Texas Judge Blocks Paid Sick Leave Ordinance
Following a legal challenge from business groups and bolstered by the Texas attorney general, the Texas Court of Appeals for the Third District blocked Austin’s paid sick leave ordinance from taking effect on October 1. The delay will give the court time to hear arguments and rule on whether the Austin ordinance is legal under state law before business owners are mandated to adopt new leave policies.
The ordinance was passed in February and sought to allow employees to accrue “one hour of earned sick time for every 30 hours worked,” with the potential to earn up to 64 (or eight days) of paid sick leave per year.
The court’s decision comes on the heels of the San Antonio City Council’s recent decision to become the second Texas city to pass a local sick leave initiative. However, amid state lawmakers’ pledges to introduce local sick leave preemption bills in 2019, San Antonio City Councilman Manny Pelaez said that the local sick leave policy was “dead on arrival in Austin.”
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Federal Appeals Court Deals Blow to State Preemption, Reinstates Lawsuit on Constitutionality of Minimum Wage Cap
A federal appeals court has reversed a previous decision regarding Alabama’s preemption of local authority over employment issues, including minimum wage.
The Alabama Uniform Minimum Wage and Right to Work Act came as a reaction to Birmingham’s 2015 decision to pass an ordinance increasing the city’s local minimum wage, and retroactively voided the ordinance. The Alabama NAACP chapter and several labor groups filed a federal lawsuit, which was initially dismissed for what U.S. District Judge R. David Proctor called “conclusory allegations, not supported by any alleged factual information.”
Proctor’s decision stood until the 11th U.S. Circuit Court of Appeals found that the plaintiffs had a plausible claim that the 2016 state law had violated the Equal Protection Clause of the 14th Amendment, citing the “disproportionate effect of the Minimum Wage Act on Birmingham’s poorest black residents; the rushed, reactionary and racially polarized nature of the legislative process; and Alabama’s historical use of state power to deny local black majorities authority over economic decision-making.”
The court did not rule on whether discrimination could be proved, as that issue will now be taken up in a district court.
Alabama State Conference NAACP President Bernard Simelton hailed the decision as “a win for African-Americans in Birmingham,” and some are speculating that it could have a subsequent impact on other ongoing preemption battles across the country.
Wyoming City Passes Non-Discrimination Ordinance
The Jackson (Wyo.) Town Council has passed an ordinance prohibiting discrimination based on a person’s sexual orientation or gender identity. Specifically, the ordinance makes it illegal to “discriminate against any person because of sexual orientation or gender identity or expression in places of housing, public accommodation and employment.” The ordinance also outlaws any retaliation toward an individual who makes a complaint. Violators will face a $750 fine per day per violation.
The ordinance’s passage represents a victory of LGBTQ residents and advocates who felt that existing laws were not effective enough to protect them against discrimination at the local level.
“I’m looking forward to the day when this ordinance is completely useless,” said Jackson Mayor Pete Muldoon. “But we need it today, and I’m happy to support it today.”
The ordinance took effect immediately.
States Continue to Push for State-Mandated Auto-Enroll Retirement Programs
More than 30 million U.S. workers report that they do not have access to an employer-based retirement plan, according to a Pew Charitable Trusts report. In an attempt to narrow this coverage gap, states have begun exploring ways to offer private-sector workers, particularly small-business employees, access to retirement plans in state-run programs, or auto-enroll individual retirement accounts (IRAs).
Under the Obama administration, the U.S. Department of Labor issued a final rule, essentially providing states a safe harbor to create state-run auto-enroll IRA programs. Although Congress repealed the DOL guidance this year, it is unclear if auto-enroll IRAs are subject to the regulations stipulated in the Employment Retirement Income Security Act (ERISA), or if these programs are even allowed under the law. But this has not stopped states from pushing forward on their plans.
At the time of the reversal, Illinois, Maryland, Oregon, California and Connecticut had passed legislation and were in the process of establishing state-mandated auto-enrollment programs. In addition, Seattle has introduced its own city-mandated auto-enroll IRA program.
