Michigan Developments
Eric Rule,
Director of Governmental Affairs

Elections provide wins, losses, surprises
Michigan followed the rest of the nation in November’s elections as Democrats won major victories, many of them surprises.
Along with Governor Jennifer Granholm’s victory and the national Democratic groundswell, Democrats also took control of the Michigan House of Representatives. The GOP saw its 58-52 majority replaced by a 58-52 majority for the Democrats, despite predictions Republicans would retain power.

Senate Republicans fared better by losing only one seat, resulting in a 21-17 majority.

The House will include 32 newcomers and the Senate will feature seven new members; however, all senators-elect have previously served in the House.

Republican Attorney General Mike Cox retained his seat, as did Secretary of State Terry Lynn Land. But Democrats swept the bottom-of-the-ticket education seats, demonstrating the strength of the governor’s coattails and the overall Democratic surge.

Of the five ballot proposals, the most controversial one, banning affirmative action, passed by a wide margin. A proposal to provide K-16 education with mandated annual inflation increases was defeated. Approval of the K-16 plan would have threatened the state budget going forward.

Shift of power in House
One week after the election, the House Democratic caucus elected Rep. Andy Dillon (D-Redford Township) as incoming speaker of the House. The choice of Dillon is widely seen as a signal that the caucus hopes to take a moderate or bipartisan approach when it takes over control of the chamber in January.

Rep. Steve Tobocman (D-Detroit) was elected House majority floor leader and Rep. Michael Sak (D-Grand Rapids) was chosen as speaker pro tem.

Rep. Craig DeRoche (R-Novi), current House speaker until January, was elected as next session’s minority leader by the House Republican caucus.

In a surprise vote, House Majority Floor Leader Chris Ward (R-Brighton) was chosen to be the House minority floor leader for 2007-08, a day after he had taken his name out of the running.

GOP elects new Senate leadership
Sen. Mike Bishop (R-Rochester) was elected the new state Senate majority leader. Bishop replaces retiring Senate Majority Leader Ken Sikkema (R-Wyoming).

Bishop edged out a last-minute push by Sen. Wayne Kuipers (R-Holland) for the post. In going with Bishop, the caucus is rewarding the top money earner. During the last election cycle, Bishop’s leadership PACs raised a combined $221,000, according to the latest filing, some $70,000 more than Kuipers raised.

Senate Democrats chose Sen. Mark Schauer (D-Battle Creek) as minority leader. He succeeds Sen. Bob Emerson (D-Flint), who is term-limited.

Update from Washington
James Goldberg,
MRA Washington Counsel

Panel plans way to narrow tax gap
The treasury department calls it the “tax gap”—that is, the difference between what the federal government gets in tax revenue and what it figures it should receive. Closing the tax gap, according to critics, amounts to nothing more than raising taxes by tinkering with the IRS Code.

Congress has estimated the tax gap at $290 billion per year, and Senate Finance Committee Chairman Charles Grassley (R-IA) and ranking minority member Sen. Max Baucus (D-MT) recently asked Congress’s Joint Committee on Taxation to come up with ways to close the gap.

Among the suggestions is a proposal to alter the way taxes are paid by S corporations, a popular form of organization for family-run businesses. Under current rules applicable to many S corporations, family members take a set salary and distribute the remaining profit in the form of dividends.

The dividend distribution is not subject to self-employment taxes. The Joint Tax Committee proposal would change the rules and make all net income—regardless of whether called salary or dividend—subject to self-employment tax.

This set of proposals is not the first to be floated with regard to the tax gap. Earlier this year, the IRS announced it was studying possible changes in the way independent contractors are treated for tax purposes, perhaps with a view toward requiring some level of withholding by those businesses that use these outside workers.

Expect the Senate Finance Committee to hold hearings on the various ways to close the tax gap as part of the new Congress.

Exemption to H-2B visa limitation extended
The U.S. Citizenship and Immigration Services (USCIS) has announced that the “returning worker” exemption to the limit on H-2B visas has been extended through September 30, 2007.

The one-year extension was contained in the National Defense Authorization Act for FY 2007, which was signed by President Bush in mid-October.

Employer petitions for returning H-2B workers do not count toward the congressionally mandated bi-annual H-2B cap. In order to qualify for the exemption, a returning worker must have been previously counted by USCIS against the regular visa cap in one of the three fiscal years preceding the current year. Any worker not certified as a returning worker is subject to the numerical limitations for the preceding years.

Many Michigan businesses that hire seasonal workers use the H-2B visa program. MRA was active in a coalition that pushed for a permanent extension of the “returning worker” exemption and will continue to push for that in the new Congress.

More information about the H-2B work program is available at www.uscis.gov or by calling the agency’s National Customer Service Center at 1.800.375.5283.

Even a “lame duck” can cause problems
“Lame duck” is the term used to describe the post-election session of an outgoing Congress, and these sessions are notorious for leading to mischief. That’s why MRA’s Washington Office has a sharp eye on Capitol Hill these days, as the current Congress wraps up its business following the election.

High on the list of bills that might make it through the legislative process is an immigration reform measure that was tied up in gridlock between the House and Senate earlier this year. Any measure that passes will undoubtedly include stronger penalties for employers who knowingly hire illegal immigrants, as well as new requirements to check documentation provided at the time of hire.

It’s also possible that some type of financial services reform bill might make it through. That might be good news for small business, since many versions of the legislation under consideration contain provisions making it far easier for small businesses to set up interest-bearing checking accounts.

Regardless of what does or does not reach the president’s desk in the next few weeks, the process will start again in January.

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