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Notes from Washington: An election day watch list for CME members

Published by Derek Lothian on November 05, 2012

By Birgit Matthiesen, Special Advisor to the President & CEO, US Affairs, CME

In a few short hours, American voters will be heading to the polls to cast their votes for the next President, the next Congressional session, 13 governors and thousands of state and county sheriffs, judges and state auditors. These will be important decisions – as will the numerous ballot propositions voters will also be asked to decide upon – many of them important to Canadian manufacturers and their US business partners for many years to come. A 2012 election map showing the gubernatorial race this year can be seen by clicking here.

2013 may be the year of important tax reform in the United States at both the federal and state level. The candidates for the Oval Office have both pledged to cut federal income taxes and reduce the federal corporate tax rate. There has been more hype than detail but the battle on the campaign trail has been largely spending versus revenue increases – on whom, when and more importantly, what loopholes stay in place and which new ones will be offered.

This note compiled from various sources, including the US Council of State Governments in Washington and the American Association for Highway and Transportation, focuses on tax-related issues at the State and local level and public spending plans in each of those communities. What communities are spending and how they intend to pay for them will be important for any Canadian company doing business in that State.

Alabama

Amendment 9, also known as the Alabama Business Privilege Amendment, would amend the state’s Constitution, modernizing certain language related to corporations including legislators’ ability to place a “business privilege” tax on corporations.

Alaska

Voters in that state will be asked to support the state issuing up to $450 million in general obligation bonds to pay for state transportation projects.

Arizona

Proposition 116, or the Arizona Property Tax Break for Business Equipment Amendment, would allow the legislature to give business tax breaks on newly acquired business equipment.

Proposition 117, or the Arizona Property Tax Assessed Valuation Amendment, would cap the annual increase in the value of real property used to calculate property taxes to 5per cent over the value of the property for the previous year, beginning with the 2015 tax year.

Proposition 204 would permanently renew a 2010 voter-approved one-cent sales tax that funds education, public transportation projects, and human services programs.

Arkansas

Issue 2 would increase the sales tax by a half per cent, to fund up to $1.8 billion in road construction and improvements, including a four-lane statewide highway system. Revenues would also be used to add capacity to existing four-lane highways. Arkansas transportation officials anticipate revenues of just $4 billion over the next decade. But the state faces nearly $20 billion in highway needs over that period.

California

Proposition 30 would temporarily increase the state sales tax and the personal income tax rate on individuals earning more than $250,000 a year and couples earning more than 500,000 a year.

Proposition 38 –a competing measure Proposition 30 – would temporarily increase state income tax rates.

Proposition 39 would repeal existing law that currently gives out-of-state businesses an option to choose a tax liability formula that provides favorable tax treatment for businesses with property and payroll outside California and require those out-of-state businesses to calculate their California income tax liability based on the per centage of their sales in California.

Proposition 32’s most controversial section would prevent unions in California from automatically collecting wages of its members for political purposes.

Alameda County California considers a ½ cent sales tax increase to raise $7.8 billion over 30 years for transit, road, bicycle and pedestrian projects. A 66.67 per cent supermajority vote is required to pass the increase, which would have no expiration deadline.

Los Angeles will decide whether to extend a half-cent sales tax for another 30 years. The tax, which was first approved by voters in 2008, could be extended through 2069. That would give county officials more guaranteed revenue to finish current transportation projects more quickly, they say.

Napa County will consider a 25-year, half-cent sales tax to be used for street and sidewalk repair and maintenance. A vote in favor would renew a sales tax currently used for flood control projects.

Santa Cruz County will decide whether to approve a new $10 vehicle registration fee, which could raise $2 million annually for repairs to county roads.

Florida

Alachua, Florida will vote on a ¾ cent sales tax for transportation projects, excluding public transit. The county commission decided not to move forward with a companion measure for a transit tax.

Illinois

Stephenson Illinois voters will decide whether they support a countywide transportation system supported by federal, state and local funds.

Kansas

The Kansas Boat Property Tax Amendment – HCR 5017 – would allow legislators to classify taxi watercraft differently than other property for purposes of taxation.

Louisiana

Amendment 8 – the Louisiana Business Property Tax Exemption – would allow local governments to opt-in to property tax exemptions for certain non-manufacturing businesses.

