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Neal, Olson, Mazur Evaluate Economic Relief Measures and What More Is Needed: Transcript

Posted on June 11, 2020

 Congress’s economic relief measures in response to the coronavirus pandemic, and the IRS and Treasury’s implementation of them, have been swift and have received a mixed reception. House Ways and Means Committee Chair Richard E. Neal, D-Mass., Pam Olson of PwC, and Mark Mazur of the Urban-Brookings Tax Policy Center evaluated their efficacy so far and addressed what we can expect next to stabilize and stimulate the economy on a June 3 webinar, “Taxing Issues: Addressing the Economic Crisis: What's Next for Federal Policy.”

Tax Analysts President and CEO Cara Griffith moderated the event, which can be viewed on YouTube. A transcript is below. 

 

Cara Griffith: Welcome, everyone. I'm Cara Griffith, the president and CEO of Tax Analysts. And I'm very pleased that you're joining us today for the third in our new series of public events that we're calling “Taxing Issues.” Today's event is entitled “Addressing the Economic Crisis: What's Next for Federal Policy.” And we're very proud to have such a distinguished panel of speakers, who I'll introduce in a moment. We have an audience of about 1,500 who've tuned in from all over the country and all over the world. And we're very happy that you did.

We are, of course, gathering today at a very ominous time in America, as we struggle with the continuing pandemic crisis, and now of course, some very heart-wrenching social concerns. On the economic front, which is our focus today, the news remains very sobering. Federal Reserve Chairman Jerome Powell recently said that the economy is suffering, and I quote, "a downturn without modern precedent." Over the last 10 weeks, more than 40 million Americans have recently applied for unemployment benefits, but those figures, as striking as they are, may not even reflect the true level of unemployment in America. The outlook for the coming months is so bad, in fact, that the White House plans to break with decades of precedent and not issue updated economic projections this summer.

Meanwhile, after about $3 trillion of relief measures from Washington, problems continue to plague the various programs, and there's no consensus on Capitol Hill about what to do next. The Paycheck Protection Program, or PPP, has provided more than $500 billion to more than 4 million companies, but it helped lots of businesses that didn't need the money and missed lots of businesses that did. The Democratic-controlled House has passed a $3 trillion package in additional relief. But the Republican-controlled Senate has objected to its fiscal relief for states and to other major features. The House has also passed a measure to make it easier for small businesses to use PPP funds, but its prospects remain uncertain in the Senate. [The Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) on June 3 after this webinar had taken place, and President Trump signed it on June 5.]

Meanwhile, the emergency unemployment benefits that Washington enacted may be helping to keep unemployment high by providing more benefits than lots of people were making when they were working. So where are we? And what should we expect to see from Washington? To sort it out, we have a very distinguished panel of three speakers, and I will introduce them in the order in which they will speak.

Congressman Richard E. Neal [D-Mass.], the chairman of the House Ways and Means Committee, will make some opening remarks, and he can take a question or two before he has to leave. We will then turn to Pam Olson, former assistant Treasury secretary for tax policy under George W. Bush, who is now the practice leader for PwC Washington National Tax Services. She will be followed by Mark Mazur, the former assistant Treasury secretary for tax policy under President Obama, who is now the director of the Tax Policy Center. After Pam and Mark speak, I'll ask a question or two before I turn to questions from you. Please submit your questions to events@taxanalysts.org, and I will try to get to as many of them as we can. Now I am very pleased to yield the floor to the chairman of the House Ways and Means Committee, the honorable Richard Neal.

Richard E. Neal: Thank you, Cara, for that introduction, and thanks to the three of you as panelists. It really makes me feel good these days that we could still look to the careerists, the people that have a long-term perspective on these issues. And I must say, whenever I've conversed with you, I've always walked away thinking I got good advice. And it's again an example of what happens for those who I think are committed to sound public policy, but also have staying power.

So let me start by talking about COVID-19. It continues to ravage our communities. The news gets better ever so slowly, but on a daily basis for sure. We want to offer condolences to those who have lost a loved one. I think the number as of yesterday was about 107,000 Americans have died. In my own constituency, there is the great tragedy of the Holyoke Soldiers’ Home, which many of you have read about.

In fact, I have an uncle there who was tested positive for COVID. He has survived. He's doing better, but the ravages of COVID at that facility, a residence for retired military vets, [have] claimed 76 lives on site. So I think that that's part of what we're witnessing the tragedy of across America.

I'm also pleased to point out that substantive legislation has passed the Congress. I hope that people will pay attention to the actual numbers when the final votes have come to the House floor and to the Senate floor. These numbers have been not only compelling, but they've been overwhelming, meaning once again that there is room for a debate. There's room . . . for sure from time to time for harsh rhetoric. But we also, I think, all understand the nature of the challenge that is in front of us through this period of time when it's COVID-19, acknowledging the recession and also the civil unrest that the country is currently witnessing.

