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

Chamber members:

For those that weren’t able to join us last week, we had a visit from our new Congressional representative, Lauren Underwood. As the majority of our area was redistricted to the 14th from the 11th, she’ll now be our Congresswoman. It was a nice opportunity to hear about her background, what she’s accomplished so far in office, and what the future holds. One of the big takeaways is that she and her office are eager to hear from all of you. Whether that is straight from you or through us here at the chamber, please take advantage – they should be announcing new contact information very soon.

Below is the usual lineup of federal and state news. Happy reading!

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

Congress Back in Session
The debt ceiling stalemate between the White House and the Republican Party continues this week as Congress is back in session, though the GOP is also facing internal issues with its narrow majority in the lower chamber. Plans to bring a border security bill to the House floor as early as this week have fallen through, and Speaker Kevin McCarthy (R-Calif.) hasn’t found the votes for a pro-police bill.

President Biden himself is set to meet with McCarthy to discuss the debt ceiling, though no date has been set for their conversation. Senate Majority Leader Charles Schumer (D-N.Y.) on Monday called on House Republicans to lay out the spending cuts they’re proposing as part of a deal to raise the debt, saying Democrats are prepared to “move quickly” and “well in advance of default” to raise the country’s borrowing authority, which is likely set to expire sometime in the first half of this year. The U.S. reached the $31.4 trillion debt ceiling last week, forcing the Treasury Department to resort to “extraordinary measures” to avoid a default.

McCarthy and conservative GOP members are expected to push for cuts to Social Security and Medicare in any deal, and some national defense spending could also be on the chopping block.

U.S. Hits Debt Limit
The United States last Thursday hit the debt ceiling — or the total amount of money the federal government can legally borrow — as lawmakers scramble to negotiate to raise the limit and avoid economic consequences if the U.S. defaults on its debt.

Treasury Secretary Janet Yellen told congressional leaders in a letter that the department will use its available tools after reaching the statutory borrowing cap of $31.4 trillion on Thursday. Yellen projected the government’s wiggle room will be exhausted by June 5, a date with “considerable uncertainty.”

“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” she wrote. She has said default could cause “irreparable harm to the U.S. economy,” as federally backed debt is the backbone of domestic and global markets. Failure to make good on the government’s bills could trigger panic on Wall Street, raise the government’s costs and conceivably spiral into millions of job losses, economists and administration officials argue.

Congress, meanwhile, remains bitterly divided on how to handle the issue, with Republicans pressing to use the debt limit as leverage to cut a deal on spending rollbacks — especially when it comes to social programs — in talks with Democrats, many of whom have pressed for a bill that solely addresses the debt ceiling. There’s no clear solution in sight, leaving lawmakers and economists expecting a protracted fight that could stretch right up until June, when the projected wiggle room runs out.

The credit rating agency Moody’s predicted that even if Congress and the White House did not reach an agreement, the Treasury Department could prioritize debt service payments ahead of social spending.

Sen. Joe Manchin (D-W.Va.) said in an interview that he’s seeking a mix of House and Senate members from both parties to try to work out an accord that could become legislation to both raise the debt ceiling and trim future spending. He said he has talked with Speaker Kevin McCarthy (R-Calif.) about making commitments to scrutinize Social Security and Medicare in exchange for GOP support to lift the borrowing limit.

McCarthy is pressing Democrats to begin negotiations at a time when he faces pressures within his party to deliver on significant fiscal reforms. The White House has refused to negotiate with House Republicans, remaining eager to describe the Speaker and fellow conservatives as reckless and extreme. “In the past there has been bipartisan cooperation to address the debt ceiling,” White House press secretary Karine Jean-Pierre said.

Senate Minority Leader Mitch McConnell (R-Ky.), meanwhile, said Thursday he is confident that the U.S. will never default on its debt and is not concerned a financial crisis could be on the horizon. McConnell — who will play a crucial role in negotiations — told reporters that while the push to raise the debt ceiling is “always a rather contentious effort,” he believes lawmakers will succeed at doing so before the Treasury exhausts its “extraordinary measures” in June.

FTC Focus
Since taking office, Federal Trade Commission Chair Lina Khan has sought to expand the FTC’s reach beyond traditional antitrust concepts. Under her leadership, the FTC appears to be more focused on implementing certain public policy goals that have little or no relation to the enforcement of competition law.

‌Khan has directed the agency to regulate the relationship between companies and their employees. Recently, the FTC issued a policy statement that targets independent contractors and it is now proposing a rule to ban virtually all non-compete clauses.

