Senate Republicans plan to unveil their opening bid for the next round of economic aid next week, and will continue providing unemployment insurance subsidies, tax incentives for employers to avoid layoffs and encourage rehiring, and a new round of checks and direct payments sent by the IRS.
The proposal will resemble much of the historically large aid package passed in March known as the CARES Act (Public Law 116-136). But it isn’t likely to include a new round of direct aid to state and local governments, or the full $600 per week unemployment subsidy provided by that law, according to multiple sources familiar with internal deliberations of Senate Republicans.
Democrats have made aid to local governments and unemployment subsidies major priorities for the next phase of aid.
Senate Majority Leader Mitch McConnell (R-Ky.) is a gatekeeper for what ends up in the proposal, and Senate committees and their leaders such as Finance Committee Chairman Chuck Grassley (R-Iowa) are providing input. “A number of tax relief proposals will be part of the discussion,” Finance Committee spokesperson Michael Zona said in a statement Thursday.
Notably absent from the expected proposal is a payroll tax cut or holiday along the lines of what President Donald Trump has insisted on as relief. Little support exists in Congress for the idea, in large part because its impact would be blunted by the millions of unemployed U.S. workers not on payrolls.
Republicans plan to include some level of unemployment subsidy, and to allow more flexibility for use of remaining state aid funds provided in the CARES Act, with an estimated tens of billions of that funding still unspent. But people familiar with the drafting process don’t expect new appropriations, as part of an effort to keep the legislation within a $1 trillion cap that Republicans and the White House have set.
Complicating the effort to lower the overall price tag will be direct payments from the IRS, which one Republican source tracking the effort saw as a priority being pushed by the White House.
McConnell publicly suggested beginning phaseout of the benefit for taxpayers with an annual taxable income of $40,000, a much lower income level than the previous payments, but that could be politically difficult. Income data used to determine the threshold in the previous aid law came from the last two years of tax returns, before the economic shock caused by the virus. Lowering the phaseout threshold risks cutting off more people who lost their jobs or otherwise saw less income in 2020.
Republicans also want to include a back-to-work bonus to encourage employees to return to jobs instead of collecting unemployment. That would potentially be structured as a tax credit to businesses to then pass on to employees. If that happens Democrats may balk, because it would technically be a benefit for employers, even if the only way they can take it is to provide a signing bonus to new or returning employees.
Also on the table are tweaks to the employee retention tax credit, to make it easier to access and possibly to allow employers to claim the credit for employees who still are able to work but can’t put in as many hours because of pandemic-related family reasons including child care.
Multiple people tracking the effort also expect next week’s proposal to extend the Paycheck Protection Program—loans that are forgivable if certain criteria are met—and make the expenses it pays for, like utilities and rent, tax deductible. The IRS’ interpretation of the rule that disallowed tax deductibility for those expenses caused a bipartisan uproar in Congress.
Another extension of the PPP, a priority for business lobbies such as the U.S. Chamber of Commerce, is also likely.
Republicans also want to give new provisions to businesses facing Covid-19 disruption, but have yet to fully agree on what that might look like. Two ideas on the table: giving tax credits to businesses for purchases to prevent virus transmission, or allowing businesses to be able to increase the immediate amount of cash they get from the government for the tax credits they claim.
Those tracking the effort don’t expect breaks for specific industries, like the return of the business meal deduction proposed by Trump, but didn’t rule them out either.
Additional funds for testing and healthcare are also likely to be included, though Republicans may keep the initial line items low to keep the overall price tag under $1 trillion.
—With assistance from Kaustuv Basu.