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Democrats Pack Latest Relief Package With Tax-Related Priorities

Posted on May 13, 2020

A new House bill written by Democrats includes several tax provisions for businesses and individuals that mostly reflect the party’s own wish list and will likely get little support from Republicans.

Described as “bold” and “transformative” by Democrats, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800), released May 12, covers a host of priorities from expanding the employee retention tax credit to sending taxpayers a second round of $1,200 relief payments.

The 1,800-plus-page bill also includes several changes to rules for net operating losses, new tax credits to help businesses cover rent and utility payments, and a repeal of the state and local tax deduction cap.

“The gravity of our new reality demands substantial solutions, and that’s what Ways and Means Democrats offer in this latest response package,” said Ways and Means Committee Chair Richard E. Neal, D-Mass., in a release.

The House plans to vote on the bill May 15 even though Republicans haven’t been eager to pass another coronavirus relief package. Ways and Means ranking member Kevin Brady, R-Texas, offered little hope for compromise.

Speaker Pelosi’s bill is a recipe for a prolonged recession, with virtually nothing to get the jobless back to work, while Democratic special interests and millionaires get a windfall,” Brady said in a statement.

Building on a Bipartisan Provision

Although the bill includes some controversial proposals, an expansion of the employee retention credit — designed to keep employees on businesses’ payrolls — is one provision that has bipartisan support.

The HEROES Act includes the same expansions outlined in a bill introduced in the House May 8 by both Democratic and Republican members.

It would increase the credit from 50 percent to 80 percent of qualified wages and increase the per-employee limit to $15,000, as well as redefine a large employer as a business with more than 1,500 employees, instead of more than 100 employees. More wages would qualify because all wages paid by a smaller employer qualify for the credit, while large employers can claim wages paid only when an employee isn’t providing services.

Although Ways and Means member Stephanie N. Murphy, D-Fla., called the overall bill a “negotiating start point” during a call with reporters, she and taxwriter Suzan K. DelBene, D-Wash., emphasized the credit's bipartisan support as a strength of the legislation.

“We build on a strong bipartisan program that everyone in the House and the Senate voted on” in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), DelBene told reporters. “Building on top of that is critically important as we move this bill forward.”

New NOL Rules

The HEROES Act includes several provisions related to NOLs, which were modified in the CARES Act to allow carrybacks of up to five years.

The new legislation would reinstate and make permanent the limitation on excess business losses for passthrough businesses and restrict carrybacks to tax years after January 1, 2018.

The limitation’s repeal in the CARES Act caught House Democrats by surprise, and many lobbied for it to be reinstated after taxwriters Rep. Lloyd Doggett, D-Texas, and Sen. Sheldon Whitehouse, D-R.I., said it mainly benefited hedge funds and real estate tycoons. 

The House bill would also prohibit taxpayers with excessive executive compensation or excessive stock buybacks and dividends from carrying back losses.

Parts of the NOL changes could win support from Republicans, according to Garrett Watson of the Tax Foundation. Members of both parties tend to agree that NOLs shouldn’t be carried back and applied to tax rates that are higher than they are currently, and this bill would fix that problem, said Watson.

Other parts may be more controversial. Some Democrats may not support the reimposed excess business loss limitation, and Republicans likely wouldn’t want rules restricting who can carry back losses, according to Watson.

“Some on the center right argue that it wouldn’t be appropriate to attach unrelated conditions on economic relief items like carrybacks if the goal is to ensure firms can survive the crisis,” Watson told Tax Notes.

Another Round of Payments

The latest Democratic bill would send an additional $1,200 in relief payments to individuals and $2,400 to joint filers, which starts phasing out at $75,000 annual income for individuals and $150,000 for couples. Families would receive an additional $1,200 for each dependent up to three dependents.

Dependents over 17 would become eligible for the $500 per child sent to families under the CARES Act, allowing college students and adult dependents to receive catch-up payments.

The bill would allow any individual with a taxpayer identification number to receive a payment. Payments are now available only to those with Social Security numbers. Making payments to those with TINs was a priority for Democrats, who said they tried to include the provision in the CARES Act but faced resistance from Republicans.

The lack of a TIN has already led to a several lawsuits around the country in which U.S. citizens married to foreign nationals have been denied payments because a Social Security number was not included in the tax return filings.

PPP vs. SALT

If Republicans and Democrats come to some sort of agreement on a tax relief measure, they are likely to include making business expenses associated with the Paycheck Protection Program (PPP) deductible. It is one of the few provisions that has the backing of both parties and many business groups.

Senate Finance Committee Chair Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., cosponsored legislation the week of May 4 to clarify the treatment of PPP-affiliated business expenses after the IRS produced guidance preventing companies from claiming the deduction.

The so-called correction also has the backing of Neal, and the fix mirrors a House bill from Rep. Lizzie Fletcher, D-Texas.

But on the opposite end of the cooperation spectrum is the provision approved in the House last year to repeal the $10,000 state and local tax deduction cap for years 2020 and 2021, now included in the latest relief bill. Senate Republicans have been adamant that the provision is a giveaway to the rich.

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