So I think to give you an insight as to what happened in the committee — and I worked very closely with [House] Speaker [Nancy] Pelosi [D-Calif.] in the opening hours, never mind the opening days. We actually hashed out with [Treasury] Secretary [Steven] Mnuchin the first round of relief. And we did that on a phone call in her office that lasted up to three hours. We went back and forth with him, and it was something that I will tell you institutionally, even though we knew . . . the challenge and the consequence of not doing something that was in front of us, it reminded me of how Congress and administrations of different political views once worked. We understood the gravity of the challenge, but we also went back and forth and we would say to each other, "Look, we'll call you back." And I had the very, always talented tax staff of the Ways and Means Committee in the speaker's office with me.

And once again, they gave us good advice. I understand the criticisms that will come because of the speed with which this was done. But I also will say to you that I think that amongst the measures that we embraced early on that have had profound consequences for the economy really was the extension of unemployment insurance. That has been well received by economists from the left to the right. It was something that had to be done in wage replacement, [and] I think has proved its merit.

So let me talk, if I can, about providing cash to taxpayers immediately. It was broad agreement from the people that I sought advice from. You would all have been very comfortable with them. They'd all had a broad experience from the Mexican debt crisis to the Asian debt crisis, all the way through to the events in the aftermath of 2008. But there was again broad agreement [that] liquidity in the system was really important, and getting money into the hands of the people at the lower and middle end of the economic spectrum was essential.

It was a bit of a challenge to try to find people who are joint filers under $24,000 a year or a single filer who is under $12,000 a year. And remind ourselves, there are those numbers in the American family that make that little income. And so we had a bit of a challenge because if you don't file tax forms, obviously it was hard to get tax ID numbers. So the staff was pretty innovative. We used the Social Security Administration for Social Security administration. That went pretty efficiently. For single filers under $75,000, that went pretty well. Joint filers under $150,000, that went pretty well. I will defend the Paycheck Protection Program. I know that some would argue that there was some underreach and overreach — but a reminder that there was no book on the shelf from the challenge that was in front of us.

And clearly, we did have to make up some policy very, very swiftly, but I've traveled my district outlining those who have received the benefit. I consulted with Jay Powell at the Federal Reserve Board. He only encouraged me to go big. I think that the Main Street Lending Program will also have broad consequence. I've spoken extensively with Secretary Mnuchin, which I will talk to you about a little later on in this presentation. I'm scheduled to speak with him Friday again on substantial policy challenges in front of us. But I do think that we might reach an accommodation.

But in the case of Chairman Powell, he was very clear that because the challenge was unprecedented, that that assistance had to flow swiftly. So we leveraged the tax code to establish the employee retention tax credit, which I think has been well met, making sure that small to midsized employers have incentive to hold onto their employees, which we felt was also critical.

We have been providing a 50 percent payroll tax credit, fully refundable, for up to $10,000 of each employee's wages if you are a business that has been shut down or seen a 50 percent drop or greater in revenue. We know that in this stressful time, that charities in particular are strained. We've tried to assist the neediest. Not only do they qualify for all of the tax benefits we put in the bill, but because we provided them with a refundable payroll tax credit, we also encourage charitable giving by providing a $300 above-the-line deduction for charitable donations.

Lastly, we included provisions to make sure that cash-strapped businesses, big and small alike, would be able to access cash by claiming deductions for losses and business interests that were previously not permitted. This is a really important tool in ensuring that these businesses remain liquid, so that they can meet payroll and other payment obligations.

Let me speak about the HEROES [Health and Economic Recovery Omnibus Emergency Solutions] Act [H.R. 6800] for a couple of minutes. I know that the pundits have all said that this is a negotiating posture. Well, some of it surely is, but there are also a number of substantial policy achievements in that legislation that we think can get over the goal line. [Senate Majority Leader Mitch] McConnell [R-Ky.] has begun every conversation by saying that he does not intend to do anything else immediately. And in each instance, he has come around and said, "We have to do the following." Secretary Mnuchin has been very helpful on this front, in the course of these conversations.

While we wait for the Senate to act on this, I believe that the magnet that will bring about an agreement is aid for state and local government. Moody's has estimated that state and local governments could lose anywhere from 20 to 25 percent of their revenue. This means that [in] a state like Massachusetts, what's happened to cap gains revenue. This means what's happened to sales tax revenue. This means what's happened, even to lottery sales, has been pretty dramatic. And the result of which is you can see that as I spoke with the United States Conference of Mayors about three weeks ago. Republican and Democrat, there was broad support for coming to the assistance of state and local governments. Gov. [Charlie] Baker [R] has supported my position here in Massachusetts, and we confer regularly.

I also think that we're going to need to expand, once again, unemployment insurance. Now recall that the supplemental unemployment insurance that has been critiqued expires on July 31. The HEROES Act continues it until January of next year. So I think the jury's really out. And I understand the opinion writers and the pundits have pounced on this. But once again, I think that we need to have fact-based information in front of us to see how this has really worked.

I think in the restaurant industry — the Massachusetts Legislature yesterday passed legislation that's going to deal specifically with that. I think there's considerable evidence that a lot of restaurants are not going to reopen. So we've got to figure out how to come to the aid of those employees, not only there, but in the gig economy as well. And I expect fully that we're going to stick to our position on expanding the employee retention tax credit, because it has proven it's worked.

