Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”

Chamber members:

See below for news on jobless claims both nationally and in Illinois, August retail sales numbers, a push for a recall, unemployment loans not paid back, and the latest on tax hikes.

The application for the $250 million State of Illinois Back to Business (B2B) Grant Program is now open! B2B offers small businesses access to funds that can help offset losses due to COVID-19, bring back workers, and continue to rebuild from the pandemic.

*Government Affairs Roundup brought to you by Silver Cross Hospital*

U.S. Jobless Claims
Jobless claims rose slightly last week but remained near a pandemic low, as layoffs stabilize amid an economic slowdown tied to rising coronavirus cases. Initial unemployment claims rose to 332,000 last week from a pandemic low of 312,000 a week earlier, the Labor Department reported Thursday. The four-week moving average for claims, which smooths out weekly volatility, fell to 335,750, the lowest level since March 2020.

More broadly, claims have trended lower since mid-July, a sign employers are holding on to workers even though the Delta variant of Covid-19 has contributed to a rise in coronavirus cases and slowed U.S. economic growth.

The increase in cases has weighed on consumer sentiment and appeared to contribute to the hiring slowdown in August, particularly in the leisure-and-hospitality industry. Still, slower August job growth also likely reflects companies’ struggle to find workers, many economists say. Employer demand for labor is much stronger than it was at the beginning of this year because many Americans are now vaccinated and businesses are operating with fewer restrictions.

U.S. Retail Sales Rebounded in August
U.S. retail sales rebounded in August, a sign Americans are able and eager to spend despite the Delta variant. Sales at retailers and restaurants grew 0.7% last month, despite a big decline in car sales related to product shortages and shipping problems, the Commerce Department said Thursday. Sales had fallen 1.8% in July. Excluding cars, sales rose 1.8% last month.

The report shows resilience of the economic recovery and suggests households are boosting spending as schools and offices reopen. Consumers shelled out more online and in retail stores broadly, and on furniture. In the year through August, overall sales rose 15.1%.

Meanwhile, Delta, a highly contagious strain of the Covid-19 virus, could have weighed on certain segments, such as restaurants. Sales at food-service providers were flat, though they were still up sharply from a year earlier.

Problems associated with the Delta variant have led economists in recent days to downgrade estimates for economic growth in the third quarter. JPMorgan Chase on Wednesday projected gross domestic product to expand at a 5% annual rate in July through September, down from a prior estimate of 7%, citing lower demand and production shortages, particularly in the car industry.

There are signs the Delta variant wave has crested. Economists believe retail sales could recover quickly as more Americans become vaccinated and feel safe again to venture out, and as product shortages ease.

Statewide Payroll Jobs Stable, Unemployment Rate Down in August
The Illinois Department of Employment Security (IDES) announced today that the unemployment rate fell -0.1 percentage point to 7.0 percent, while nonfarm payrolls were mostly unchanged, increasing by +2,500, in August, based on preliminary data provided by the U.S. Bureau of Labor Statistics (BLS) and released by IDES. The July monthly change in payrolls was revised from the preliminary report, from +35,400 to +38,100 jobs. The July unemployment rate was unchanged from the preliminary report, remaining at 7.1 percent.

The August payroll jobs estimate and unemployment rate reflects activity for the week including the 12th. The BLS has published FAQs for the August payroll jobs and the unemployment rate.

In August, the three industry sectors with the largest over-the-month gains in employment were: Leisure and Hospitality (+5,800), Manufacturing (+3,900), and Government (+1,900). The industry sectors that reported monthly payroll declines were: Educational and Health Services (-4,900), Trade, Transportation and Utilities (-2,300), and Other Services (-1,300).

“The decreasing unemployment rate and continued job stabilization is encouraging in today’s report, especially as the state continues to monitor the increase of Covid-19 cases and the impact it may have on our communities, said Deputy Governor Andy Manar.  “IDES continues to assist those looking to return to the workforce, matching employers with jobseekers and providing other reemployment services and training to those seeking assistance.”

“While today’s report demonstrates an ongoing, positive trend, too many Illinoisans continue to endure challenging economic times,” said Sylvia Garcia, Acting Director of the Department of Commerce and Economic Opportunity (DCEO).  “That’s why, under Governor Pritzker’s leadership, we are redoubling our commitment to small business recovery, capital and workforce training assistance programs that will help our hardest hit communities and businesses get back on track.  Together, these efforts will support our continued recovery, return more Illinoisans to work, and give our economy the boost it needs.”

