November 2, 2023
Washington Update
Much has happened in Washington, D.C. over the last month, yet there’s little real legislating to show for it. Since our last update, Congress did manage to pass short-term continuing resolution (CR) preventing a government shutdown and moving the end of year fiscal deadline to November 17th. Speaker Kevin McCarthy (R-CA) was promptly rewarded for that moment of good governance on October 3rd when eight Republican representatives joined all of the Democrats to vacate the chair and oust McCarthy as Speaker. The House then operated in a state of Constitutional grey area as Republicans tried multiple times to find a replacement. After 3 weeks, and several failed candidacies, the House is back up and running again under new Speaker of the House Mike Johnson (R-LA), but that new fiscal deadline is now only two weeks away.
I know there is a lot of press on the new Speaker, but here is my two cents: Rep. Mike Johnson is from Benton, LA and currently represents Louisiana’s 4th Congressional District. He was first elected in 2016, in the same cycle as President Donald Trump, and served on both the House Armed Services and Judiciary Committees. I have known Johnson since he was first elected, and I worked with him and his staff when he rose to chair the Republican Study Committee (RSC) after his first term in Congress. The RSC is the largest caucus in the House of Representatives and counts about 170 Republicans as members. Leading that group is not easy, especially as a junior member, and grants Johnson more leadership experience (and staff) than the press acknowledges. While conservative, like the more vocal and disruptive Freedom Caucus, the RSC tends to be more policy focused and less political and has served as a launching pad to larger leadership roles over the years. Former RSC Chairs include Steve Scalise (R-LA), Mike Pence (R-IN) and current Chairman Kevin Hern (R-OK). The jury is still out on what type of Speaker Mike Johnson will be, but in the past, I have found him easy to work with, policy centric, and a good communicator, and it is also a good sign that his staff likes him He tends to focus on social and cultural issues, but on economic and business issues he supports pro-growth free enterprise positions. NAW GR has good connectivity with the new Speaker and his staff at multiple levels, and we are working to get them up to speed on our industry and our issues.
– Brian Wild
Labor Rules Keep Moving
Meanwhile, as Congress treaded water for a month, the While House and Federal agencies didn’t miss a beat and continued to push out new proposed rulemakings and regulations at a feverish clip. Already, the deadline for comments on the proposed Overtime Rule is closing in, with comments closing on November 7th. NAW is submitting comments opposing the rule and collaborating with our coalition partners to submit their comments as well.
Joint Employer
On October 26, the National Labor Relations Board (“Board”) issued its final rule addressing the Standard for Determining Joint Employer Status under the National Labor Relations Act. The Board indicates that the effective date of the final rule will be December 26, 2023. To read an analysis of the rule’s impact on employers, please see Littler’s Insight.
We are still digging into this rule and we’re interested in learning how this might affect your business. If you have any feedback on how your business would be affected, please email NAW’s Lauren Williams.
Tax Updates
Since we have been labor heavy the last couple of updates, we wanted to include some background on where some of our major tax issues currently stand. Starting with some big news from the Internal Revenue Service (“IRS”).
In September, the IRS announced the creation of a new unit dedicated to increasing tax enforcement for large pass-through businesses, including S-corporations. This new unit is being funded through the Inflation Reduction Act of 2022, which provided the agency with $80 billion to hire 87,000 new IRS agents, with the stated goal of modernizing the agency and increasing tax enforcement.
The IRS intends to formally create the new division late next year but has already begun ramping up increased enforcement and hiring new agents.
While the IRS intends to go after tax evaders, law abiding taxpayers will inevitably be impacted, so wholesaler-distributors may see increased audits, investigations, and examination. The agency projects the 2021 tax gap, or the amount of tax underpaid, to be $688 billion. Of that amount, they estimate roughly $182 billion, or 25%, is attributable to underreporting of pass-through business income, making S-corps a top target of the agency.
Congressional Republicans continue to push to defund the $80 billion in IRS funding. As early as today, the House is expected to vote on a bill that would provide $14.3 billion in aid to Israel offset by cutting $14.5 billion in IRS funding. While this proposal will certainly not pass the Senate, defunding the IRS remains a top priority for Republicans and one they view as a political winner.
Expired Tax Provisions
There is a lot of talk about a potential end of year tax legislation with House Republicans proposing several bills to address a number of expired business tax provisions. Legislation drafted by House Ways & Means Chairman Jason Smith (R-MO) includes repealing the 5-year amortization of Research and Development costs and restoring 100 percent expensing. The legislation also expands the standard deduction for individual filers for 2024 and 2025 and repeals several green energy credits. As good as that sounds, these are still largely considered messaging proposals, as the bills face a number of obstacles.
For starters, the prospects of a tax bill depend on the ability of lawmakers to pass legislation funding the government. Typically, end of year tax legislation is attached to a must pass government funding vehicle. However, a funding vehicle remains unclear given the high level of legislative dysfunction.
In addition, there remain obstacles in the in the House due to opposition from blue state Republicans who are demanding any tax legislation also increase the $10,000 cap on state and local taxes (SALT). According to media reports, Speaker Johnson has agreed to address these concerns, but specific details remain unclear.
Finally, Senate Democrats are open to addressing the expired business tax provisions but only if Republicans agree to pair it with an expansion of the child tax credit (CTC). Last year, Republicans objected to this compromise because of their belief that the business provisions were bipartisan while the CTC expansion is a Democrat priority. Despite all of these hurdles, there remains a chance something can get done, and we are pushing hard to make it so.
199A Deduction for S-Corps
One of NAW’s key tax priorities is the Main Street Tax Certainty Act, legislation introduced by Senator Steve Daines (R-MT) and Representative Lloyd Smucker (R-PA) to make the 199A pass-through deduction permanent. This provision provides a 20 percent deduction for S-corporations, LLCs, sole proprietorships, and partnerships and is set to expire at the end of 2025.
NAW has been working to educate lawmakers on the importance of this provision to tens of thousands of wholesaler-distributors nationwide, and, working with likeminded business groups, we’ve helped add more than 150 co-sponsors to the bill ahead of the provision’s expiration. While it is highly unlikely that lawmakers will be able to pass this legislation this Congress, NAW hopes a strong show of support this Congress will make addressing this issue a top priority in 2025.
ABC Supply Hosts Senator Pete Ricketts (R-NE)
In early October, ABC Supply welcomed freshman Senator, and former Governor, Pete Ricketts (R-NE) for a policy visit at one of their facilities in Omaha, NE. During this stop, the ABC team updated Sen. Ricketts on the issues impacting their business and the wholesale distribution industry. This puts a constituent face and real-life examples to the issues the NAW Government Relations team is communicating to Sen. Ricketts’s office in Washington, D.C.
Additionally, ABC took the opportunity to share with Sen. Ricketts how they provide the highest level of service to their customers while also taking care of their thousands of team members, especially the commitment they place on giving their team members the training, tools, and equipment needed for success.
If you’re interested in hosting your Representative or Senators and telling the story of how your business serves your customers and employees, NAW is here to help. Please visit www.NAW.org/congressional-visits to learn more.
Thank you,
Brian Wild, Chief Government Relations Officer
Alex Hendrie, Associate Vice President of Government Relations
Lauren Williams, Associate Vice President of Government Relations
Channing Pejic, Director of Political Programs