And I want to congratulate the Ways and Means staff on that. They have really done a nice job. So as you look ahead, I would note that The Wall Street Journal this morning — for those of us who still gather news through reading newspapers, as well as doing the online versions the night before — [reported] that in this conversation that I'm going to have with the secretary on Friday, I intend to lay out plans for him based on the conversations that the speaker and I had with [Rep.] Peter [A.] DeFazio [D-Ore.], [House Majority Leader] Steny [H.] Hoyer [D-Md.], and [Rep.] Frank Pallone [Jr., D-N.J.] on a Thursday morning in her office in Washington. We have agreed on the parameters of an infrastructure bill. I, based on a long career, have always believed it's essential in negotiation to have something in play in terms of legislation that has actually passed. I think there's ample evidence that supports that conclusion.

So the agreement that the secretary and I had over the last year, I think probably concluded on a Friday in December when he said to me in the member's dining room for our monthly breakfast, he said, "If you can get USMCA done, we will move to infrastructure." So I intend to raise the outline on Friday with him, what we intend to do. Whether or not they want to include that in the next round of negotiation, add to the HEROES Act, or whether they want to do it separately, we intend to press forward on that legislation. Roads, highways, ports, rail, broadband, sewer, and water are all part of modernization. And because of the panelists that I have with me, I can say this and I know I'm going to get an affirmative nod from the two of them: Infrastructure used to be the easiest thing for the two parties to do.

I mean, there was just “Tell us what the project is,” and members went into the House and into the Senate, and that legislation typically would pass with more than 400 votes in the House. And I think that I'd like very much to move in that direction again. Just a good piece, I think, of insider information as well, which I know that you all like: I'm going to use the football metaphor. In the Tax Act of 2017 [Tax Cuts and Jobs Act], which, you know, I disagreed with, voted against, and led the opposition to, I made the argument repeatedly for retaining new markets tax credits, Build America Bonds, and the low-income housing tax credit.

I don't think that I'm trespassing by saying that [Rep.] Kevin [Brady, R-Texas,] said to me — at the time he was the [Ways and Means] chairman — because we've got a good relationship, Kevin said to me, "We just can't do it. We're not going to do it." So I used my time that morning, when we finally moved to public view in the joint session between the House Finance — I'm sorry, the House Ways and Means members and the Senate Finance members — to ask the question publicly, which you always want to get on the record. I asked what had happened to those three provisions. I was told that they had been eliminated. I made the argument, which [Senate Finance Committee ranking member] Ron Wyden [D-Ore.] piled on to help me with. And I can't even use the football metaphor of saying I made the argument with the two-minute warning. They waited until the game was over and put them back in.

So I was very happy with that. So I intend to expand those opportunities, and I believe that the historic tax credit is a very important part of it. I knew that it would be very difficult for those in red states that have a lot of old housing not to have participated with the historic tax credit. So I think that the speed with which we've worked has been universally acclaimed. Even if they feel that we've overdone this or underdone that, I think there's been substantial support based upon the votes that have been cast in the House and the Senate. And the administration's position, we're going to have to do more. So, happy to hear from you. I'm delighted with the panelists that are here, because again, it makes me feel good to see them. Thank you.

Griffith: Thank you so much for your comments. We greatly appreciate it. And always very interesting. So I have a couple of questions for you. I'll start with the first. Thankfully, the first wave of COVID seems to be receding. So assuming that the health crisis continues to recede in the coming weeks — which we greatly hope that it does — and states are able to reopen their businesses, what are your priorities as a taxwriter for getting the economy back on track?

Neal: Well, I think that you've raised the dilemma. And I think part of the challenge is how do we provide people with the confidence to go back to work? And I think that that is a term that's very hard from time to time to describe, but we all know it when it's there. And I think getting people back — I know that the media market that I share constituency with in the western part of the state spills over to Albany, and it covers Berkshire County extensively. So I frequently will hear kind of hourly reports from Gov. [Andrew] Cuomo [D]. And he has indicated that next Monday, of course, about 500,000 people are scheduled to return to New York City. So I think that that's going to have an enormous impact. In addition, I know that the stock market, which continues to recover — well, I'm not always sure that that's the test that the president would have us believe is the test for a growing economy. I do think that it highlights the idea that people in that arena are optimistic as to what's to come.

So in Massachusetts, I agree with Gov. Baker. He's been very careful reopening businesses, and he's done it with these weekly announcements. I've participated in some of them in the manufacturing sector. Cartamundi, I would use as an example, they have 500 employees in East Longmeadow, Massachusetts. A lot of people stayed home during the COVID-19 stay-at-home provisions. They buy Monopoly, they buy games of Life. And quickly inventory was exhausted. So they've indicated that not only have they brought back 500 employees, they would hire 75 more tomorrow.

General Dynamics in Pittsfield, Massachusetts, they're prepared to hire. So I think that there's some good news — but again, because of the question you raised, Cara, trying to figure out confidence without any setbacks on COVID. I mean, I think when we use terms like the curve is beginning to flatten, it's beginning to recede, I think that that still is hard to use as a confidence-building measure with somebody who says, "Well, I lost a loved one." So again, those of us who are elected, I think we'd be well-advised to not use charged language — to refrain from those incendiary words, those polarized words — and try to build some confidence in what seems to be a slow, but substantive reopening.

