Lawmakers, Unions Eye Tax Code Change to Advance Labor Agenda

Pro-labor Democrats and union advocates are pushing for legislation that would stop companies from getting tax deductions for “union busting” activities as a way to level the playing field for workers, who they say are disadvantaged.

Employers spend over $400 million per year in “union avoidance” consultants, according to a recent study of US Department of Labor data by the left-leaning Economic Policy Institute. But the figure may actually be higher, as Amazon disclosed March 31 that it spent over $14 million in 2022 alone on such expenses, and Starbucks—which also is experiencing high organizing activity—has yet to reveal how much it spends on consultants.

A Gallup poll from December shows that pro-union sentiment is at an almost six-decade high, and the NLRB has been inundated with election petitions, but the average time it takes for unions to ratify their first contract is still 465 days. Organized labor and Democrats blame systemic issues, such as the tax breaks companies can access, for the trouble in translating union fervor into new bargaining agreements.

Some companies slow walk contract talks to put off reaching a deal, blunt worker enthusiasm, and run the clock down until they can try to oust the union. Employers face little deterrent against delay—even when the National Labor Relations Board finds that a company’s stalling violated federal labor law, the board typically orders the company to bargain, which it already was required to do.

No Tax Breaks for ‘Union Busting’

Legislation sponsored by Sen. Bob Casey (D-Pa.), first proposed in May 2022 and reintroduced in March, is one potential solution to favor workers, advocates say, while legislation such as the PRO Act to overhaul current labor law remains politically unfeasible in this divided Congress.

The bill would block companies from deducting consultant, advertising, and other anti-union costs as ordinary and necessary business expenses. Employers already disclose arrangements with labor relations consultants or other firms for the purpose of persuading employees with respect to their bargaining and representation rights through the US Labor Department’s L-10 forms.

Under the proposal, companies also would have to report such information to the Internal Revenue Service so that those costs can’t be deducted as business expenses. While the bill isn’t targeted at changing federal labor law, it removes the ability of writing off expenses stemming from actions to influence workers not to organize.

“Most taxpayers don’t know that when they pay their taxes they’re subsidizing anti-union activity,” Casey told Bloomberg Law, remarking that while companies can’t deduct lobbying expenses, they can do so for these “union busting” costs. “It’s especially insulting when that has prevailed over many years without much examination.”

The bill is far reaching in how it classifies anti-union activity, said James J. Brudney, Chair in Labor and Employment Law at Fordham University School of Law. Beyond the consultant costs, the bill also would cover complaints issued over potential violations of federal labor law.

“These tax code changes would apply to what is identifiable as an anti-union practice,” Brudney said. “And it includes things that are not yet determined to be unlawful.”

The No Tax Breaks for Union Busting Act would make the tax code handle such expenses similarly to how it does with political speech, which is categorizing them as non-tax-deductible. That way, businesses don’t get a tax advantage for impeding worker organizing, said Celine McNicholas, one of the EPI study’s authors.

The bill “would also require corporations and union avoidance consultants to report their union busting activities and expenses,” McNicholas said, adding that it’s “important because the current reporting requirements under the Labor-Management Reporting and Disclosure Act of 1959 are so weak and, as a result, we know little about the true scope of corporate spending here and the union avoidance industry as a whole.”

Deductions Not an Issue

Critics of the proposal note that it’s normal for the tax code to allow companies to deduct regular business costs, and it’s unclear how significant the money spent on anti-union activities would be in terms of revenue.

Only a small number of companies are engaging in those practices, said Michael R. Strain, the director of Economic Policy Studies at the right-leaning American Enterprise Institute.

If lawmakers are concerned about companies unlawfully discouraging unionization, then deducting those business expenses isn’t the actual issue, Strain said.

“The issue is that they’re violating labor law by discouraging unions in ways that are not consistent with the law,” Strain said. “If they’re not breaking the law, then they should be able to deduct business expenses.”

Administrative Headache

Some tax professionals say the legislation is broad and would be difficult to implement. There would need to be further clarity from the Treasury Department on what it would mean for a company to “attempt” or “influence” unionization efforts, said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

“It will give employers interpretive headaches and the IRS administrative headaches, trying to figure out the scope of all this stuff,” said Rosenthal, a former legislative counsel for the Joint Committee on Taxation.

There may also be hurdles for smaller businesses in figuring out what deductions would be disallowed, said Joe Kristan, a tax partner at Eide Bailly LLP based in Iowa.

“Every time you make things this much more complicated, you favor the big players that can put together a tax team that can include people with a labor background,” Kristan said. “How many local preparers can deal with that sort of thing? Very few.”

How to Pass It

Casey’s bill has the best shot at enactment as part of a larger tax package, said David Madland, a senior fellow a the Center for American Progress. One potential vehicle could be an extenders bill, which lawmakers often pass to extend temporary tax breaks.

One element in the bill’s favor is its ability to raise tax revenue, Madland said, which likely would make it more appealing to lawmakers looking to balance a broader tax deal. The Joint Committee on Taxation and the Congressional Budget Office haven’t released any revenue estimates of the bill.

In the House, the open amendment process may also be an option to ensure the bill is attached to larger tax legislation, Madland said. Rep. Donald Norcross (D-N.J.) told Bloomberg Law in a statement that he will reintroduce the bill, and given the narrow majority in the House, Democrats only need a handful of Republican votes to pass an amendment..

“There is a possibility that No Tax breaks for Union Busting could be offered as an amendment on the House floor because there’s the potential for a more open process than has been done in past cycles,” Madland said. “And, there’s, very often, a tax bill that’s going to be voted on.”