Phase Four Stimulus OutlookJuly 14, 2020
Prior to the July 4th Recess, Congress made little progress toward reaching a deal on a potential “Phase Four” coronavirus relief bill, however, bipartisan, bicameral negotiations on that package are expected to begin in earnest when the House and Senate come back into session the week of July 20.
House Democrats laid down their marker with the Heroes Act (H.R. 6800), a $3 trillion-plus measure that cleared the chamber on May 15 and proposes some significant changes to tax provisions included in previous recovery bills and adds a slate of new tax and nontax economic relief proposals. In a letter released on June 29, House Speaker Nancy Pelosi (D-Calif.), and Senate Minority Leader Charles Schumer (D-N.Y.), urged Senate Majority Leader Mitch McConnell (R-Ky.), to begin “immediate” negotiations on economic recovery legislation.
In contrast, Leader McConnell has maintained that action on another coronavirus response package should wait until policymakers can gauge the economic impact of the Coronavirus Aid, Relief, and Economic Security (CARES) Act before passing another large stimulus package, citing that waiting will help expose obvious deficiencies in certain sectors that were not noticeable at the outset.
Further, Leader McConnell also has been circumspect in his comments regarding the specific contents of a future economic recovery bill. He has mentioned that the Phase Four stimulus should focus on “kids, jobs, and health care” as well as liability protections for health care workers, business owners, and employees, and that he will not accept Democratic proposals to extend the CARES Act’s enhanced unemployment insurance benefits without significant changes. Leader McConnell worries that additional unemployment payments will discourage people from working, and instead suggested supplementing some workers’ paychecks.
Among rank-and-file lawmakers, tax discussions for another round of stimulus generally have focused on some bipartisan proposals related to expanding the CARES Act’s employee retention tax credit (ERTC), as well as proposals – mainly from Republicans – to allow businesses to monetize certain unused tax credits and to provide some type of “back to work bonus” potentially working in lieu of, or in concert with, enhanced federal unemployment benefits.
President Trump, meanwhile, renewed his recent call for a payroll tax waiver. Most workers pay a 6.2 percent Social Security tax (on the first $137,700 in annual wages) and a 1.45 percent Medicare tax. Employers match the employee’s withholding amount but may withhold less from ones check if the waiver passes. The self-employed pay the entire 12.4 percent Social Security and 2.9 percent Medicare payroll tax. Self-employed would need to adjust their quarterly estimated tax payments if the waiver comes to fruition. The payroll tax waiver may potentially be effective through 2020. Specifics on how low the tax may go have not been revealed, however, of note, President Obama reduced the Social Security payroll tax for employees by 2 percent (4.2 percent) in 2011 and 2012. President Trump may request a more substantial waiver, but some potential negative consequences of a waiver are increased funding shortfalls for the Social Security and Medicare programs. Also, this waiver only helps working Americans. Retirees and the unemployed who do not pay into Social Security or Medicare will not benefit.
President Trump has also highlighted the need for another round of direct stimulus payments to individuals, saying that he supports “larger numbers than the Democrats,” but adding – without elaboration – that a direct payment program would have to “be done properly.” Congress approved “recovery rebates” of $1,200 for single individuals, $2,400 for married individuals filing jointly (subject to income-based phase-outs and other eligibility rules), and $500 for each qualifying child in the CARES Act. House Democrats proposed a new round of recovery rebates in the Heroes Act that would expand the CARES Act provisions by bumping up the payments for dependents to $1,200 and broadening the roster of eligible dependents to include adult dependents and dependents up to age 24 who are full-time students as well as certain noncitizens. The maximum available benefit would be $6,000 per household.
Most agree that a confluence of factors – especially, Congress’s planned departure from Washington for its August recess and the scheduled expiration at the end of July of the CARES Act’s extra $600-per-week unemployment insurance benefit funded by the federal government – will force action on some sort of coronavirus-related stimulus legislation this month, though the cramped schedule and the large number of complex areas of disagreement all pose challenges for lawmakers working towards a deal.
Stay tuned to NSBA’s COVID-19 Resource Center for updates.