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Biz Advocates Fear Payroll Tax Hike Amid Dems' Virus Aid Push

By Alan K. Ota · March 20, 2020, 3:24 PM EDT

A push by Democrats to expand jobless aid and paid leave benefits to combat the coronavirus epidemic has drawn Republican opposition and raised concerns among business advocates that the proposals could lead to higher payroll taxes down the road.

Democrats responded to the new Senate GOP economic stimulus proposal, S. 3548, which was unveiled Thursday by Senate Majority Leader Mitch McConnell, R-Ky., by calling for major upgrades in unemployment insurance and paid leave benefits. Both parties have staked out tough negotiating stances in looming negotiations over the bill, called the Coronavirus Aid, Relief, and Economic Security Act, but McConnell has stressed his plan to keep senators in Washington and clear the way for a Senate floor vote by next week.

Whether or not McConnell rallies support from enough Senate Democrats to avert a filibuster and pass the package, the bill could face roadblocks unless House Democrats agree to forgo procedural blocking moves to enforce their chamber's constitutional authority to originate all tax bills.

Democrats have emphasized they have no plans to raise payroll taxes to pay for new initiatives they want to add to the package developed by the Senate Republican Conference to help workers and employers deal with business restrictions to slow the spread of the novel coronavirus, which causes COVID-19.

But some business advocates have voiced concerns that Democrats' proposals for broader employee benefits could eventually be tied to payroll tax increases. Neither party has proposed revenue-raising measures or spending cuts to pay for ambitious proposals that they want to include in the legislation.

Holly Wade, director of the research center for the National Federation of Independent Business, told Law360 in an email that her group was worried about the potential for payroll tax increases in the future if the stimulus plan is expanded to include proposals for broader employee benefits.

"Layoffs will unfortunately increase as the crisis continues, but when we get to the other side of it, small businesses will not be able to shoulder future payroll tax increases to pay for elevated levels of UI claims as they try and get back on their feet," she said, referring to unemployment insurance.

Wade referred to the 6% employers' payroll tax on the first $7,000 of each employee's wages, which finances unemployment insurance. The payroll levy was launched by the 1935 Social Security law  and reshaped by the Federal Unemployment Tax Act .

House Ways and Means Chairman Richard Neal, D-Mass., sharply criticized the GOP plan in a statement Thursday, accusing it of "prioritizing the corporate tax wish list over the economic well-being of people who are losing their livelihoods." He and other Democrats have made clear they want to expand jobless aid and paid leave benefits, and have said they want to negotiate with the GOP on the items in the package and the overall cost of the measure, with or without offsets.

"In this time of crisis, scores of recently unemployed Americans and struggling small businesses are counting on expanded unemployment insurance benefits and targeted support to save them from financial ruin," Neal said in a statement. "We can and must do better than what Senate Republicans proposed."

Neal made no mention of concerns raised by some Democrats about the size and timing of cash payments to taxpayers in the GOP plan, which would authorize the Internal Revenue Service to send checks up to $1,200 to individuals, increased by $500 for every child, subject to income limitations.

Other key Democrats, including Sen. Sherrod Brown, D-Ohio, said they were open to supporting a cash payment plan like the one in Senate GOP blueprint, but said they would insist on the inclusion of several Democratic priorities in coming negotiations with the GOP.

"It can't just come with cash payments," Brown told Law360. "It's got to scale up unemployment insurance."

He referred to the centerpiece of the plan developed by the GOP in talks with Treasury Secretary Steven Mnuchin after Trump called for cash payments through the IRS to taxpayers to help them weather expenses related to the new coronavirus.

Senate Minority Leader Chuck Schumer, D-N.Y., outlined on the Senate floor Thursday his party's plan for broader jobless aid, which he said would provide the "full amount of the wages that workers are not being paid, not 20% or 50%." Currently, workers receive unemployment compensation that usually amounts to about 25% to 35% of wages and lasts for 26 weeks in many states, according to Wayne Vroman, an economist at the Urban Institute.

The top Democrat said the plan would ensure that benefits are available to workers who are on unpaid leave because of business restrictions and setbacks linked to the pandemic.

"They'll be furloughed, getting a full salary. And when the businesses come back, they'll be back," Schumer said

Schumer also signaled that Democrats would push for a contentious proposal backed by Sens Patty Murray, D-Wash., and Kirsten Gillibrand, D-N.Y., to create a new mandate for paid leave benefits.

"We must have paid family leave," Schumer said.

In addition to such benefits, Sen. Ron Wyden, D-Ore., the top Democratic tax writer in Senate, offered a new bill Friday with Sen. Benjamin Cardin, D-Md., that proposes a 50% payroll tax credit to cover up to $7,500 paid to a worker retained by a qualifying small business. The bill also would provide small businesses with 50 employees or fewer and $1 million or less in gross receipts a tax rebate equal to 30% of the prior year's gross revenue, capped at $75,000, if they are forced to close or face other setbacks related to the new coronavirus.

The Democrats' proposal on paid leave does not include a payroll tax hike, but many Democrats have backed another proposal, H.R. 1185, that calls for a 0.2% payroll tax to be paid by both employers and workers to finance a similar mandate for paid leave benefits.

There is strong GOP opposition to the proposal by Murray and Gillibrand to require employers to provide 14 days of emergency paid sick leave and up to 12 weeks of paid family and medical leave. A similar proposal was defeated on a party-line vote, 47-51, when it was offered as a floor amendment to the economic relief package . That vote came just before that measure was passed by the Senate, 90-8, and signed by Trump on Wednesday night.

McConnell said Senate Finance Chairman Charles Grassley, R-Iowa, and several other chairs and senior Republicans would serve as point persons in trying to resolve concerns of Democrats, including their proposals for potential amendments and objections to provisions in the GOP plan.

"I stand ready to continue identifying targeted relief as necessary to help bridge the gap beyond this bill. We need to take this next step and do it quickly," Grassley said on the floor Thursday night.

But many Republicans have voiced concerns about Democratic efforts to promote potential add-ons aimed at expanding unemployment insurance and paid leave benefits, pointing to potential new costs and burdens for employers.

In addition to pushing back against a new mandate for paid leave benefits, some Republicans tried unsuccessfully to block another provision in the new economic relief law. The law provided a temporary payroll tax credit expiring at the end of 2020 for businesses with at least 50 employees but fewer than 500 to help cover the cost of paid leave for workers.

David Burton, a senior fellow at the Heritage Foundation, said he believed it was possible that the two parties could work out an agreement for an expansion of jobless aid, but said he doubted a deal could be cut on a mandate for paid leave benefits.

"Hypothetically, some kind of unemployment insurance adjustment could be part of the solution," he told Law360. However, "the government has mandated businesses can't make money. The government can't then mandate businesses need to provide paid leave. That's a recipe for a higher level of business failures."

Burton said he believed there was "a broad bipartisan consensus that something major needs to be done quickly."

But Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, disagreed, saying the negotiations could be drawn out.

"These negotiations could be very difficult, and they might take a while," Rosenthal said. "If markets were to collapse further and lose 20%, say, because investors think that business relief is not coming soon and may not come at all, that would spur Congress."

--Editing by John Oudens and Neil Cohen.

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