Griffith: Yeah, I will say I share the struggle. It is hard, you know, running a small organization. It's easy to put in parameters. It's very difficult to do it here. And what is it going to take before people actually feel comfortable to come back? So it is without a doubt a great struggle. If I could ask one other question, and this one, [we received] questions from audience members on the same thing: On a more technical note, on the deductibility of expenses, will the intent of Congress in truly making the PPP loan forgiveness nontaxable be realized? That is, will expenses be deductible?

Neal: Yes. In the HEROES Act, they are. And I think that's really important. The HEROES Act, as you know, as is often the case in Washington, it becomes the price line that is debatable. And immediately, members begin to embrace or dismiss legislation because of the number. And I think in this instance here, if you go through the legislation, there were so many good proposals, including expensing. We have, as you know, already overwritten some guidance from IRS, and we're prepared, I think, to embrace that.

And I also would say something that I think is essential — that you don't just come to these moments. These are really tax professionals on the staff that give you advice. And most of the people that do tax work on the Ways and Means staff on the Republican and Democratic side, they really do try to adhere to what works as opposed to rigid ideology. We have known these folks for a long time, and anybody who thinks that they're using anonymity to dial into social media to express their opinions, it’s simply not true. If anything, they get excited by taking the tax code home at night. The two pros are laughing at that, but they know it's true.

Griffith: The Ways and Means tax staff, they're outstanding.

Neal: They really are.

Griffith: And probably like the panelists here and like many of my subscribers, they genuinely love the tax code. It's a unique group that we —

Neal: It can be painful at times for the elected, but they do.

Griffith: Well, chairman, I cannot thank you enough for coming on today, for sharing your insights, and for taking a few questions. We greatly appreciate it.

Neal: Thank you. And it's always a joy for me, really, to interact with the professionals, the careerists, and the individuals you have on the panel. They're superb.

Griffith: Thank you so much. And so with that, we'll turn to Pam and Mark to both give a response of their own to what the chairman has had to say and also to provide their own impressions on what's working, what's needed, and what's next. So Pam, would you kick us off?

Pamela Olson: Sure. I want to make sure I unmuted my mic. Yes, it looks like it's working. OK, good. So I'm a bit of a Pollyanna, as people who know me are well aware. And it's always a pleasure to follow Chairman Neal because he is such a positive person. I have to comment on some of the things that he has already commented on, you know, first concerns for those who are affected by, have been affected by — all of us are affected by — but those who have been particularly affected by COVID-19, as well as by the events that have transpired over the course of the last week. Thoughts and prayers go out to all.

You know, I think that we have seen remarkable, as Chairman Neal mentioned, bipartisanship, in the way that Congress and the administration came together to act on the legislation that's already been enacted. They're to be complimented for the speed with which they acted. It's important, I think, to recognize that they've been driven by facts, by reality, and by sound economic analysis. And I know it's been challenging in particular to do the economic analysis. I feel like every time I pick up an economic report, things have drifted slightly more negative than they were the last time that I looked. And that's obviously of concern, but it's illustrative of the fact that as Chairman Neal's indicated, the House has already moved forward with legislation. We're going to need to continue to look at what's going on in the economy and then look to Congress and the administration to continue to act. I think the size of the support was pretty remarkable. I think it adds to roughly $3 trillion, and this support, you know, a lot of people will talk about this as stimulus and I have to say, I don't think we're talking about stimulus here.

We're talking about programs, funds that have been advanced — that have helped to ensure economic stability, economic security — [and] provided the wherewithal for people who needed to stay home to actually be able to stay home. And obviously we're going to have to find ways for people to start being able to go back to their workplace. It's been a lot easier for those of us who have been able to work from home, but a lot of people can't. We've got to find ways for people to safely reenter the workplace, and I know there's a lot of effort going on in that regard. I had to laugh at Chairman Neal's reference to the fact that you could always count on infrastructure votes. One of my colleagues once told me that the largest caucus in the United States Congress was the Pave America Congress, or Pave America Caucus.

So I think that that's true, and eventually I suspect we'll turn to that. We see so much criticism out there of things that have gone wrong, but I think it's important to focus on all the things that have gone right. In terms of the benefits that have been delivered, the loans that have been made — you know, lots of criticism about how this program works or that program works, or checks not going out, checks going out in cards, you know, all those kinds of things that have been criticized.

But really it has been remarkable the way, not just the speed with which Congress acted, but also the speed with which the Internal Revenue Service, the Treasury Department, the Small Business Administration have moved, and the way that they've engaged with the other parts of the economy that needed to be able to act quickly in order to facilitate getting the cash out to small businesses. You know, in particular, I know a lot of banks have been criticized for not understanding the programs, but there's been so much to absorb so quickly. And I really think what's been accomplished has been pretty remarkable.

