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

Chamber members:

The focus of the state legislative session is becoming more clear this week as legislation making healthcare and childcare more affordable & accessible, investing in job-training & workforce development and, of course, the budget, are topping the list.

As of Friday, there were 1,690 bills introduced from both chambers – 156 in the state Senate and 1,534 in the House. A common thread in the bills was income tax credits applying to a wide spectrum of eligible taxpayers, state agencies. and departments.

The Illinois House returned to the Capitol on Tuesday. The Senate convened two brief sessions last week. Governor Pritzker also announced Tuesday that he will end his ongoing COVID-19 disaster proclamation on May 11, the same day President Joe Biden announced the federal emergency will end.

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

US economy grows 2.1 percent in 2022
The U.S. economy powered through high inflation, rising interest rates and an energy shock to grow at a solid pace over the course of 2022, according to data released Thursday by the Commerce Department. U.S. gross domestic product (GDP) grew 2.1 percent last year and at an annualized rate of 2.9 percent during the fourth quarter. That means the U.S. economy would have grown by nearly 3 percent if the pace of growth in the fourth quarter lasted an entire year.

Economists had been expecting between 2.6 and 2.8 percent annualized growth in the fourth quarter, so the figures came in ahead of expectations. They’re a modest fall-off from the 3.2-percent growth rate in the third quarter. “The increase in real GDP in 2022 primarily reflected increases in consumer spending, exports, private inventory investment, and nonresidential fixed investment,” the Commerce Department’s Bureau of Economic Analysis (BEA) wrote in its news release on Thursday.

Personal consumption grew by 2.1 percent in the fourth quarter and has remained at or above 2 percent since the second quarter of 2022. Private inventories were also a major contributor to GDP growth, up 1.46 percent in the fourth quarter. Notably, inflation-adjusted personal incomes increased 3.3 percent in the fourth quarter, compared to an increase of 1 percent in the third quarter, adding some heft to consumers’ pocketbooks. “The increase primarily reflected increases in compensation (led by private wages and salaries), government social benefits, and personal interest income,” the BEA wrote.

GDP fell in the first two quarters of 2022, leading many Americans to believe a recession had already started last year. But strong growth in the second half of the year bucked that trend, leaving GDP basically in line with where it should have been prior to the pandemic, according to a forecast from the Congressional Budget Office.

“The latest GDP data shows that the economy continued to expand in the 4th quarter, which is consistent with most of the measures the NBER [National Bureau of Economic Research] uses to define recessions. Despite some slight dips in GDP in the first half of the year, this latest data suggests that the U.S. likely made it through 2022 without entering a recession,” Jeremy Horpedahl, an economist at the University of Central Arkansas, said in an email to The Hill.

The solid numbers are a reflection of a consistently tight labor market that’s allowed U.S. consumers to continue spending even as many commercial economists have been warning of a recession.

After rising slightly last fall, the unemployment rate in December dipped back down to 3.5 percent. The last time it was lower than 3.5 percent was in 1969. Small companies have been responsible for all of the net job growth in the U.S. since the onset of the Covid-19 pandemic and account for almost four out of five available job openings, reports. As long as the job market is strong, the Fed will have a hard time slowing the economy and curbing inflation, and will continue raising interest rates.

The GDP numbers also come amid rapidly falling inflation, which has dropped for six straight months to 6.5 percent annually in December off a high of 9.1 percent last June, effectively boosting the purchasing power of U.S. consumers. This has bolstered hopes for a “soft landing” from the Federal Reserve – lower inflation without a serious, job-killing recession.

“Many economists have gone way overboard in talking as if a 2023 recession is all but inevitable. I would put the odds of a recession this year at something like 35 percent,” said Jeffrey Frankel, an economist at the Harvard Kennedy School and a former member of the committee at the National Bureau of Economic Research that officially designates recessions.

