By Alan K. Ota

Law360 (March 16, 2020, 6:29 PM EDT) -- A bipartisan deal on a payroll tax credit has fueled efforts by the chairmen of both tax-writing committees to develop similar tax incentives as part of an emerging new package of measures to address economic tremors from the novel coronavirus.

The deal cut by House Speaker Nancy Pelosi, D-Calif., and Treasury Secretary Steven Mnuchin last week to provide a payroll tax credit to businesses with at least 50 employees but fewer than 500 employees served as a linchpin to the House-passed economic relief package, H.R. 6201, which has President Donald Trump's support and is headed toward possible final action by the Senate this week. Key players in both chambers said it could help clear the way for similar tax incentives in a broader tax package aimed at countering the economic impact of the new coronavirus.

House Ways and Means Committee Chairman Richard Neal, D-Mass., and Senate Finance Committee Chairman Chuck Grassley, R-Iowa, both told Law360 that they were looking to build a consensus for other incentives to help workers take time off in a new package of tax measures designed to alleviate challenges posed by the new coronavirus to employers and their workers.

Neal said he was continuing to discuss with Pelosi and her team the possibility of a markup of an ambitious proposal, H.R. 1185, by Rep. Rosa DeLauro, D-Conn., to require employers to provide paid leave to workers and to finance that benefit with a 0.2% payroll tax to be paid by both employers and workers. The new levy would be funneled into a new trust fund and be administered by a new office in the Social Security Administration.

"We have a role in that," Neal told Law360, referring to deliberations on a possible plan for advancing the DeLauro bill.

In addition to DeLauro's proposed new payroll tax and other tax incentives, Democrats are exploring other ways to give workers more access to paid leave.

The House-passed relief bill has emboldened Democrats, who saw it as a victory in longstanding efforts to create tax incentives for paid leave that go beyond a 1993 law , which gave workers up to 12 weeks of unpaid leave to deal with a birth, illness or family illness.

The compromise worked out by Pelosi and Mnuchin would provide a payroll tax credit to employers who opt to provide workers up to $511 in daily wages when they need to self-quarantine for an illness and provide up to $200 in daily wages to take time off to tend to a child or another family member. The measure also included a refundable income tax credit for self-employed workers, including some employees of technology companies, to cover 100% of the cost of taking qualified sick leave for self-isolation related to illness and 67% of the cost of taking leave to care for a child or another family member. 

In the Senate, Grassley has taken the lead in pushing back against passing a new mandate on employers to provide paid leave as under the DeLauro bill and S. 463, a similar proposal by Sen. Kirsten Gillibrand, D-N.Y. He vowed to take a deliberate approach to vetting other tax incentives for paid leave.

"I know there is tremendous interest in this. There's a great deal of need. But there's too many ideas floating around. We are still looking at the issue overall. We are trying to work in a bipartisan way to move something," Grassley told Law360.

Grassley said he remained open to moving a bipartisan proposal by Sen. Bill Cassidy, R-La., S. 2976, to allow taxpayers to claim an expanded, or advanced, child tax credit of $5,000 to help them cover the cost in lost wages of taking time off for the birth of a child or an adoption. In return, it calls for an annual $500 reduction over the following 10 years in the usual $2,000 child credit under the Tax Cuts and Jobs Act.  The proposal could be expanded to help working parents take time off to deal with the effects of the new coronavirus on children and other family members.

Trump put a spotlight on the Cassidy bill in his State of the Union address on Feb. 5, saying Congress should pass the bill. Despite Trump's call for action, Grassley said he had not yet decided whether to advance the Cassidy bill or pursue a different approach. For example, he said he and other GOP tax writers were taking a hard look at S. 2437, the Support Working Families Act, proposed by Sen. Todd Young, R-Ind., chairman of the National Republican Senatorial Committee, to provide a refundable tax credit for a parent who takes time off for a birth or an adoption.

Cassidy and Young told Law360 that they would be pushing for action on their proposals in the coming days as potential add-ons to a new package of measures aimed at addressing aftershocks of the new coronavirus.

"It has bipartisan support in both chambers. I would like to think that we get there," Cassidy said, referring to his hopes for moving his proposal in a coronavirus-related tax package. Cassidy also referred to a similar proposal, H.R. 5296, by Rep. Colin Allred, D-Texas.

"I think people will begin thinking critically about the need for more Americans to have the freedom to go and care for themselves and for loved ones," Young told Law360.

While Cassidy and Young promote their proposals, Grassley said the debate over family-leave incentives and measures to address the new coronavirus could extend into ongoing talks about a potential package of extensions for 33 temporary tax incentives expiring at the end of 2020. That's because one of the extensions would be for an expiring provision in Internal Revenue Code Section 45S allowing employers to claim a tax credit for a portion of the cost of providing at least two weeks of paid leave to full-time employers — or a prorated amount of leave for part-time employees — for benefits that represent at least 50% of normal wages. The incentive was created by the 2017 tax law and extended in the fiscal 2020 omnibus spending law signed by Trump in December.

Andrew Biggs, a resident scholar at the American Enterprise Institute, said closures of offices and businesses related to the new coronavirus likely would heighten interest in both parties in tax incentives to support paid leave.

But he predicted proposals for a new payroll tax such as the DeLauro and Gillibrand bills would lose traction because of GOP opposition and concerns among some Democrats about their party's efforts to tap payroll taxes to pay for a number of priorities including a proposed expansion of Social Security.

"Proposals to raise payroll taxes for Social Security leave less room to create a payroll tax to fund Social Security," Biggs said.

DeLauro and Gillibrand were not available immediately to respond to Biggs' forecast for their bills, which respectively have 203 co-sponsors and 34 co-sponsors.

Tax writers in both parties said that the development of the provision on paid leave in the House-passed relief package could provide a template of sorts for a new round of talks on other tax incentives to support paid leave.

During deliberations in the House last week, some liberals criticized the relief package for not including a tax credit for companies with large workforces to provide paid leave, while some conservatives questioned whether such benefits could be abused by some workers who do not need to take time off. But the final, tailored version of the provision — excluding the largest companies and allowing those with fewer than 50 employees to seek an exemption — and that compromise attracted strong bipartisan support, for the most part.

Rep. Ron Estes, R-Kan., a Ways and Means member, said he and many Republicans agreed to support the provision worked out by Pelosi and Mnuchin after fighting against efforts by Democrats to promote a mandate for employers to provide paid leave to workers as part of the House-passed relief package.

"Where this ended up was to give a tax credit for the company to provide family and sick leave for an individual. I'm more comfortable with that. It's a risky thing. We want to help employees that are sick. We also don't want to incentivize people to not show up for work," Estes told Law360.

--Editing by Tim Ruel and Neil Cohen.

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