Now with respect to some of the stuff that's particularly within Ways and Means, Senate Finance Committee, us tax geeks, a jurisdiction, there was, of course, a playbook to draw on. I'm not sure how old that playbook is, but I know that we used it back in 2001. You know, interesting to think back to post-9/11 when we first looked at what would be needed. Back then we were concerned about stimulating the economy; now we're using it for economic stability. But we did have a playbook to draw on that included, you know, sending checks to people. It included leaving cash in businesses so that they could continue to keep people on the payroll, keep their doors open, as well as putting cash back in their hands through the various provisions that were part of the CARES [Coronavirus Aid, Relief, and Economic Security] Act [P.L. 116-136], such as the [net operating loss] carryback provisions.

We also know how to address provisions that are pro-cyclical. And those are things like the interest deduction limitations, where we really needed to turn them off because they were going to continue the downturn as opposed to work against it. There will be lots of lessons to learn from the experience that we've had here and the experience of other countries as they have worked to try to stabilize . . . their own economies. You know, obviously some countries have gone different routes in terms of delivering comfort to employees, or means for businesses to keep employees on. And, you know, once this has passed us — knock on wood, I hope that’s sooner rather than later — we'll need to turn around and look at what we've done and what other countries did and assess what the most effective way was to act. Because unfortunately, I suspect that this is not the last time that we will deal with something like this.

For the future, I think it will be important for Congress to look at the things that we would want to do differently if there is a future pandemic, and it's, you know, it's interesting to look at how long concerns about pandemics have been on the agenda of the government, of administrations. You know, it was in President Clinton's plans back in '98. It was in President George Bush's plans in 2005, and it was in President Obama's plans repeatedly.

So we need to take this more seriously, and we need to actually put in place the resources that we'll need to deal with it at some point in the future. We also need to look at resilience and supply chains. We need to look at some of the systemic weaknesses that have become obvious in our employment systems, our health systems, and our welfare systems. And then as Chairman Neal alluded to, we're going to need to look at infrastructure, which may be a way of getting people back to work. So I will stop there.

Mark Mazur: Great. Thanks, everybody. Thanks, Cara. Good afternoon. I want to thank the Tax Analysts for inviting me to be here today, and to share a virtual stage with my good friend Pam Olson and Chairman Neal. Obviously we're going through some unprecedented times in recent weeks and months. One of my colleagues has characterized this as going through 1918, 1929, and 1968, all rolled together at one point in time. And that's really, really quite difficult.

People are frustrated and angry. There's a feeling that our economic system and our government is not really up to the test. And there are instances of violence that have been directed at black Americans that are just unsettling. We do have it within ourselves to take steps, including steps in fiscal policy, to address these long-standing problems. And as President Obama recently wrote in Medium — he said if going forward, we can channel our justifiable anger into peaceful, sustained, and effective action, then this moment can be a real turning point in our nation's long journey to live up to our ideals. So let's get to work.

And in my part of the world, fiscal policy, there's plenty of work to do. The problems that Congress is facing and the administration is facing are unprecedented in scale. The COVID-19 pandemic has health dimensions and economic dimensions, and they overlap. . . . Our normal economic responses, though — the playbook that Pam talked about — may not always be up to the task or the right playbook to look at, because as Austan Goolsbee, the economist at the University of Chicago, has observed, virus economics is different from regular economics. And so we're looking at a situation here where we're trying to address the health situation as well as the economic situation. And beginning to look at an opportunity to pivot from health issues being paramount — and so trying to keep people at home so they can be healthy — to economic conditions, our economic situation becoming more important in trying to reopen different types of businesses.

Congress has acted with unprecedented speed and generosity. I think Chairman Neal is exactly right. If you look at the legislation that was passed — three bills in March, one in April, trillions of dollars that have gone through the program, including a topping up of the Paycheck Protection Program in April, something that was really quite necessary. We're at the point now where we can take stock of what's working and what's not working so well. And as Pam talked about, there's a chance to build on these things that are working and modify things that may not be working so much. While the health and the health concerns of pandemic are really top of mind, policymakers are beginning to shift the attention at least a little bit to the next steps and what's going on in terms of stimulus.

The HEROES Act that Mr. Neal talked about stands for the Health and Economic Recovery Omnibus Emergency Solutions Act. Really it is looking forward to the next stage as we move ahead. And the House has made their preferences known — another round of rebates, expansion of the earned income tax credit and the child tax credit, repealing the $10,000 state and local tax deduction limitation for a couple of years. And the estimated cost of this whole thing is about $3 trillion. It includes expanded-on employee benefits and a large measure of support for state and local governments. And as Cara knows or pointed out, state and local governments are really hurting, in terms of revenues that are coming in. And given that they're required to operate under a quasi-balanced budget situation, less revenues means less ability to do things that are important and are really the way most Americans interact with their governments.

Really, with political conventions pushed back to August, we have two months — really, June and July — for Congress to act on this. And this could be the last tax bill that comes up that will be enacted until the lame-duck session after the November elections.

And so really there's going to be a lot of interest [in] trying to get something done in this bill. There are important things that need to get done, and there is going to be a lot of interest in trying to get provisions, large and small, onto this piece of legislation. I think a lot of attention will be paid to another round of rebates. I think a lot of attention will be paid to expanding unemployment benefits, at least extending them, maybe without the full $600 per week bonus, but maybe with a sliding scale bonus.