This fight is about more than noncompete agreements: “If the FTC can regulate noncompete agreements without authorization from Congress, there is no aspect of employment or commercial arrangements that it doesn’t have the authority to regulate or ban arbitrarily,” said U.S. Chamber President/CEO Suzanne Clark.

‌Congress “gave the FTC authority to identify on a case-by-case basis individual acts that constitute unfair competition. Critically, this authority is subject to judicial oversight,” Clark explained. “This structure has been a key to preserving innovation in a free market and avoiding overregulation. It prevents the FTC from writing the laws it is assigned to enforce, which is necessary to protect the constitutional separation of powers.”

The FTC wants to go beyond the limits Congress placed on it, Clark notes. “Before issuing the proposed noncompete ban, the FTC issued a radical reinterpretation of the agency’s authority” where it walks “away from having to weigh consumer benefits against consumer harms or even identify actual harm to consumers.”

‌The FTC’s path would empower progressive activists. “Don’t like the pay gap between executives and nonexecutives? The FTC could simply declare it unfair and regulate it. Think that businesses above a certain size shouldn’t be allowed to get any bigger through mergers? The FTC could simply declare those businesses can’t make acquisitions.”

What will the FTC look to do next? Will they declare wage rates or the level of benefits offered being unfair? No one has any idea. These recent actions begin to take the FTC down an ominous path. As two commissioners explained, the Kahn-led majority intends “to embark on a sweeping campaign to replace the free market system with its own enlightened views  of how companies should operate, and to replace the goals of price competition, quality, and efficiency with subjective and as-yet-unstated goals that are ripe for political manipulation.”

‌Without a return to the traditional limits of the FTC and antitrust law in general, Congress and the courts will have to provide a course correction.

Fight Continues for Small Business Deduction Permanency
The Tax Cuts and Jobs Act was signed into law five years ago, with one of the law’s most important provisions set to expire after 2025: the Small Business Deduction, a federal tax deduction that allows eligible small businesses to deduct up to 20% of their business income from their taxes. The Washington Times published a new op-ed by NFIB Federal Government Relations Director Courtney Titus Brooks. In the op-ed, she explained why Congress should give Main Street tax certainty by taking action to make the Small Business Deduction permanent.

“The Small Business Deduction is more than halfway to expiration, and there’s no urgency to extend it,” Brooks wrote. “The expiration would result in economic consequences such as lower optimism and less investment, which is why Congress should make the deduction permanent in the 118th Congress.”

The Small Business Deduction (Section 199A) has allowed small businesses organized as pass-through entities like Sole Proprietorships, S-Corporations, Partnerships, or LLCs to deduct up to 20% of their qualified business income. Small businesses across the nation have benefited from this tax cut, using the funds from their deduction to invest in employees, benefits, and their businesses.

“This historic tax relief gives small businesses a better chance to compete with big businesses, which received a permanent rate decrease in the same law,” Brooks explained. “The corporate tax cut is permanent, while the small business relief is temporary. The Small Business Deduction expires after 2025, which is right around the corner for a Main Street small business owner who’s trying to plan for the long haul.”

“Small businesses have been calling for this certainty since the Tax Cuts and Jobs Act was signed into law,” Brooks continued. “As the fifth anniversary of the enactment passes, Congress should realize it’s not too early to make the Small Business Deduction a permanent part of the tax code, and it’s not too late to give Main Street the same permanent relief that Wall Street received.”

Government report: Unemployment fraud may top $60 billion during pandemic
A U.S. government report released Monday estimates that there could have been more than $60 billion in unemployment insurance fraud during the pandemic. The report by the U.S. Government Accountability Office says that figure is an estimate spread over the entire unemployment system and should be “interpreted with caution.”

There has been $4.3 billion of unemployment fraud proven by state workforce agencies and at least $45 billion more in transactions that were flagged as potential fraudulent unemployment claims but not confirmed.

The U.S. Department of Labor stated that about $878 billion in total unemployment benefits were paid from April 2020 through September 2022, the report stated. There was $209 billion in expenditures under the regular unemployment insurance and about $669 billion payouts under the various pandemic unemployment programs, which ended September 6, 2021.

The U.S. Congress created four new unemployment insurance programs during the pandemic, according to the report. The report also questioned the U.S. Department of Labor’s efforts to combat fraud. “The Department of Labor has taken steps to address such fraud,” the U.S. Government Accountability Office pointed out. “However, the department has yet to develop an antifraud strategy based on leading practices from GAO’s Fraud Risk Framework as required by law.”