Maine

Voters will consider a $51.5 million bond issue to help pay for improvements to highways and bridges, local roads, airports, port facilities, rail access and transit buses. The borrowed funds would make the state eligible for at least $105.6 million in federal and other matching funds

Michigan

Proposal 5 – the Michigan Taxation Amendment – would require any increases in state taxes to be approved by either a two-thirds majority in the legislature or a statewide vote.

The Michigan Graduated Income Tax Amendment would allow for the implementation of a graduated income tax.

The Michigan Local Sales Tax Amendment would allow municipalities to impose up to a four per cent sales tax on residents in addition to the state’s six per cent sales tax.

Proposition 12-2 would amend the state's constitution to give public and private employees the constitutional right to organize and bargain collectively through labor unions.

Proposition 6 could amend the state constitution to require the approval of a majority of voters for any new bridge or tunnel between Michigan and Canada. The measure is opposed by Gov. Rick Snyder, who is not up for re-election this year, supports construction of a new international bridge connecting Detroit and Windsor.

Walker Michigan considers a measure to end the town’s participation with The Rapid, the Grand Rapids-area transit authority, when a millage expires in six years.

Missouri

The Missouri Income Tax Replacement Initiative would eliminate taxes paid by individuals based on income or earnings and sales and use taxes, require the legislature to impose an expanded state sales tax on all sales and services, require that state and local cumulative sales tax rate not exceed 10 per cent, with certain exceptions, and provide for a real property tax credit for eligible homeowners.

Proposition B would increase the tax on certain tobacco products to fund education and tobacco cessation programs.

New Hampshire

Constitutional Amendment 1 would prohibit the levy of new taxes on personal income.

North Carolina

Orange County will vote on a 0.5 per cent sales tax increase for regional transportation investment.

Ohio

Mahoning County considers whether to renew a 0.25 per cent sales tax for another five years. The sales tax, which brought in $7.5 million in 2011, goes to the Western Reserve Transit Authority, which provides bus service to the residents of Youngstown and the region.

Perrysburg, Ohio considers a five-year, 1.45-mill property tax levy to support new public transit service. In March, the community voted to end its participation in the Toledo Area Regional Transit Authority and establish a separate transit system.

Sylvania Township considers whether to withdraw from the Toledo Area Regional Transit Authority. Unlike Perrysburg above, the community has no plan to provide alternative public transportation.

Spencer Township will also consider withdrawal from the TARTA. They too have no alternative transit plan.

South Carolina

Richland County votes on a 0.8 cent sales tax increase to support road improvements, bus service, greenways and bike lanes, with about 25 per cent of revenues earmarked for bus service provided by the Central Midlands Regional Transit Authority.

Oregon

Tigard, Oregon will vote on an amendment to the town charter that would require a public vote prior to increasing local taxes or fees or imposing new ones to fund light-rail construction and expansion. The amendment would expire after 10 years.

Tennessee

Memphis votes on a one cent per gallon gas tax increase, which proponents hope will generate between $3 million and $6 million annually to support the Memphis Area Transit Authority. (Center for Transportation Excellence Director Jason Jordan spoke recently with Tanya Snyder of Streetsblog Capitol Hill about 2012 transportation ballot measures. He tells Snyder the gas tax measure in Memphis is the most unique initiative on the ballot next month. Jordan also says the city of Denver should provide a cautionary tale for municipalities that may want to put their faith in sales tax revenues to fund transit projects. When the recession drove down sales, Denver ended up with less revenue than anticipated for its FasTracks program, delaying the transit expansion significantly.)

Texas

Houston, Texas considers whether to extend the diversion of 25 per cent of the city’s one cent sales tax for construction and maintenance of streets, bridges, pedestrian and bike infrastructure, traffic signals and streetlamps. Voters first approved the diversion in 2003 and could extend it through 2025.

Virginia

Voters will consider a legislatively-referred constitutional amendment that would prohibit eminent domain from being used for private enterprise, job creation, tax revenue generation or economic development, thereby restricting it to only being invoked to take private land for public use.

Arlington County considers a $31.9 million bond issue to support capital projects for the Washington Metropolitan Area Transit Authority and other transit, pedestrian and road projects.

Virginia Beach will weigh in on whether the city council should support extending a light rail line into the city, though the council will have final say in the matter.