Senate bill would repeal $600 IRS reporting threshold
U.S. Sen. Kevin Cramer, R-N.D., and seven other senators have signed onto a bill that would repeal the tax threshold for reporting third-party payments. Under a provision in the American Rescue Plan Act, business transactions over $600 annually would be reported to the IRS by the payment platforms.

The Stop the Nosy Obsession with Online Payments Act, known as the SNOOP Act, would keep the threshold at $20,000 a year for at least 200 transactions. “Small business owners and independent contractors need rescuing from this American Rescue Plan Act provision, which, fortunately, has yet to be implemented by the IRS,” Cramer said in a news release. “Our bill would prevent enforcement of the onerous regulation and institute a more reasonable reporting threshold.”

“This invasion of taxpayer privacy is another example of overreach by the Administration and should be stopped in its tracks,” he added. Cramer co-sponsored a similar bill last year. According to congressional records, it was assigned to the Senate Finance Committee but never made it to the Senate floor for a vote.

The IRS delayed enforcing the regulation for the 2022 tax year. “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” Acting IRS Commissioner Doug O’Donnell said in December. “The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

National sales tax plan could spark discussion, but unlikely to advance
A plan to overhaul the nation’s tax system is unlikely to advance this year, but it could help define the contours of the tax debate in the coming years. The debate over that nation’s tax system is likely to pick up as lawmakers prepare for 23 individual and business tax provisions in the 2017 Tax Cuts and Jobs Act to expire on Dec. 31, 2025.

U.S. Rep. Earl “Buddy” Carter, R-Georgia, introduced the Fair Tax Act, earlier this year to replace the existing tax code with a national consumption tax. The legislation would eliminate the national income tax and replace it with a 23% national consumption tax. It would eliminate existing income taxes, payroll taxes and estate and gift taxes. The national sales tax rate could be adjusted after 2025. Consumption business, export and investment would be exempt. U.S. residents would get a monthly sales tax rebate based on family size and federal poverty guidelines.

The plan further calls for states to administer, collect and remit the sales tax to the U.S. Treasury. It would eliminate funding for Internal Revenue Service operations after fiscal year 2027. And it would terminate the national sales tax if the Sixteenth Amendment to the Constitution, which authorizes an income tax, is not repealed within seven years of enactment.

The proposal isn’t new. Republicans have introduced it every year since 1999 when it was put forward by former Georgia Congressman John Linder. It has never advanced to a floor vote. However, this year, the national sales tax plan is getting renewed attention after a deal between House Speaker Kevin McCarthy and the House Freedom Caucus. Even still, it might not pass the House Ways and Means Committee,

“The sense that I get is that it probably would not pass the committee,” said Garrett Watson, a senior policy analyst at the Tax Foundation, an independent tax policy group in Washington D.C. “So I guess the big question is will Rep. Carter and other supporters want to have a vote for anyway, even if they think it will fail?”

Watson said the 23% sales tax rate included in the bill would be higher. “If you want an apples-to-apples comparison with the way sales taxes are usually presented, it’s closer to 30%,” he said. “So it’s effectively a 30% sales tax nationally and that will be levied on top of state sales taxes and other taxes at the state and local level.”

The trade-off would be the elimination of federal taxes. “You would not need to file a return,” Watson said. Such a significant overhaul of the tax system would make way for a host of new political discussions about the nature of a consumption tax and how it would be applied. Those issues alone could sink the proposal. “The massive change all at once plus skepticism about the value of this particular design will make it very unlikely,” Watson said.

The proposal could contribute to conversations about the nation’s tax code in the coming years. “A bigger discussion over the next couple of years will be about more incremental reforms, because, for better or worse, we’re running into, at the end of 2025, a lot of tax changes because of the 2017 tax law. Individual tax cuts will all expire at once. So it’s one big tax cliff,” Watson said. “And while we make decisions one way or the other about what to do about it, it’ll be the start of that broader conversation.”

Amid ‘unprecedented’ prolonged revenue boom, state finds budget breathing room
Sustained higher-than-predicted state tax revenues have in recent months given lawmakers a level of budgeting flexibility that is, at least in modern times, without precedent in a state with a reputation for perilous finances. For the current fiscal year and the one before it, that’s led to another uncommon Capitol occurrence: budget surpluses in the billions of dollars.

