to legislative activity, expect to see a variety of ballot measures on employment-related topics in 2018. In particular, minimum wage increases and marijuana legalization initiatives are popular with voters at the ballot box. Campaigns to put these issues in front of voters are currently underway in a number of states.
Lastly, a number of states have already begun pre-filing legislation for 2018 that restrict or ban the use of employee arbitration agreements in sexual harassment cases. Expect a renewed interest in these issues as state legislatures weigh in on the media coverage surrounding sexual harassment claims in the workplace.
Health Care and Wellness.
Federal actions will continue to drive health care policy in the states in 2018. Congress failed to fully repeal the ACA last year, but the federal Centers for Medicare and Medicaid Services has a great deal on control over expanding Medicaid waivers, which could transform state-federal programs. CMS Administrator Seema Verma has indicated that work requirements will be on the table, and CMS recently approved the first such waiver request to Kentucky. States are also likely to respond to Congress repealing the ACA’s individual mandate.
In 2018, state lawmakers will continue their search for solutions to the opioid crisis and prescription drug pricing, as well as take a renewed look at single-payer health care. One idea that caught the attention of health policy wonks and could gain support is allowing state residents to buy into the Medicaid program. The proposal passed the Nevada Legislature in 2017, but Governor Brian Sandoval vetoed the bill. And Medicaid expansion will return as an issue in states like Virginia and Utah.
Typically, lawmakers are more hesitant to pursue tax policy in an election year, but because half of the states are facing budget deficits, most won’t be able to avoid it this year. The states with the biggest deficits – like Illinois, Louisiana, and New York – are keyed up to explore more drastic changes, but it’s unclear whether the mounting fiscal pressure is enough to overcome the political opposition those ideas saw in 2017.
This year will also be a year of states reacting to congressional tax reform. Lawmakers in several blue states are already looking for ways to avoid some of the costlier provisions of the new law, such as allowing taxpayers to make federally deductible charitable contributions to the state in lieu of taxes. Other Democrats will use the new law as an opening to advance their plans for a more progressive tax code. Finally, as more concrete forecasts about the effects come out, we can expect lawmakers on both sides of the aisle to adjust their fiscal priorities accordingly.
Transportation and Infrastructure.
Since transportation funding is generally a non-election year legislative activity, lawmakers will probably be fairly quiet on the issue in 2018. But ballot measures are always a wild card during election years in the 24 states that allow them. 2017 saw five transportation-related ballot measures, and there are already 13 potential transportation-related ballot measures circulating for 2018, including a potential repeal of this year’s gas tax increase in California, various transportation fund lockbox provisions, and toll lane prohibitions.
Congress is expected to pass federal legislation by the end of the year that will clarify which AV issues the federal government will preempt the states from regulating and which areas states can tackle themselves. As a result, expect to see an increase in state-level AV legislation in 2018.
In the near term, states will continue to struggle to raise funds for transportation infrastructure, so expect politically popular fees on electric and hybrid vehicles to proliferate as a small, stopgap measure. States will also continue to experiment with mileage fees as a potential replacement for lagging gas tax revenues.
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New Jersey Governor Reveals Budget Plan
New Jersey Governor Phil Murphy has unveiled his executive budget proposal, and it includes several notable tax provisions. Billed as a part of an overall effort to build a “stronger, fairer New Jersey,” the budget’s policies that are largely in line with Murphy’s campaign promises, including:
- Levying a 10.75 percent marginal rate for those individuals earning more than $1 million.
- Increasing the sales tax rate to 7 percent.
- Establishing mandatory combined reporting.
- Levying a fee on carried interest.
- Increasing the property tax deduction to $15,000.
- Phasing in a $15 minimum wage.
- Establishing a child care tax credit.
- Increasing the earned income tax credit.
- Legalizing and taxing marijuana.
The governor is making the argument that many of the policies are meant to ensure that those with the most means are “paying their fair share” or to provide relief for those in the low- to middle-income range.
Regarding sales tax, former Governor Chris Christie had worked with the legislature to cut the sales tax rate to 6.625 percent in 2016, as part of an overall package to raise the gas tax. Governor Murphy now says that these savings were negligible for New Jersey families, but have been a huge hit to the state’s budget. He said the new revenues will be necessary to tame the state’s pension fund, to pay for drug abuse programs, and to increase education funding.
Kentucky Legislators Float Tax Reform Measures
Kentucky lawmakers recently introduced a pair of bills that aim to overhaul the state’s tax code.
The first bill, sponsored by Rep. Jason Petrie, would reduce corporate and personal income taxes, eliminate the corporate alternative minimum tax, increase the sales tax rate by two points, and suspend several sales tax credits – including the film credit and the biomass credit.
The other bill, sponsored by Rep. Kevin Sinnette, would increase the sales tax rate by one point, eliminate a number sales tax exemptions (including for purchases made by common carriers, for durable medical equipment, and food sold through vending machines), and establish an exemption for food purchased with food stamps.
“Neither of the sponsors sit on the Revenue Committee and neither are in leadership, so these bills may wither on the vine,” explained MultiState Associates’ Ryan Maness. “But they are useful for seeing what lawmakers are thinking about in advance of a larger tax reform discussion. In particular, it’s notable that neither include taxation of services language, despite all of the whispers we’ve heard about that policy in recent months.”
Missouri Bill Focuses on State Tax Reform
Tax reform is at the heart of a recently introduced bill to the Missouri state legislature. The bill’s language includes:
- Entering the Streamlined Sales Tax Agreement.
- Eliminating the three factor corporate tax apportionment formula.
- Reducing the corporate income tax to 5 percent.
- Phasing out the deduction for individuals earning more than $150,000 annually.
- Cutting the personal income tax rate.
- Providing tax treatment for bundled transactions.
- Expanding sales tax nexus to include those out-of-state sellers who utilize in-state agents.
- Expanding the tax on food to include food sold through vending machines.
- Allowing for the issuance of direct pay permits.
- Establishing a bad debt deduction.
- Codifying destination-based sourcing model for sales.
- Creating a tax amnesty program.
- Increasing automotive registration fees.
Apart from seeking to establish a fairer, more stable tax system, the bill also aims to raise billions of dollars for the state transportation budget.
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