Oregon has already begun implementing its own state-run IRA, OregonSaves. The state is rolling out the program in six waves by number of employees from November 2017 to 2020. Currently, the second wave includes employers with 50 to 99 employees. Moreover, employers that do offer retirement plans to some or all of their employees are required to file for an exemption from the state and renew the exemption every three years. The programs in Illinois, Maryland, Connecticut and California are all in formative stages, with rollouts expected in late 2018 or early 2019.
While most states are concerned with their citizens not saving enough for retirement, not all are turning to the state-run auto-IRA model as a solution. Some states, such as Massachusetts and Vermont, are turning to multiple employer plans, while others, like New Jersey and Washington, are creating reduced-cost marketplaces for employees to set up plans.
The legal questions posed by the repeal of the 2016 DOL guidance are not simply hypothetical, as states are beginning to face legal challenges to their auto-IRA programs. The ERISA Industry Committee (ERIC) brought suit against the Oregon Retirement Savings Board, challenging an OregonSaves component that mandated reporting even from employers that already provided an ERISA plan to employees. The suit was settled this past March, when Oregon agreed to exempt ERIC members from reporting requirements. In California, the Howard Jarvis Taxpayers Association filed suit against the state’s treasurer to prevent the program from being implemented, arguing that it is preempted by ERISA. The lawsuit is still pending.
Despite unclear signals from the federal government and legal uncertainty, state action on auto-IRA programs will likely continue in the coming legislative sessions. While they don’t yet have any concrete proposals, Wyoming, Missouri and Virginia have all enacted bills creating commissions to evaluate the feasibility of an auto-IRA program or other state-backed solution.
House OKs Small-Business Bills
The House of Representatives recently passed nine bipartisan small-business bills on a number of different topics, including commercial development loans, small-business contracting calculations and expanding subcontracting opportunities.
The bills passed are:
- H.R. 6348, “Small Business Access to Capital and Efficiency (ACE) Act” – introduced by Rep. John Curtis and Rep. Dwight Evans, H.R. 6348 reduces burdens and conflicting regulations for small businesses by updating the Small Business Administration’s 504/Certified Development Company Loan Program’s commercial real estate appraisal threshold.
- H.R. 6347, “7(a) Real Estate Harmonization Act” – introduced by Rep. Dwight Evans and Rep. John Curtis, H.R. 6347 updates SBA’s 7(a) Loan Program’s commercial real estate appraisal threshold.
- H.R. 6330, “Small Business Runway Extension Act of 2018” – introduced by Rep. Steve Knight and Rep. Yvette Clarke, H.R. 6330 modifies the SBA’s size calculation to provide small businesses with more time to be considered “small” for the purposes of SBA’s small-business programs.
- H.R. 6369, “Expanding Contracting Opportunities for Small Businesses Act of 2018” – introduced by Rep. Roger Marshall and Rep. Brad Schneider, H.R. 6369 increases the size of sole source contract awards for women-owned, service-disabled veteran-owned, HUBZone, and socially and economically disadvantaged small businesses, and implements a new eligibility determination process to ensure sole source awards are made to eligible firms.
- H.R. 6367, “Incentivizing Fairness in Subcontracting Act” – introduced by Rep. Al Lawson and Rep. Trent Kelly, H.R. 6367 allows large prime contractors to take credit for subcontracting to small businesses at lower tiers, provided that prime contractors keep records substantiating subcontracting credit claimed at lower tiers, and creates a new dispute process for small subcontractors to bring nonpayment issues to the agency’s small-business advocate (Offices of Small and Disadvantaged Business Utilization).
- H.R. 6382, “Clarity on Small Business Participation in Category Management Act of 2018” – introduced by Rep. Alma Adams and Chairman Steve Chabot, H.R. 6382 requires the SBA to report federal spending made through designated “best-in-class” vehicles, and to report on the dollars spent through these vehicles awarded to small businesses.
