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BPAA Federal Policy Update - March 26

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FEDERAL TAX UPDATE

  • Bloomberg Government Reports - No One’s Sure Who Qualifies for This $415 Billion Tax Deduction: “Congressional Republicans created a juicy new tax break for business owners when they rewrote the U.S. tax code late last year. Three months later, hundreds of thousands of U.S. employers still don’t know if they qualify. The Internal Revenue Service has said it will provide guidance detailing exactly who’s allowed to take the so-called pass-through deduction. With billions of dollars at stake, business groups are lobbying for the agency to open the doors to the deduction as widely as possible. Some high-earning proprietors -- such as construction contractors, massage therapists, executive headhunters and restaurateurs -- could be excluded if the IRS writes the rules too narrowly. The agency plans on issuing guidelines by June. But that deadline has been questioned by a former top Treasury official given the vagueness of the legislation and complexity of the task. The 20 percent deduction is aimed at pass-through businesses, whose income is reported on their owners’ personal tax returns. Congress tried to bar wealthy owners of service businesses from getting the break -- leaving out many doctors, lawyers and hedge fund managers unless they can find a loophole. By trying to exclude those service businesses, though, Congress ended up asking the IRS to settle some rather absurd philosophical and semantic conundrums. What, for example, is an entertainer? Are humans the only species who get “health care,” or do animals count too? How do you tell a broker from a salesperson, or an interior designer from an interior architect?
     
  • Bloomberg Law Reports - Democrats Won't Back Tax Law Fixes Without Trade-Offs: Democrats are preparing a political playbook for the months ahead, where they will agree to Republican requests for tax code fixes only if some of their tax priorities are considered. Their strategy was on display this week when, after days of terse negotiations, Democrats secured a four-year expansion of a section of the low-income housing tax credit by 12.5 percent in a must-pass spending bill. In exchange, they agreed to fix a glitch in the 2017 tax act that gives farmers a larger deduction for crop sales to agricultural cooperatives than to companies, such as Archer Daniels Midland Co. and Cargill Inc.Democrats say they have a better chance of being heard now than during the frenetic months at the end of 2017 when Republicans passed a tax reform bill using a fast-track budget process called reconciliation. They are determined to make themselves heard.House Ways and Means Committee Chairman Kevin Brady (R-Texas) said he anticipated only “minor corrections” in the future. But Brady admitted that Democrats could “hold hostage any fine-tuning.” In the current round of discussions, agreeing to the Democratic request was the best path forward to fix the farm co-op issue, he said.

    LABOR AND TIP-POOLING

     
  • Omnibus: The government has passed its new budget proposal, which includes protections for tipped workers. President Trump signed it into law hours after threatening to veto it.
  • The bill expressly prohibits employers, managers, or supervisors from collecting or retaining tips made by employees — one of the biggest concerns opponents had against the Department of Labor’s most recent, and widely hated, proposal. The bill nullifies that previous proposal.
  • The new law allows tip sharing between tipped and non-tipped employees — for example, between servers and cooks — if a restaurant pays the full minimum wage to all employees. The is a departure from Obama-era rules, which did not allow such sharing of tips.
  • Bloomberg Reports - Spending bill prevents employers from pocketing tips under tip-pooling rule: The $1.3 trillion spending deal released late Wednesday night includes language to prevent employers from being able to steal workers’ tips under the Labor Department’s controversial tip-pooling rule. Sen. Patty Murray (D-Wash.) reached the deal with Labor Secretary Alexander Acosta to add a rider in the bill that amends the Fair Labor Standards Act to prevent employers, managers or supervisors from pocketing workers’ tips regardless of whether they earn gratuities on top of a full minimum wage. The language gives workers the right to sue to recover any stolen tips with added damages and gives the Secretary of Labor the ability to impose civil penalties on employers who violate the law. Acosta has been under fire since the rule was first proposed in December to allow employers to pool the tips of workers who make the full minimum wage and split them with non-tipped workers. The rule does not apply to workers who make less than a full minimum wage and use tips to supplement their pay, but labor groups said there was nothing in the regulation to stop employers from pocketing a portion of employees’ tips. A Bloomberg Law report later revealed agency officials had withheld an unfavorable report that showed workers stand to lose billions in gratuities if the rule is finalized. Democrats, labor groups and 17 state Attorneys General have since demanded Acosta withdraw the rule. And in a second report Wednesday morning, Bloomberg Law reported that Acosta convinced Office of Management and Budget Director Mick Mulvaney to overrule the nation’s regulatory czar to release the rule.

    MENU LABELING
     
  • Menu Labeling Finally Set to Go Live on May 7, But Congress Might Have Different Plans - If it seems like we have been talking about menu labeling for years, it is because we have been—for almost 8 years this month. And just when it seems like the U.S. Food and Drug Administration (FDA) will move menu labeling forward, Congress could thwart FDA’s plans... If the CSNDA dies in the Senate, it seems that FDA will have to move forward with its rule by May 7 if it wants to avoid the possibility of NYC enforcing its analog of the same before FDA enforces its rule. That said, courts have generally recognized federal agencies’ authority to set effective dates and compliance dates as they see fit, so any move by NYC to enforce its rule before FDA enforces its rule could be litigated. How much tolerance a court would have for another FDA rule delay is anyone’s guess. If the Senate passes the CSNDA and President Donald Trump signs it into law, per the legislation, FDA would need to promulgate additional regulations, thus further delaying menu labeling. Although it seems unlikely that NYC would press forward with its rule while FDA is promulgating further regulations, it is not out of the realm of possibility.
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