There was likely to be a lot of support for state and local governments. Whether or not that includes infrastructure is kind of an open issue, as Chairman Neal talked about. And there [are] a lot of other possibilities. My crystal ball is a little bit murky at this point. Hopefully the provisions that are included in this next bill will incorporate what we learned from the last bill — what works, what seems to have the most effective consequences. And then we can build from there. So let me stop here and turn back to Cara for the Q&A portion of the program.

Griffith: Great. Thank you. So I'm going to kind of follow up on something that you started on and Pam touched on a little bit. So when negotiations in the Senate begin for this next relief package, what tax provisions should be in it? We kind of speculate about what there might be, you know, what we sort of think is gonna go, but in your opinions, what needs to be in this final version? Mark, I'll start with you.

Mazur: So I think the employee retention credit or some variation on that needs to be in here. I think that's an important component for having a workforce in place and having businesses feel confident that they can get workers, keep them on the payroll, and have them providing goods and services going forward. I think that's something that has worked reasonably well and has the potential to work even better. Whether or not there's another round of rebates, I think is another, is an open question. I think I'd be in favor of that, but that really comes down to how large of a package do you want to see, and what components do you want to have in there.

Griffith: Pam, what are your thoughts on what should be in the next bill?

Olson: Yeah, what Mark said makes a lot of sense to me as well. I do think [focusing] on keeping people in the office — in the workplace, whatever that is, on the job — is something that's really important, and I think it has helped a lot.

If the question you raised with Chairman Neal is still open about the taxability of the forgiven PPP loans, that would be another feature that would be good to provide that answer to businesses who are at this point . . . operating with an uncertainty about what, you know, whether they're going to be taxed on the amount that's forgiven. So that's an important question that should be addressed as well. You know, there may be a need — I think this is within the power that Treasury has administratively — but there may be a need for some additional adjustment of payment and filing dates. That there are still some people who need to be in the office in order to be able to efficiently or effectively file their returns.

There are issues related to the NOLs carryback. That access to old information is necessary. It might not be available to people who are unable to return to work or to get to their preparers in order to get assistance with that. So there may be some need for some additional time there. And at some point, you know, if things get pushed back, then we start looking at payment obligations to start bunching up. And so then there might also be a need for Congress to look at whether they do some statutory extensions along the lines of what they did with the delay and deferral of the employer taxes, employee taxes.

Griffith: Can either of you point to any mistakes that were made in implementation of the CARES Act that we would be wise to try to avoid in a future aid bill?

Mazur: So I think one that Pam just alluded to was making clear what's deductible and what's not deductible. And obviously when you're going very quickly through legislative process, not every "t" gets crossed and every "i" gets dotted. There was some ambiguity there. And I think Congress has made a bunch of choices — going in terms of net operating losses and interest deductions and so on — where they relaxed parts of the 2017 TCJA. I think going back and revisiting those is probably not a really great use of time, but looking at those things going forward would be helpful in seeing what kind of a system you want to have going forward.

Olson: There's also one other provision that ends up being rather pro-cyclical, which is the BEAT, the base erosion and antiabuse tax. I think as the downturn continues, it may become apparent that there's a need for some relief there on a temporary basis.

Mazur: Of course we could do some pro-cyclical stuff and raise the rate, the corporate rate, to pay for that.

Olson: Well, at some point [what] I think is that we are going to have to look to the future and what our tax system is going to look like in the future, in order to deal with the indebtedness that we've taken on as part of our addressing COVID-19.

Griffith: That was another question I was going to lead to is, when is it going to be appropriate to start talking about deficit reduction and paying for some of these programs that have passed in the past few months?

Mazur: Yeah, I think that's a question where when you're in a good place in terms of health, you can look back and say, "OK, now we need to begin to look at [the] fiscal situation." I think really ensuring that we're through the pandemic and in a much better place for the economy where we can actually talk about, “OK we've gone through this, we've added a lot to our stock of federal debt, now what are we going to do about it?” That's probably the right time, but at this point it may be a little bit too early to think about imposing taxes that'll kick in in 2022 or something as a way to pay for it.

Olson: Yeah, I agree with that. I think it's probably too early to even prognosticate about it [inaudible].

Griffith: You talked a couple of times about the speed with which everything has happened and then how quickly the IRS has had to try to get guidance out. Last month we had IRS Chief Counsel [Michael J.] Desmond on, who was talking about just how much the IRS and Treasury have been doing and their attempt to get out as much information as quickly as they can. Now with that being said, here at Tax Analysts, we're always thinking about the transparency of the tax system. So should there be any concerns about the amount of nonbinding guidance that is being put out, and do you think that will adversely affect the overall tax system going forward? OK, Pam, I'll point to you first.

Olson: You know, that's a really hard question. We have had a number of things that have come up in the last few days where the answer might not be the answer that you expected. And sometimes it's to your favor. Sometimes it's not. And so my computer has just decided that it's going to die, so I'm not sure whether you can still see me, but I have lost you.

Mazur: Yes, we can see you.