- H.R. 6316, “Small Business Advocacy Improvements Act of 2018” – introduced by Rep. James Comer and Rep. Alma Adams, H.R. 6316 allows the SBA Office of Advocacy to examine the role of small business in international economies and to represent small-business views before foreign governments and international entities.
- H.R. 6368, “Encouraging Small Business Innovators Act” – introduced by Rep. Adriano Espaillat and Rep. Ralph Norman, H.R. 6368 makes a series of changes to the Small Business Innovation Research and Small Business Technology Transfer programs, making them easier for small firms to use.
- S. 791, “Small Business Innovation Protection Act of 2017” – introduced by Sen. Gary Peters and Sen. James Risch, S. 791 will expand intellectual property education and training for small businesses. It is the Senate companion bill to H.R. 2655, which passed the House in July.
New Survey on Politics of Small Business
The National Small Business Association has released its 2018 Politics of Small Business Survey, which shows that, despite very high levels of engagement, small-business owners’ political involvement has dropped in nearly every category. From rates of voting to interacting with lawmakers to making financial contributions, small-business owners are less engaged than just two years ago.
“Small-business owners’ political positions are wildly diverse and they are not beholden to any one political party,” said NSBA President Todd McCracken. “Unfortunately, one thing they all agree on, regardless of party affiliation, is that policymakers don’t really understand small business.”
The survey found that small-businesses owners of all political persuasions place a higher level of importance on economic and fiscal issues than they do on national security and social issues.
When it comes to specific policies, small-business owners agree that controlling health care costs is paramount, and it is the number one policy about which they have contacted their elected officials.
In rating policymakers, small-business owners had somewhat higher marks for their own elected senators and representatives but expressed less-than-stellar marks for the collective bodies. In fact 47 percent of small businesses said they do not believe the U.S. House of Representatives or Senate represents them well.
“More and more, small-business owners think the political system is broken,” explained NSBA Chair Cynthia Kay of Cynthia Kay and Co. “Eighty-three percent say politics have become more partisan in the last 10 years, and the majority support limiting corporate campaign contributions.”
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Pennsylvania Chamber Calls for Tax Code Changes
The Pennsylvania Chamber of Commerce, in collaboration with the Tax Foundation, has released a new report calling for significant changes to the state’s tax code.
Gov. Tom Wolf most likely will oppose most of the recommendations; however, he has expressed interest in sales tax base expansion in the past, according to Coin Laundry Association legislative analyst MultiState Associates.
Although this year's budget negotiations were quite smooth, an attempt to overhaul the state’s tax code could return Pennsylvania to the days of months-long partisan gridlock.
The report’s “menu of tax reform solutions” includes:
- Reducing the Corporate Net Income Tax (CNIT) rate from 9.99 percent to 6.99 percent or 5.99 percent.
- Increasing the net operating loss (NOL) carryforward.
- Broadening the sales tax base – either modestly to include things like personal services and amusements, or more broadly to include certain professional services (legal and accounting services are mentioned specifically).
- Cutting the sales tax rate from 6 percent to 5.6 percent
“It was a relatively quiet budget year in Pennsylvania as Gov. Wolf continued to pare down fiscal policy agenda to only a severance tax and a minimum wage hike,” explained MultiState’s Ryan Maness. “While he didn’t end up getting either, he seemed happy to have the budget in on time and without the typical partisan squabbles that could troublesome in an election year.
“We should not expect the bipartisan glow to continue past November, however, since all of the structural forces that pit the governor against legislative leaders will still be at play. So while this report will undoubtedly spark discussion and could lead to legislation, don’t expect anything to move quickly or easily.”
House Passes Tax-Cut Bills
As of this writing, a three-bill legislative package known as Tax Reform 2.0 has cleared the House of Representatives.
Although the legislation is expected to be dead on arrival in the Senate, some proposed changes to retirement savings could remain in play, according to a CNBC report.