The state’s unemployment rate was +1.8 percentage points higher than the national unemployment rate reported for August, which was 5.2 percent, down -0.2 percentage point from the previous month. The Illinois unemployment rate was down -4.1 percentage points from a year ago when it was at 11.1 percent.

The number of unemployed workers was down from the prior month, a -0.4 percent decrease to 435,900, and was down -37.3 percent over the same month for one year ago. The labor force was up +0.2 percent over-the-month and was down -0.6 percent over-the-year. The unemployment rate identifies those individuals who are out of work and seeking employment. An individual who exhausts or is ineligible for benefits is still reflected in the unemployment rate if they actively seek work.

Referendum to Recall
On the heels of California Gov. Gavin Newsom crushing a recall vote, Illinois state Sen. Jason Barickman, Rep. Mark Batinick, both Republicans, and the conservative Illinois Opportunity Project are set to launch “a statewide grassroots campaign to give voters the power to recall their elected officials” in Illinois, they said in a statement. They’re calling it the “Ballot Referendum to Recall.”

The same dark-money group that fueled opposition to the graduated income tax ballot measure Illinois voters rejected last year is helping launch “a statewide grassroots campaign to give voters the power to recall their elected officials.”

Although the group’s organizers aren’t yet revealing details about their campaign, the Illinois Opportunity Project, a conservative tax-exempt organization that does not have to disclose its donors, is joining forces with state Sen. Jason Barickman and state Rep. Mark Batinick in the effort. Both lawmakers have been outspoken critics of Gov. J.B. Pritzker’s handling of the pandemic.

The IOP, which is connected to the conservative Illinois Policy Institute, spent nearly $1 million to successfully oppose the graduated income tax ballot measure. Now we’re wondering how much it would spend to potentially create a recall referendum.

The first step is getting the idea on the ballot. Plans to kick off its campaign Wednesday were delayed because media attention was focused on Pritzker signing the clean-energy bill. A spokeswoman says the recall effort will be launched next week instead.

All this comes on the heels of California Gov. Gavin Newsom easily beating back a recall effort this week, a signal of the uphill challenge Republicans here would face. Illinois doesn’t have a recall law on the books and Pritzker is likely to have won a second term before one can be put in place, potentially putting the focus on legislators.

10 States Didn’t Pay Off Unemployment Loans Ahead of Interest Deadline
At least four states paid back money in the last week they borrowed from the federal government to cover unemployment benefits—narrowly avoiding additional interest on the loans.

Hawaii, Nevada, Ohio and West Virginia announced the loan repayments within the last week. A remaining 10 states have a combined outstanding balance of more than $45 billion that they will now begin to accrue interest on, according to the Treasury Department.

When states exhaust their unemployment trust funds, they are allowed to borrow money from the federal government to ensure benefits continue to be paid. Twenty-two states took out what are referred to as Title XII advances during 2020. The loans were initially interest free, but starting Monday, states with outstanding loans began to accrue 2.3% interest on the borrowed sums.

The states that announced repayments are:

Ohio repaid $1.5 billion.
Hawaii repaid $700 million.
Nevada repaid $335 million.
West Virginia repaid $185 million.
Officials from those states said they acted before Monday’s deadline to prevent negative economic impacts on businesses. Several states said they used federal funding allocated through the American Rescue Plan Act to repay the borrowed funds.

Hawaii used a combination of federal funding—$39 million in CARES Act funding and $700 million in ARPA funding—to fully pay back the amount borrowed. The state, where the tourism industry was hard hit during the coronavirus pandemic, paid out more than $6.4 billion in unemployment insurance benefits, officials with the Department of Labor and Industrial Relations said.

Unemployment benefits are paid for through taxes that states levy on businesses. When unemployment trust funds are depleted, state and federal laws trigger higher business tax rates on employers to replenish the funds. The 10 states that have outstanding loan balances California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania and Texas—could be poised to see significant tax hikes on employers next year if they do not pay the money back before increases are triggered.

In Nevada, lawmakers approved using $335 million in Coronavirus State and Local Recovery Funds allocated through ARPA to pay down the borrowed unemployment funds.

Paying off the loan before interest began to accrue put the state in a good fiscal position, said Heidi Saucedo, a spokeswoman for the state’s Department of Employment, Training and Rehabilitation.

“We can begin to build up our trust fund to prepare for the future while keeping rates manageable for employers,” she said. “A stable trust fund will allow [the department] to provide timely benefits to those who lose their jobs through no fault of their own.”

Ohio similarly sought to avoid a tax hike on employers by putting off repayment. Gov. Mike DeWine said the state used $1.5 billion in ARPA funds to pay back the loans.

