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Smaller COVID Relief More Likely as Dems Underperform in Election

Posted on Nov. 5, 2020

The prospects for a large coronavirus relief package before the end of the year have lessened, with Democrats not picking up as many seats in Congress on Election Day as expected.

Although some congressional races have yet to determine winners, Democrats so far have a net gain of only one seat in the Senate while losing seats in the House. It’s still possible for Democrats to obtain a slim majority in the Senate in the remaining undetermined elections, but the overall “blue wave” ended up being smaller than anticipated.

Senate Majority Leader Mitch McConnell, R-Ky., signaled in a news conference November 4 that he would like Congress to pass a relief package before January 2021. But he and other congressional Republicans are interested in passing legislation that’s considerably smaller than what Democrats have been pushing for.

“The Senate goes back in session next Monday,” McConnell told reporters in Louisville, Kentucky. “Hopefully, the partisan passions that prevented us from doing another rescue package will subside with the election.”

Garrett Watson of the Tax Foundation told Tax Notes that if Republicans retain the Senate, negotiations will likely mirror the same compromises that would have been necessary to pass relief before the election.

“At one point, the expectation was that there was going to be a unified Democratic government, and there may have been more incentive for those talks to be punted into early next year where it could be wrapped into a broader Biden agenda,” Watson said.

But now, it’s possible that the total cost of the legislation will be reduced and both sides will present the same proposals they’ve already discussed in recent months, Watson said.

Mel Schwarz of Eide Bailly LLP agreed that a smaller relief package is more likely, especially if Democratic candidate Joe Biden retains his lead in the Electoral College and wins the presidency.

“If in fact it does appear that Biden has won and that there is not a route through the courts to overturn that, then I would expect that McConnell′s concerns are now less with [President] Trump and more with his members,” Schwarz said. “And he's got a lot of members who don′t want to spend a lot of money on another COVID package.”

Democrats may have slightly more leverage in the negotiations if Biden wins, Watson noted. But he added that the relative size of the package and the provisions included in it depend much more on the final makeup of Congress than on whoever wins the presidency.

Little Effect on Tax

Many of the tax provisions expected to be included in a future relief package — such as an expanded employee retention tax credit and a second round of the Paycheck Protection Program — are likely to be unaffected by the outcome of the election.

Those provisions aren’t really controversial, said Schwarz. McConnell said he would like to replenish the PPP, and Schwarz added that there was little objection from either party to the changes proposed to the employee retention tax credit.

But other, more partisan tax provisions could be scrapped from a relief package based on which party comes out on top, like an expansion of the child tax credit and earned income tax credit that’s been championed by congressional Democrats and Biden.

“If Republicans retain the Senate, it′s probably less likely that something like that would be included just because of the skepticism on the part of Republicans to include that in any COVID-related relief bill,” Watson said. 

The child tax credit and EITC would have more likely been included under a Democratic sweep because they would have the votes to pass it, according to Watson.

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