As if small business owners haven’t had enough to deal with, now comes word that Congress pulled the rug out from under a major COVID-19 relief program that was supposed to run through the end of 2021.
Instead, many business owners are left scrambling to adjust their business plan with just three weeks left in the year.
The Employee Retention Tax Credit (ERTC) program was approved by Congress in 2020 to allow many small business owners to offset much of the cost of payroll taxes for those employees who were retained despite the pandemic. The program was to run through Jan. 1, 2022, allowing employers to claim credits of up to $7,000 per employee per quarter for all four quarters this year.
But that abruptly changed when President Joe Biden recently signed the Infrastructure Investment and Jobs Act.
According to the White House-supported legislation, the ERTC program came to a halt as of Sept. 30. That retroactive end means business owners who developed their budget based on claiming the credits Congress previously approved for the fourth-quarter will have a rude awakening at tax time.
Restaurants, retail, and professional services businesses are among the industries expected to be hardest hit by ERTC’s early termination, which was not previously publicized by the Biden Administration. It has fallen on business and trade associations to get the word out after the fact, but it is feared the message will be too late for many small businesses.
The National Federal of Independent Businesses is encouraging impacted business owners to notify their U.S. Representatives and Senators in hopes Congress will address the problem by restoring the original end date.
With states still feeling the economic damage done by the COVID-19 pandemic, President Joe Biden signed the “American Rescue Plan Act” to give states billions of federal dollars to help them recover. But there’s a catch: The Act effectively prohibits states that take the money from cutting taxes through 2024. That’s unconstitutional—and the Goldwater Institute is joining one legal challenge to it.
Congress can sometimes put conditions on grants to states, but it can’t take advantage of an emergency to coerce states into giving up control of such an important issue of state policy, and it can’t impose a condition on a grant that has nothing to do with the grant’s purpose. That’s why many state attorneys general have filed federal lawsuits challenging this “Tax Mandate”—and it’s why the Goldwater Institute has filed a brief supporting the state of Ohio’s challenge.
THE TAX MANDATE
A provision in the Act says that states cannot use federal grant money to “directly or indirectly offset” a loss of revenue resulting from a tax cut enacted between March 2021 and the end of 2024. If they do, the U.S. Secretary of the Treasury will take the federal money back, up to the amount of revenue the state lost. That appears to mean that states that cut taxes between now and 2024 will have to pay back some or all their grant money.
The Tax Mandate’s defenders say this is just to make sure states actually use federal money for COVID relief. But the Tax Mandate doesn’t actually do that. The Act lists four broad categories of things a state can spend federal grant money on. After states spend the money, they have to report how they spent it to the Treasury Secretary. If the Secretary determines that a state spent money on something that doesn’t fall into one of those categories, she can take that money back.
So if a state receives a grant of, say, $5 billion, it has to show that it spent $5 billion on things the Act allows. If some things it reports weren’t appropriate uses of the money, the Secretary can recoup that portion of the grant. That alone ensures that states spend their federal grants for the purposes Congress intended.
The Tax Mandate, on the other hand, does not help ensure that states spend their grant money properly. Instead, it focuses on whether a state indirectly used federal funds to offset revenue lost as a result of tax cuts. That might make sense if the Act were otherwise designed to deny federal money to states that could afford to pay for their own COVID relief (if they put other policy priorities aside). But the Act doesn’t do that.
The 2020 U.S. Census state population results were announced Monday, and while Arizona added nearly 760,000 residents over the last 10 years, the growth was not as high as some state officials estimated. As a consequence, Arizona will not earn a 10th congressional district as many had expected.
The official increase in Arizona’s population is listed at 746,223 from April 1, 2010 to April 1, 2020. That puts the number of residents at almost 7.16 million. What won’t be available for a few more months is the population breakdown by counties and communities.
Gov. Doug Ducey and his census taskforce pushed hard during the 2020 Census process, committing nearly $2 million to the effort which was hit hard by COVID-19. State officials previously said 99.9 percent of all households were counted.
“In 2020, countless volunteers embarked on a statewide campaign to reach underrepresented communities, resulting in AZ’s highest self-response rate in decades,” the state’s census team tweeted Monday. “The state’s 64.1% self-response rate exceeded that from 2010 (61.3%) and 2000 (63%). 19 of the 20 land-based tribal communities in AZ had final enumeration rates of 100%.”
Many estimates by government agencies had pegged Arizona’s overall population at nearly 7.4 million going into 2020. It is unclear whether those estimates were based on overly optimistic formulas or if well-publicized concerns with how answers to census questions would be used kept some residents from being forthright.
The most immediate impact of the Census state population announcement is that those interested in representing Arizona in the U.S. House of Representatives now know the state’s allotment of congressional districts will remain at nine, each serving roughly 795,500 residents.
Each state is initially assigned one of the 435 seats in the U.S. House of Representative. The rest are then allotted based on data from the U.S. Census Bureau. Arizona came in about 80,000 residents short for being considered for another congressional seat, while Colorado, Florida, Montana, North Carolina, and Oregon added a seat. Texas added two congressional seats to its current 36.
How the boundaries of Arizona’s nine districts will look won’t be known for more than one year, as the Arizona Independent Restricting Commission must wait for the more detailed, localized census data to finalize their maps.
Long term, the biggest impact of the lesser than expected population numbers could be on Arizona’s budget, of which about 40 percent comes from federal funds. If Arizona was truly undercounted during the census process, there are some estimates it could cost the state roughly $62 million annually for every one percent undercount.