“By repaying this loan in full, we ensure that Ohio businesses won’t see increases in their federal unemployment payroll taxes,” DeWine said in a statement. “Without this added tax burden, our employers can invest more money into their businesses and hire more staff.”

Employers in the state would have faced a 50% hike in federal unemployment payroll taxes next year had the loan not been repaid, according to Steve Stivers, President of the Ohio Chamber of Commerce.

West Virginia used a combination of CARES funding and employer payments to pay off the $185 million it borrowed. The state was also able to put $220 million back into its unemployment trust fund, a move that state officials said would reduce employer contributions by 25%.

A private tug of war is underway over what that looks like in practice: specifically, how much of the $2 trillion in proposed tax hikes the party as a whole can swallow. As the House Ways and Means Committee spends this week marking up its part of the massive reconciliation bill, tax disagreements between moderates and progressives are raging behind the scenes. Here are the key fault lines:

1) NEAL VS. WYDEN ON WEALTH TAXES: The top House and Senate tax writers diverge on how aggressively to hit the wealthy: House Ways and Means Chair RICHARD NEAL (D-Mass.) wants to raise the top marginal income tax rate from 37% to 39.6% and increase the capital gains rate from 23.8% to 28.3%. But Senate Finance Chair RON WYDEN (D-Ore.) and many progressives want to go further by aggressively targeting not only income but accumulated wealth.

The difference is huge. Those that make their money more from owning companies vs. a salary can pass billions in untaxed asset gains to their heirs tax-free when they die. Wyden sees going after this money as a matter of fairness, and according to a Senate Democratic aide, he plans to push for it to be included.

But it’s a radical change and House moderates don’t like it, which is why Neal didn’t go there. “That’s not happening; it’s more trouble than it’s worth,” one House source said.

2) THE SALTIES GIRD FOR BATTLE: A group of lawmakers from high-tax states including New York and New Jersey have vowed to oppose the reconciliation bill unless their constituents get relief from a $10,000 limit on the state and local tax deduction passed by Republicans in 2017. But other Democrats say backing away would look like a tax cut for the wealthy and expose the party to charges of hypocrisy from Republicans. It would also leave a lot of money on the table.

The issue is so contentious that Neal persuaded Ways and Means Democrats not to take it up during this week’s markup and instead wait until just before the larger reconciliation package hits the House floor.

Sources expect this to get ugly. Some of the so-called SALTies are pushing to eliminate the cap for at least two years. (A repeal for one year rings in at about $89 billion.) But senior Democrats in both chambers say that’s unlikely — especially if the overall cost of the bill is less than $3.5 trillion. More likely is an increase in the cap.

3) MANCHIN VS. EVERYONE: The crazy thing about all of this is that Democrats are frantically trying to iron out nitty-gritty tax details before they’ve reached consensus on how much revenue they actually need — or have the votes to pass. Democratic leaders are insisting the reconciliation package will be $3.5 trillion and floating just under that amount in pay-fors; Sen. JOE MANCHIN (D-W.Va.) is talking $1.5 trillion in tax changes. No one knows where they’ll end up.

Manchin is a wild card on other tax matters. He has suggested the corporate tax rate shouldn’t go above 25%, though Neal proposed 26.5%. He wants to means-test expanded child tax credits, which other Dems oppose. Party leaders don’t know what his true bottom line is, and that’s making everything more difficult.

4) TOBACCO TAXES LIGHT UP THE CAUCUS: During Tuesday’s Ways and Means markup, Republicans went after Neal’s proposal to hike taxes on nicotine and cigarette users to the tune of nearly $100 billion. But we hear several Democrats also aren’t keen on the idea. They’re worried it would predominantly pinch lower-income people and people of color, who smoke in larger numbers.

Last Congress, House Majority Whip JIM CLYBURN (D-S.C.) was critical of a sweeping ban on tobacco flavors and a new tax on e-cigs, even skipping a very narrow vote on the issue despite his position in leadership. Senior Democrats expect similar opposition to this.

EV DOES IT: We noted Tuesday that the electric vehicle tax credits proposed by Democrats in the House “are not means-tested and can be used by the wealthy to subsidize the purchase of high-end electric cars.” The office of Rep. DAN KILDEE (D-Mich.), who wrote the EV language, asked us to also note that the credits cannot be applied to the most expensive electric vehicles. The caps are as follows: $55,000 for a sedan, $64,000 for a van, $69,000 for an SUV and $74,000 for a pickup truck.

Stay well,

Mike Paone
Vice President – Government Affairs
Joliet Region Chamber of Commerce & Industry
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