Olson: OK. That's interesting, as my screen went black. But anyway, lots of conversations that sometimes the guidance has been favorable, sometimes it's been unfavorable. And I think, you know, there are so many varieties in the factual circumstances, that it can be hard to tell whether something's going to be favorable or unfavorable. But at any rate, the fact that it is not binding guidance kind of puts you in a little bit of a bind in terms of figuring out, if you don't like it, do you have to follow it? If you do like it, is it going to stick or is it possible that it gets pulled away? So, you know, I appreciate the fact that the IRS and Treasury have had to move very quickly on this, but it does seem like guidance that at least tells taxpayers they can rely on it would be useful.

Mazur: Right. I think that that's the trade-off you have here — is kind of speed and reliability in it. And Pam, I did like your point about the lack of binding guidance putting taxpayers in a bind.

Olson: Haha. Sorry.

Mazur: But there is a trade-off here, right — that you could go through the long process of putting together teams to work on things, scrutinize the legislation, get comments, and so on. But we're in a situation where people need guidance, like immediately. In terms of the rebate payments that came out, we didn't have time for a whole comment period to get them out. We got — IRS did yeoman’s work and got them out in just a few weeks. And so there is this trade-off, and I think where IRS has come down and Treasury has come down is that it's better to be fast and like, mostly right, than slower and completely right. And there's going to be some ambiguity.

I think the other thing [is] that we're operating in a situation, which is, you know, unprecedented, and that we don't have the opportunity for Congress to hold hearings and do markups and do oversight and the normal processes that we're used to. And so we're in kind of a bit of uncharted territory here, and I think getting guidance out on almost the infinite number of possibilities that are out there, that at least points you in the right direction, [which] is a big plus.

Griffith: So a question that has come in from viewers: Is the COVID legislation going to limit the type of reform either in healthcare or the tax arena that we may expect to see in 2021? Who'd like to take a stab at that?

Mazur: Well, mainly what you'll see in 2021, because we'll still be living through the situation — I think as Pam was just talking about it, there are lots of provisions where people are going to have to be paying taxes in 2021 and 2022, and we may want to revisit those. Whether it's in terms of estimated tax payments or final payments or even the delayed payroll tax payments. So there’s lots of those things, but in terms of the ultimate reform, I personally think that the U.S. needs to get back to a situation where we're closer in terms of our demand for public goods and services and our ability to pay for the more revenues that we get.

And right now we're in, you know, somewhere in the 16 percent of revenues-to-GDP ratio. We probably need to up that somehow. [You] almost for sure can't get that all from high-income individuals. And so we're going to have to look at different types of taxes, either broader-based taxes or consumption taxes, or some other things. But really that's for another day. I think that that is probably not going to be top of the agenda in 2021.

Olson: I agree with that. I can't see how we can possibly be ready to turn to fiscal consolidation, as the OECD refers to it, by 2021. Maybe we'll be having hearings on it looking to the future. And, you know, if we spend some time thinking about it before we actually act on it, that would be a good thing.

And of course, you know, the one that I've assumed we're going to have for a number of years now is one — Mark, you may have assumed we were going to have for a number of years now or maybe you always understood it was never going to get through Congress — was a value added tax. I mean, you know, it's hard to see how without another tax base, we raise the revenues that we need in order to cover the spending. And, you know, when it comes to our system, we have increasingly moved to a more expansive social safety network. We just haven't picked up the taxes that are needed in order to cover it, and at some point we've got to reconcile those two things.

Mazur: Yep.

Griffith: There were two former Treasury officials that suggested that we could use increased tax enforcement. And there's a hundred billion dollars a year sitting out there, and if you just have better tax enforcement, we can grab that. Do you think that number is realistic at all? And do you think that an increase in tax enforcement overall could at least do something to raise a bit of revenue without needing another tax bill or increasing tax rates?

Mazur: Yes, they can. Right? We have tax gap estimates that are on the order of $400 million-plus a year. That is potential revenue that could be gotten, I think, [based on] what we've seen of the IRS's ability to do that enforcement. And so, it's not like you can just turn a switch and all of a sudden ramp up enforcement. If you wanted to do something like that, you could. It would be over many years. And I think work that Treasury, [the Office of Management and Budget], and others have done, and IRS have done, indicates that you get about $4 return of investment for every dollar you invest in enforcement. So you invest a billion, get four back. But that's not saying you get a hundred back. Right? So I think you need to be a little bit cautious in terms of what your expectations are from enforcement activity.

Olson: I think Charles Rossotti — this may be who you were referring to, Cara — ran in Tax Notes a couple of months ago. It was a very thoughtful piece on what we should be doing differently and in order to collect more in revenue. And I think there's a lot to be said for improved tax administration, which is something that the IRS is always working on, but at some point you do need to put more revenues into the tax administration side than we have.

When we think about the book data that's available and we use for other purposes, tax administrations and other countries are using — certainly I think there's much that can be gained on the tax administration side by putting more money into it and allowing the IRS to put together programs that would more systematically target the biggest risks to the revenue and take steps to close those gaps and bring that revenue in.

Mazur: Just to build on it, I think the former commissioner, that he did have some really good ideas that could help form a framework going forward on this front.