Over those two budget years, lawmakers have increased pension contributions by $500 million beyond required levels, paid off hundreds of millions of dollars in interest-accruing debt and saved nearly $2 billion in a budget stabilization fund – all while increasing education and human services funding and even providing tax relief for most Illinoisans last year.

“Balancing the budget in Illinois is a relatively new thing, you know, over the last four years, and so we’re proud of the fact that we’ve focused on that,” Gov. JB Pritzker said in a recent media call.

The current-year expected surplus has been driven by the state’s “big three” revenue sources – sales tax and personal and corporate income taxes – which have continued to outperform even their robust growth from the year prior even without increases to the base tax rates.

For the fiscal year that ended in June, revenues soared past the state’s initial $42.3 billion approved budget by nearly $8 billion when excluding ARPA fund transfers.

In the recently concluded lame duck session, Democrats passed a surplus spending plan that allocated an additional $3.6 billion in unexpected revenues beyond the initial $46.5 billion budget approved last spring. That included nearly $2.7 billion in debt repayment and long-term savings and about $925 million in new, one-time spending.

Illinois pays off final part of pandemic unemployment debt
As of Monday afternoon, Illinois has no more COVID-related debts with the federal government. In November, Governor J.B. Pritzker announced a bill that would eliminate the rest of the pandemic unemployment debt by using the state’s surplus in revenue to pay it off. The bill was supported by Democrats, Republicans, as well as labor unions and business groups, before being signed into law by Pritzker Monday.

Since the November announcement, Illinois Comptroller Susana Mendoza said she began to start setting money aside in anticipation of Pritzker signing the bill. “We have been preparing for this day to pay back the remainder of the COVID-19 unemployment insurance loan and stop the interest-meter running for taxpayers,” Mendoza said.

Now the bill is signed into law, she began transferring money to the Illinois Department of Employment Security so they can end the debt with the federal government. Mendoza says the state would save at least $20 million in interest costs if the bill was not paid by September.

Along with the loan, an extra $450 million was placed into the unemployment trust fund to strengthen it.  As businesses pay back over the next 10 years, the money will go into the Rainy Day Fund, something Mendoza has worked to build up.

“Any chance the state has to contribute more money to the Rainy Day Fund, we should take,” Mendoza said. “Catching up to other states’ Rainy Day reserves signals to the bond-rating agencies how serious Illinois is about fixing our finances.”

Governor Pritzker announces $13 million expansion of pre-apprenticeship program
The Illinois Works Pre-Apprenticeship Program, which creates a qualified talent pipeline of diverse candidates in construction and the building trades, will see a $13 million expansion.

“A strong and just economy is built on ensuring all Illinoisan have real opportunities to secure good-paying jobs,” said Senator Mike Simmons (D- Chicago), who kicked off the announcement at a press conference Friday. “By expanding the Illinois Works Pre-apprenticeship program and making it more accessible to communities of color, we are addressing systemic inequities and creating a more diverse and skilled workforce in Uptown and across the state.”

The Works Pre-apprenticeship Program’s second year will expand access to the program across the state and will serve up to 1,400 people. This is a 40% increase from the program’s first year. The Illinois Works Pre-Apprenticeship Program launched with the goal of increasing diversity and access to apprenticeship programs. Comprehensive pre-apprenticeship programs help participants gain admission to apprenticeship programs, which provide a greater opportunity to obtain employment in the construction trades and secure long-term employment.

The program was designed to increase access to good-paying jobs in the trades for historically underrepresented populations. Participants of the program attend tuition-free and receive a stipend and other supportive, barrier reduction services to help enter the construction industry. Upon completion of the program, pre-apprentices receive industry aligned certifications which will prepare and qualify them to continue to a registered apprenticeship program in one of the trades.

Stay well,

Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
815.727.5371 main
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