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In Conflicts Over ‘CARES 2,’ Tax Offers Common Ground

Posted on Aug. 3, 2020

Congressional Democrats were quick to criticize Senate Republicans after they rolled out their proposals for the next coronavirus relief package on July 27. Days spent around the negotiating table have so far been fruitless.

But amid all the disagreements between lawmakers and the Trump administration, one area of agreement may lie in the tax provisions proposed by the two parties.

The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800), passed by the House in May, serves as the negotiating starting point for Democrats, while Republicans have a collection of eight bills called the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act laying out their priorities.

Several of the tax provisions included in HEROES also made it into HEALS. Both packages include another round of $1,200 economic impact payments, an expansion of the employee retention tax credit, and a second round of loans for the Paycheck Protection Program (PPP).

“There isn’t much of a difference between the two bills on the tax side,” said Mel Schwarz of Eide Bailly LLP. “The difference is mostly in the numbers.”

For the relief payments, under HEALS, taxpayers with dependents would receive an extra $500 per child, as was the case for the first round of payments. HEROES would raise that amount to $1,200. 

Lawmakers also must decide the criteria for a second, more targeted PPP loan and how generous the employee retention tax credit will be, according to Garrett Watson of the Tax Foundation. HEROES offers 80 percent of qualified wages up to $15,000 per employee per quarter, while HEALS would cover 65 percent of qualified wages up to $10,000 per employee per quarter. 

Still, there are a few tax provisions that are unique to one side or the other. For example, HEROES includes expansions to the earned income tax credit, the child tax credit, and the child and dependent care tax credit.

“The thinking here is that this will help vulnerable households, low-income individuals, and households with children over the next year by making the child tax credit refundable,” said Watson. “That’s not in the HEALS Act, and I think there might be disagreement that tax credits are the best way to target relief to those individuals right now.”

A Little Bit of Everything

Finding the best solutions for the next relief package starts by deciding “where we are along the COVID economy path,” said Howard Gleckman of the Urban-Brookings Tax Policy Center

“You might have different solutions if you think what we’re trying to do is economic stimulus than if you think what we’re trying to do is provide relief for people,” Gleckman said. 

According to Gleckman, relief is better if the economy is still in the beginning stages of enduring the pandemic’s effect, and a traditional stimulus bill is better if the economy is moving into recovery. But lawmakers don’t appear to have a clear idea of where the economy stands or what exactly is necessary. 

“What they’ve done, in general, is kind of hedge their bets,” Gleckman said. “In the House-passed bill and in McConnell’s bill, you have a little bit of everything. I think it’s because, in part, they’re not sure where we are in the economic cycle.” 

HEROES vs. HEALS: Who Wins? 

On their own, neither the HEROES Act nor the HEALS Act is the best solution, according to Schwarz. Like any true compromise, the answer is largely in the middle, he said. 

“Both bills have positive elements,” Schwarz said. “HEROES doesn’t have the work opportunity credit, but that could be a good idea to add,” since its goal aligns with what Democrats want to accomplish. 

Democrats will also likely accept the HEALS tax credit for businesses’ expenses toward employees’ personal protective equipment and other measures used to keep workers and customers safe, said Gleckman

The key is finalizing a bill that will be well targeted to businesses and households, according to Watson. He said that as it stands, both bills have weaknesses preventing them from accomplishing that goal. 

“The idea in the HEALS Act to expand the deductibility of [business] meals in the middle of a pandemic isn’t really well targeted and is unlikely to be very effective in stimulating economic activity,” Watson said. “A contrast in HEROES that doesn’t make sense right now is putting in an elimination of the state and local tax deduction limitation, which would mostly accrue to higher earners and not be well targeted at relief.”

Gleckman said that in the grand scheme of the package, those are all relatively small issues, and that even on the larger issues, he believes the debate is already over and the House has won.

“We really are now just arguing about how big the refundable credits are going to be and how big the stimulus payment is going to be and how big the unemployment benefits will be,” Gleckman said. “But we’re no longer in argument about whether those things should be in a bill.”

HEROES vs. HEALS Comparison

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