Griffith: So one thing that I hadn't thought about asking Chairman Neal, but I'm going to ask you instead is, you know, a lot of the times when we would see a tax bill, and in particular, the really large tax bills [inaudible], maybe pre-TCJA, they were bipartisan. And it seems that at least they were bipartisan in effort and you had a lot more talking going on on both sides. It seems that COVID and nearly everything right now is highly, highly politicized. Do you think we have gotten to the point where we have seen sort of the end of that bipartisanship that comes together to bring a tax bill to fruition? Or do you think we can get back there?

Mazur: I'm an optimist on that. And so I think you could get back to it. . . . Also, if you listen to Mr. Neal talking about the votes that are on these COVID bills, they were all very bipartisan. There was very little opposition to the bills when they got through. But Cara, you're right — that kind of the construction of the bills may not have been a bipartisan work, you know, with both Democrats and Republicans on the committees working together, but it was bipartisan in the sense that it was the administration and the Democrats in the House, or some other combination will keep working on it.

I almost think back to Pam's point about the Pave America Caucus — that really, if you wanted to do something bipartisan, you have to get something where people feel like they're getting something out of it. And something like a large infrastructure bill that did provide benefits kind of all the way across the country would be something that maybe people could join hands and get behind.

Olson: It's not like partisanship is new. It's obviously been around for a while, but it does seem like it has gotten worse. I mean, I was thinking back to 2001. I mean, there was about three weeks of bipartisan handholding after 9/11, and then all of a sudden, everybody retreated to their corners, and it wasn't until extended unemployment benefits were about to run out in March of 2002 that the two parties actually came together and agreed on legislation and it was enacted into law. That was the 2002 stimulus.

We did much better in 2020 than we did back in 2001. I keep thinking that we have reached the zenith on partisanship and that we have to go back to a more bipartisan way of acting. But, you know, it's interesting if you go through the TCJA — there are an awful lot of provisions in the TCJA that have Democratic origins or at least, you know —

Mazur: No, there were 15 or so that were in the last Obama budget.

Olson: Yeah. So, you know . . . the ideas do get picked up by both parties, but then unfortunately there's a retreat to the corners and we don't know how to compromise anymore, or we don't know how to credit the other side for the idea that we've adopted that was actually their idea.

Griffith: So in the few remaining minutes that we have — I'm hoping to have another webinar entirely on looking at the effects of this crisis on the states — but could you give some brief thoughts on what is needed for state fiscal relief?

Mazur: So just some facts. Lucy Dadayan on our staff has put together a couple of reports and some charts to show just how bad the revenue situation is in states. And I think Mr. Neal, when he said Massachusetts is looking at a 25 percent reduction in revenues, that appears to be pretty standard — that states with income taxes are seeing big drop-offs in their income tax revenues. States with sales taxes, states that rely on tourism are seeing big drop-offs in their revenues.

And so probably the largest thing would be some sort of a floor under, for states, under which they won’t be able to go . . . in terms of federal revenue, providing some kind of a budget floor for them. We saw that in the [American Recovery and Reinvestment Act of 2009] — and maybe we should have seen more of it or a longer [version] of it — but that was something that was done in the Recovery Act to sort of help cushion state and local governments. It's probably something that really is needed now.

Olson: I go back to what I said at the beginning about, you know, I think that the actions have been driven by facts and reality and economic analysis. And I think, you know, to the point that you're making, Mark, you just, you cannot deny that the states and local governments have been badly hit by this because their revenue sources have dried up. And I think you also have to look to the fact that we're looking to them to deliver an enormous amount to the citizenry at this point. We can't just deprive them of revenue. We're going to have to look at their very serious needs if we're going to keep things afloat.

Griffith: I will admit as a former state and local tax reporter, these issues are very near and dear to my heart. And it's interesting, you know, and whether we're going to see a state that's going to look to increase their taxes, they're going to have to do something. They, you know, they do — it's not a pure balanced budget, but that need to have somewhat of a balanced budget set was there.

Mazur: And Cara, you've seen like some local governments talking about needs to maybe raise property taxes for schools, because they either need to be refitted or set up in a different way post-COVID-19.

Griffith: That's right. I mean, if we're looking at, you know, if we need to do social distancing on school buses, that's a hefty purchase of additional school buses to try to get all of these children where they need to go. So it certainly is a really challenging position that they are in with a lot of needs and a significantly reduced tax base.

Olson: Well, even if we're looking at some continued distance learning or maybe more distance learning than we've had in the past, then you've also gotta look at what's needed to make sure that people who are being schooled outside of the building have the resources that they need in order to be able to do distance learning.

Griffith: Right. That's right. Absolutely. It is a challenge I will be interested to watch, and will be glad I will not be having to make any of the ultimate decisions. Somewhat the same with the federal government as we move forward and hash out what the rest of this year looks like, and then what we get to do for next year.

Well, I want to thank you both for all of your insights and for participating. This was a lot of fun for me. I think it was very informative. And so to all of our viewers, I thank you for watching and for asking the questions, and we look forward to the next webinar. Thanks, and have a great day.

Mazur: Thanks a lot. Bye now.

Olson: Bye.

 

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