Washington

Initiative 1185 would reaffirm the state’s requirement that any tax increase be approved by a two-thirds majority vote in the legislature or receive direct voter approval. The ballot initiative would require either two-thirds legislative approval or a vote of the people in order to raise taxes. As a result, a one third minority in either house of the legislature could prevent the passage of any measure to raise revenue or repeal existing tax exemptions. Repealing a tax exemption is considered raising revenue under the measure.

Lynden Washington has a 10-year, 0.2 cent sales tax on the ballot that’s estimated to generate $300,000 annually to fund road improvements, pedestrian trails and bridges.

Clark County considers a 0.1 cent sales tax increase to fund light rail operations and bus rapid transit in Vancouver’s Fourth Plain corridor. If approved, the tax is expected to generate $4.5 million to $5.5 million.

Pierce County will vote on a 0.3 cent sales tax increase to generate approximately $28 million to restore transit service on routes cut in recent years in the Tacoma area.

Looking ahead past the elections - Congress returns November 13 for an abbreviated post election or “lame duck” session that will be dominated by tax and spending issues. With just 16 working days on the congressional calendar for November and December, the outlook for progress is bleak however the following legislative efforts may see progress:

  • Appropriations. Congress has yet to pass a single appropriations bill to fund the government in fiscal year 2013, which began on October 1, 2012. The House has cleared six appropriations bills; the Senate has cleared none. In September, Congress extended current funding through March 2013, delaying tougher, longer-term spending decisions for a later date.
  • Taxes. January 1, 2013, the date when the 2001 and 2003 tax rates and a bevy of business tax provisions are scheduled to expire.
  • Spending Cuts. In addition to the expiration of the 2001and 2003 tax rates, automatic spending cuts that came out of the 2011 debt ceiling deal in Congress are also scheduled to go into effect on January 1, 2013. The administration has called for a 9.4per cent cut to most defense programs — except those exempted in the sequestration law — and a 10 per cent cut to a handful of other Pentagon accounts that are not subject to annual congressional appropriations. According to the US Congressional Budget Office, the combined effects of the spending cuts and tax increases would result in a fiscal policy reduction of more than $600 billion, or about 4per cent of GDP.
  • Another debt ceiling is also looming. Congress will have to act sometime in the first quarter of 2013 or risk a Treasury default.
  • On public infrastructure spending, almost all levels of US government are facing budgetary challenges and aging infrastructure. At the federal level, gas tax revenues that pay for federal transportation aid to states are declining because people are driving less and cars are more fuel efficient. Inflation also has taken a toll. The 18.4 cents-a-gallon federal tax hasn’t been increased since 1993, and the federal Highway Trust Fund is projected to be depleted in just two years. On the campaign trail, if the candidates were to raise the issue, “it calls into question how you are going to pay for it, and there’s a reluctance to talk about specifics,” said Pete Ruane, president of the American Road and Transportation Builders Association. When the President discusses transportation, it’s usually in the context of pumping money into projects to generate jobs and boost the economy. Governor Romney usually doesn’t mention it unless he’s answering a rare transportation question.

Below are additional priorities for the business communities that are less likely to be addressed in a lame-duck Congress because of time constraints:

  • Permanent Normal Trade Relations with Russia. As a condition for joining the World Trade Organization (WTO) on August 22, Russia was required to implement a far-reaching package of legal and regulatory changes to further open its market to imports, safeguard intellectual property, and ensure greater respect for the rule of law. However, the United States won’t get the full benefits of Russia’s market-opening reforms unless Congress approves legislation establishing Permanent Normal Trade Relations with that country.
  • Cybersecurity bill. Federal cybersecurity legislation is needed to optimize cyber threat information-sharing between government and the private sector. US business leaders think Congress should pass a bill to ensure that information voluntarily shared with the government will not lead to frivolous lawsuits, will not be publicly disclosed, and could not be used by officials to regulate other activities.
  • Regulatory relief legislation. In July, the House passed a bill that would prevent federal agencies from imposing any major new business regulations until the unemployment rate drops back to 6per cent or less. It would streamline the permitting process so that projects can be developed in a timely manner, impose transparency on the abusive sue-and-settle process used by agencies and environmental groups to circumvent the rulemaking process, and prevent an outgoing president from implementing new federal rules between the election and subsequent inauguration.
  • High-skilled immigrant worker legislation. Rep. Lamar Smith (R-TN), chairman of the House Judiciary Committee, introduced legislation to create a new category of green cards for professionals in the STEM fields (science, technology, engineering, and mathematics).

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