The GAO continued: “While these steps help prevent, detect, and respond to fraud, as of December 2022, DOL has not yet developed an antifraud strategy based on leading practices in GAO’s Fraud Risk Framework. Also, it has not yet addressed the six October 2021 recommendations GAO made including to identify, assess the impact of, and prioritize UI fraud risks. These are essential pieces to inform an overall antifraud strategy. Without an antifraud strategy, DOL is not able to ensure that it is addressing the most significant fraud risks facing the UI system in alignment with the Fraud Risk Framework.”

Wealth Tax Plan Emerges
With plans for a second try at passing a graduated income tax in Springfield facing an uncertain future, an Illinois lawmaker is proposing a different way to squeeze revenue out of rich people—really rich people.

Under a proposal being introduced by Rep. Will Guzzardi, D-Chicago, anyone with a net worth of at least $1 billion would have to pay 4.95% of it off the top to the state each year regardless of whether investment markets are rising or falling and notwithstanding underlying economic conditions.

The tax on wealth—specifically on unrealized capital gains—is likely to be controversial, even in Democratic-controlled Springfield. But it’s part of a larger move nationally in which legislators in blue states are acting on their own in the absence of progress in Washington on, for instance, taxing carried interest and other lucrative devices used by a small segment of the population.

“The bill’s prognosis is good,” said Guzzardi, whose measure also will be sponsored in the Senate by Sen. Robert Peters, D-Chicago. “The pandemic has only deepened the already wide economic disparity in this state. We need to act.” Guzzardi rejected the notion that his wealth tax is in some ways similar to the much-hated property tax, which requires the owner of an asset to pay up each year whether or not they’ve sold their land or building and have the needed cash on hand.

“The property tax puts an enormous burden on a lot of people that have a hard time making ends meet,” said Guzzardi, who represents a portion of the mid-Northwest Side. “But people with assets of $1 billion or more, I’m confident they’ll have the scratch to pay the bill.”

Guzzardi estimated his measure will pull in $200 million to $500 million a year. He said proceeds would be dedicated to three purposes, all on the spending side: child care services, affordable housing and public education. Key details on the as-yet-unfiled bill are not yet available, including to what extent taxpayers would be able to offset investment gains with losses, like depreciation. Guzzardi said he expects the Illinois Department of Revenue will write rules detailing such matters.

Illinois is one of eight states including California and New York in which Democratic lawmakers are introducing legislation to impose a state wealth tax in the absence of federal rules. That absence allows many partnerships, real estate holders and other wealthy individuals—such as former President Donald Trump—to pay little if anything in federal taxes even though they enjoy great wealth.

Governor Pritzker not ‘focused’ on graduated income tax proposal
Governor Pritzker was asked about the potential graduated income tax revival during a recent press call while he attended the World Economic Forum in Switzerland. A prominent backer of the original measure, the governor said he was not “focused” on a graduated tax system for this session, and instead reiterated the efforts of balancing the budget and closing corporate loopholes in his prior term as governor.

“Now I think we need to focus on how we can address bringing down property taxes, for example, and making some permanent change to bring down some of the tax rates,” he said, noting that running surpluses are what tax reductions possible.

It was a different tune from the governor than in 2019 when he signed SB 687, which would have gone into effect with the voters’ approval in the November 2020 election. Pritzker also invested $58 million of his own money into the Vote Yes For Fairness ballot initiative committee backing the proposed amendment, according to campaign finance records. The committee is no longer active.

Getting billionaires on his side was not as important as getting the general public behind his proposal, Senator Rob Martwick said. Martwick is the Illinois State Senator that last week introduced the idea of reviving the tax. That means convincing voters that this will be a positive change and avoid cuts to services typically seen during times of economic distress. “For those people that say ‘Well, I’m against this,’ I would say this is my solution to an overtaxed middle-class and a pending financial catastrophe for the next generation,” he said. “What’s yours?”

Report predicts billions in motor fuel tax revenue losses if state meets EV goals
Despite Illinois’ efforts to smoothly integrate electric vehicles into the state’s economy, a new report from the Illinois Economic Policy Institute is warning of a potential steep decline in transportation revenue as the process of electrification accelerates.

The primary issue is motor fuel taxes, which will see a significant drop as more electric vehicles make their way to the road and fewer people fill their cars with gas. Since motor fuel taxes make up the backbone of state funding for road and bridge projects, ILEPI, which has strong ties to organized labor, warned in its report that new revenue sources will have to be identified to ensure the state’s 10-year capital improvements plan remains on track.

“There’s absolutely a benefit to having EVs but it will ultimately have a strong impact on transportation funding,” Mary Tyler, the author of the report, said in an interview. “It’s something that I don’t think is talked about enough.”

Stay well,

Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
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