Analysis

GOP Explores Payroll Tax Cut, Work Incentives For Virus Bill

By Alan K. Ota
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Law360 (May 14, 2020, 7:34 PM EDT) -- Senate Republicans are examining new proposals to ease payroll taxes and provide work incentives as alternatives to contentious items in the fast-moving $3 trillion Democratic virus relief package headed toward likely House passage Friday.

Senate Majority Whip John Thune, R-S.D., said Republicans are still exploring President Donald Trump's ideas for cutting payroll taxes and reducing capital gains taxes in a Senate GOP virus aid package. (AP)

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, said he plans to vet tax proposals as a potential response to the virus relief blueprint developed by House Democrats. The House package faces roadblocks in the Senate, where Republicans argue it focuses on partisan tax priorities such as temporarily erasing the $10,000 cap on deductions for state and local taxes rather than laying groundwork for an economic recovery.

Democrats have pointed to the Coronavirus Aid, Relief and Economic Security Act  signed by President Donald Trump in March as a model, and pushed for a second round of economic impact payments, aid for state and local governments, tax incentives for children and support for workers in health care, transportation and other key sectors. But Republicans have accused the package of doing too little to prepare for an economic recovery by providing tax incentives and other measures to help businesses reopen, hire workers and expand.

Grassley said he expected the GOP plan to come together in three or four weeks, and he remains open to a number of ideas, including proposals to extend several temporary business incentives in the 2017 Tax Cuts and Jobs Act and Trump's call for a payroll tax cut.

"We've got to analyze what's happened now. We've got to analyze the economy coming back," Grassley told Law360.

Senate Majority Whip John Thune, R-S.D., a senior member of the Finance Committee, said Republicans believed they needed to act by June to follow up on the CARES Act and a $484 billion package of aid for small businesses, hospitals and testing enacted in April.

"A lot of the stuff we've done so far starts to phase out and expire next month, so if we have to do additional things, that's probably the window," Thune told Law360.

Thune said Republicans were continuing to explore Trump's ideas for cutting payroll taxes and reducing capital gains taxes as possible provisions of a Senate GOP virus aid package, which is expected to provide businesses with a shield against COVID-19 liability lawsuits by customers and workers.

"I am open to seeing what would actually be effective in getting the economy going again. At this point, I don't think there is any rush until we figure out whether what we've already done is working," the second-ranking Senate Republican told Law360.

While Trump's proposal for a payroll tax cut was not included in the CARES Act, the idea has gained momentum in recent days. For example, some key Republicans such as Rep. Kevin Brady, R-Texas, ranking member on the House Ways and Means Committee, have backed a proposal to suspend the 6.2% payroll tax paid by workers through the end of the year. In the CARES Act, employers received an allowance to defer payments of their own 6.2% payroll tax through 2020, and to instead pay that levy in two annual installments in 2021 and 2022.

Sen. Rob Portman, R-Ohio, said there was a chance a temporary payroll tax suspension for workers could gain support among Republicans because it meshes with the broader GOP strategy of trying to boost businesses and employment. Such a move would be more fruitful than another round of economic impact payments for all Americans, he said.

"It is more targeted. It pairs well with the idea of providing people on unemployment insurance with a bonus for going back to work," Portman said.

Many Republicans have criticized language in the CARES act that provides a $600 weekly upgrade through July to the average unemployment insurance benefit of $360. They point out that the combined benefit often exceeds the pre-layoff salaries of many beneficiaries.

In response to such concerns, Portman said he was developing a proposal to offer jobless workers a "return-to-work bonus" in the form of an allowance for them to receive about $450 in federal jobless aid for an as-yet unspecified number of weeks after they start new jobs. The House bill would extend the upgrade in jobless aid through Jan. 31, 2021, but that proposal has drawn a cool response from the GOP.

While examining work incentives for the unemployed, some Republicans have looked at ways to advance longstanding proposals to encourage business investment. For example, Sen. Patrick Toomey, R-Pa., has been exploring ways to extend or make permanent full expensing of business equipment, which faces scheduled reductions starting in 2023 under the 2017 tax overhaul.

For their part, Democrats have pushed back against the idea of a payroll tax holiday for workers, arguing it would exceed a 2010 law's  reduction of just two percentage points in the payroll tax paid by workers. They voice concern about the impact of deeper cuts on the Social Security trust fund's projected shortfall after 2035, unless there is an agreement on future appropriations to offset revenue losses.

In addition to concerns about a payroll tax cut, Sen. Benjamin Cardin, D-Md., said ambitious GOP proposals to make full expensing permanent or reduce capital gains taxes likely would face strong Democratic opposition and reopen battles over tax overhaul.

"It would require a lot of negotiations. We think we need to have more balance between individuals and businesses as it relates to the 2017 law," Cardin told Law360.

With Democrats' concerns in mind, several Republicans on the Finance Committee said they would look for areas of common ground on other incentives aimed at helping workers and their families meet basic needs while dealing with the pandemic.

Sen. Todd Young, R-Ind., said he hoped to work with Democrats on a plan to expand the low-income housing tax credit as part of the next virus relief measure.

But Young said the shape of the next virus relief measure would hinge on how much leeway leaders of both parties allow for members of the two congressional tax-writing committees to move bipartisan tax proposals such as a plan to expand the low-income housing credit.

"It's unclear to me whether we are looking at something really narrow and thin — a little liability protection and more state flexibility with funds — or if instead we're doing something broader that includes provisions like this," Young told Law360.

--Editing by Tim Ruel and John Oudens.

For a reprint of this article, please contact reprints@law360.com.

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