Report of the MCAA Legislative Committee

In early December officials at DHS announced their intention to take under advisement the concerns of the Judge and the Federal Court and re-issue a "new" or "revised" rule in early 2008. Among concerns DHS is to take under advisement will be the impact a rule such as this will have on small businesses.

MCAA will continue to work to insure that DHS evaluates the concerns of the small business community and considers the impact on small business before issuing ANY new rule.

Repeal of 3% Withholding Tax
In early December 2007, Senator Norm Coleman (R-MN) together with Senator Susan Collins (R-MA) introduced legislation that would repeal the 3% withholding 'tax' for those performing government (federal, state, local) services. The legislation differs from the original 3% repeal bill as was introduced by Sen. Larry Craig (R-ID), the Coleman/Collins bill includes provisions which would carry with it some punitive measures such as an internet-based list of contractors that have been found guilty of tax fraud. In addition, the legislation includes language with the purpose of preventing companies who have an outstanding tax liability from receiving contracts.

The Meek-Herger (Kendrick Meek D-FL), Wally Herger (R-CA) House bill continues to secure considerable support through co-sponsorship with nearly 200 co-sponsors.

Independent Contractor Bill
As previously mentioned, MCAA was an integral part of the negotiations and subsequent introduction of legislation addressing the mis-classification of employees as independent contractors. In addition to the testimony provided to Congress by MCAA member, Cliff Horn, Senator Obama D-IL) worked closely with MCAA to craft legislation to address the problem. Senator Obama introduced S. 2044 to address a loophole in the Internal Revenue Code regarding classification of independent contractors v. employees. Employers do not have to pay benefits to independent contractors, Sen. Obama's intent in introducing this legislation is to close a perceived loophole that allows for employers to continue considering a worker not as an employee, based on a reasonableness and consistency test.

The legislation introduced by Senator Obama would amend the IRS Tax code, specifically Section 530. the safe harbor provision. Senator Obama and proponents of the legislation believe that the law currently encourages some employers to avoid paying their taxes in full and deny their employees basic protections, thereby placing employers who play by the rules at a disadvantage, striping the government of billions in uncollected business taxes, and exposing employees to a loss of overtime, workers compensation, and other protections. The problem is particularly acute in the construction industry, but it also exists in other growing industries, ranging from high-tech, to trucking, to janitorial services, to home care.

This legislation will close the Section 530 loophole. It will allow the government to collect the taxes employers owe and level the playing field for all workers and employers. The legislation will also address the serious need for more enforcement of federal tax and employment laws to identify those employers in major industries that wrongly classify their workers as independent contractors and require greater cooperation between the IRS and the Department of Labor in enforcing the law.

Furthermore, the legislation would end the practice of allowing employers to continue to misclassify workers for employment tax purposes and eliminate the employer's defense that misclassification is a common practice in the employer's industry. Thus, in industries like construction, where especially large numbers of employers misclassify their workers, the safe harbor provision will no longer apply just because it is common practice in the industry to violate federal laws.

Senator Obama feels that by passing this legislation this would allow the vast majority of employers who pay their fair share of taxes and recognize their workers as employees to be able to compete on a level playing field against employers who will held accountable for cheating the system. In addition, the "tax gap" would be narrowed by collecting literally billions of dollars in unpaid federal taxes that ate now denied the federal treasury due to misclassification of employees as independent contractors.

Under the new legislation employers would be required to re-verify their entire workforce within four years of enactment. This will be an enormous administrative burden on employers and employees, particularly small business owners.

MCAA's main concern with proposed legislation mandating that all employers must use the electronic verification system, E-Verify, is the potential negative impact this may have on small businesses. A mandatory requirement to participate in the e-verify system could place a considerable financial strain on small business owners, due to the technological infrastructure that would be needed in order to comply. While this program may be compatible, easy to use and even recommended for many employers, the high tech-nature of the program means that small businesses also may find the system difficult to use. Many small businesses do not have the technological nor personnel infrastructure in place to handle such a large scale technical undertaking. Certainly many small businesses in rural areas have not even reached this level of technological sophistication. Also at issue is are challenges with some business owners face with their physical office location and/or the nature of their business, such as mason contractors, who are often on job sites, not in offices all day everyday.

In addition, the legislation does not include liability protection for employers from discrimination lawsuits for an employer who relies on E-Verify information and subsequently denies employment to or fires a current employee, in the event that the future or current employee is later found eligible to work in the United States.

Permanent Repeal of the Estate Tax
On November 13,2007 Senators Baucus (D-WY) Chairman of the Senate Finance Committee and Kyl (R-AZ) Ranking member on the committee, resurrected the Estate Tax debate. A year ago the estate tax legislation seemed to be dead, a victim of Congress' inability to deal with the issue. There is talk of a bi-partisan compromise between Baucus and Kyl. While no specifics have been put forth, the Senators would like to move forward to address the quickly approaching problem of the "sunset" of the death tax repeal. If Congress does nothing, the estate tax will disappear in 2010, only to revert back to pre-2001 law in 2011, which carries an original rate of up to 55 percent tax.

Republicans have long sought permanent repeal, forging a coalition of small businesses, family farmers, and business titans that has been influential but unable to eliminate the tax. Although some lawmakers and activists don't want to see the tax eliminated completely, resurrecting it could prove more politically painful than reaching a compromise before 2010.

MCAA realizes that if we can't achieve full repeal, small businesses still need some kind of relief and permanency in order to plan for the future.

Chances of a compromise seem promising in 2008. However, any estate tax legislation will face the hurdle of pay-as-you-go rules, which require tax cuts to be offset by spending cuts or revenue increases. Any estate tax bill will likely be scored as a tax cut because the revenue baseline would compare future revenue with the levels called for in 2001 law: 55 percent for estates over $1 million.

Building Code Legislation
Congressman Dennis Moore (D-KS) introduced legislation to promote and enhance the operation of local building code enforcement administration across the country by establishing a competitive federal matching grant program.

In addition in 2007 MAC PAC became more involved with fundraising efforts by co-hosting several fundraisers for candidates from across the country. MAC PAC also increased it's contributions to federal candidates, Democrat and Republican, and supported the winner more than 90 percent of the time.

MAC PAC is an essential component of MCAA's legislative agenda. By contributing personal dollars on a voluntary basis, members provide the resources needed to expand the base of pro-construction allies in the House and Senate. With this support, pro-construction candidates are given the opportunity to advance MCAA's legislative priorities in Congress. An association with a strong PAC demonstrates that it has a strong grassroots network, effective leadership, and a committed membership - in short, people who can positively influence public policy.