Among other changes, the bills would make recently enacted tax cuts for individuals permanent, expand retirement and education accounts, and create tax-advantaged Universal Savings Accounts.
While supporters say a second round of tax cuts would lead to continued economic growth, critics point to its $627 billion price tag over the next 10 years, based on an analysis by the Joint Committee on Taxation. That’s on top of the $1.5 trillion the already-passed cuts are projected to cost during the same period.
“The Senate is not expected to debate these bills,” said Nicole Kaeding, director of federal projects for the Tax Foundation, a nonpartisan tax-policy research group.
She said, however, that several of the legislation’s retirement-related provisions are similar to an existing bipartisan bill in the Senate that could be considered later this year.
That bill, the Retirement Enhancement Security Act (S. 2526) would remove the 70½ age limit for making contributions to traditional individual retirement accounts and would make it easier for small businesses to band together to offer 401(k) plans, among other provisions.
It also would make it easier for 401(k) plans to offer annuities by creating a regulatory “safe harbor” and, as long as plan administrators meet certain requirements when choosing an annuity provider, they’d get some legal protection.
Although that provision initially was excluded from the Tax Reform 2.0 package, it was added via an amendment that was tacked on to one of the House bills.
“Some parts of [Tax Reform 2.0] might have some issues, but we’re optimistic that the retirement piece might get some traction in the Senate,” said Paul Richman, vice president of government affairs for the Insured Retirement Institute, which advocated for the amendment.
House GOP leaders were committed to pushing the tax bills through before members head to their districts to campaign ahead of the November midterm elections.
Even if most of the provisions in the House bills end up shelved, they could be revived next year when a new Congress is in place or at another time, depending on the balance of power.
Here are some highlights of the bills:
The first bill is called the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760). In addition to making permanent the cuts to individual tax rates that took effect this year, it would lock in other changes that are set to expire at the end of 2025.
That means the doubled standard deduction and elimination of personal exemptions would become permanent, along with the increased child tax credit, the elimination of most deductions, and the $10,000 deduction cap on state and local taxes. The higher federal estate tax exemption of $11.2 million per individual also would be extended.
Separately, the bill would continue the higher deduction for medical expenses. Under rules implemented in last year’s tax legislation, qualifying medical expenses in excess of 7.5 percent of your adjusted gross income can be deductible if you itemize. Instead of letting that floor rise to 10 percent in 2019 as scheduled, H.R. 6760 would extend the lower threshold through 2020.
The measure also would make the 20 percent deduction for so-called pass-through businesses permanent.
The second bill, the Family Savings Act of 2018 (H.R. 6757), includes changes to retirement and education accounts and creates a new tax-deferred savings account.
For starters, the measure would remove the age limit on individual retirement account contributions. Currently, IRA owners cannot make additional contributions beginning in the year they turn 70½. Roth IRAs, by contrast, do not have a contribution age limit.
It also would exempt people with less than $50,000 in their retirement accounts from taking required minimum distributions, which start when you turn 70½. It also would allow families to withdraw up to $7,500, penalty-free, from retirement accounts for costs related to a new child, whether by birth or adoption.
Additionally, 529 education accounts could be used to cover the cost of home schooling, for fees related to a trade apprenticeship and to help pay off a student debt.
The bill also endorses Universal Savings Accounts, which would allow savers to set aside tax-advantaged money for basically anything.
The accounts, which would come without restrictions on when (or why) the owners can make use of them, would work similarly to Roth IRAs. Up to $2,500 of after-tax income yearly could be contributed to an account, while the withdrawals – including any investment gain or interest – would be tax-free.
Another provision would allow smaller firms to more easily band together to offer their employees a 401(k) plan. As it stands, so-called multiple employer plans restrict exactly which businesses can team up.
The third bill is called the American Innovation Act of 2018 (H.R. 6756). Just 15 pages long, it would let new businesses deduct up to $20,000 in startup expenses in the year they are incurred as long as they meet certain qualifications.
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