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Corp. Rate Hikes Could Be Used To Fund Payroll Tax Breaks

By Alan K. Ota · April 2, 2021, 5:44 PM EDT

A drive for higher business income taxes to finance President Joe Biden's new $2 trillion infrastructure plan has fueled interest on Capitol Hill in payroll tax breaks aimed at helping businesses rebound from economic losses during the coronavirus pandemic.

President Joe Biden on Wednesday unveiled a major initiative to rebuild the nation's crumbling infrastructure and combat climate change. Traffic flowed along Chicago's Lake Shore Drive on Wednesday. (AP Photo/Shafkat Anowar)

Several senior Democrats said pandemic-related incentives could be moved with Biden's plan to finance infrastructure for eight years with 15 years of revenue from business levies. These include a 28% corporate rate, a 15% minimum tax on book income reported in financial statements by large corporations and a 21% minimum tax on multinationals' global income.

They said there was bipartisan support for efforts to build on relief measures in the American Rescue Plan Act , including extensions of tax credits for employee retention and paid sick leave and family leave, more Paycheck Protection Program loans and relief for restaurants and bars.

Rep. Mike Thompson, D-Calif., said he planned to keep pushing for his bipartisan Keeping the Lights On Act proposal, H.R. 615, which would provide a payroll tax credit to cover 50% of qualified fixed expenses of businesses subject to closure orders during the pandemic. The qualified expenses for each quarter covered by the incentive would be capped at the least of three benchmarks: $50,000; qualified expenses for the same quarter in 2019; or the greater of 25% of total quarterly wages or 6.25% of 2019 gross receipts.

"We think it would help a great deal. People are really hurting right now," Thompson told Law360.

Thompson and other lawmakers in both parties said payroll tax breaks should be a top priority because many businesses have brought in less taxable income during the pandemic and cannot make full use of existing income tax deductions and credits.

For their part, Senate Finance Committee Chairman Ron Wyden, D-Ore., and House Ways and Means Chairman Richard Neal, D-Mass., both signaled general support for funding infrastructure investments with business tax hikes, but also made clear they would be open to various ideas for incentives to help businesses deal with fallout from the pandemic. They said they would be examining proposals developed by members of their panels and the House and Senate Democratic caucuses.

"I'm listening to my caucus and trying to get a sense of where the caucus wants to go, and I'm going to start rolling out proposals on how the caucus might proceed," Wyden told Law360.

Both chairmen have said that they would examine pandemic-related business incentives that could be part of a filibuster-proof fiscal 2022 reconciliation bill to move Biden's priorities or other tax legislation.

Neal has called in a statement for enacting Biden's infrastructure plan and "capitalizing on this once-in-a-century moment to create a stronger, safer, greener and more sustainable America for all."

Neal and other Democrats have explored business tax hikes as a way to finance Democratic prioritiesincluding an extension of the one-year expansion of the child tax credit that was part of the American Rescue Plan Act.

As Biden promotes a two-part recovery blueprint consisting of the infrastructure plan and a follow-on batch of family incentives, several lawmakers said there was an opening for immediate incentives to help businesses deal with pandemic-related setbacks. Many Democrats had cited concerns about the potential erosion of the Social Security trust fund in opposing President Donald Trump's unilateral payroll tax deferral in the last Congress, but some have expressed interest in targeted payroll tax credits to help businesses rebound from setbacks during the pandemic.

Some lawmakers in both parties have promoted payroll tax breaks to help cover a broad range of business expenses, including the costs of ensuring a safe, healthy work environment and curbing the spread of COVID-19, the respiratory ailment caused by the coronavirus.

For example, Sen. Jacky Rosen, D-Nev., has promoted a bipartisan proposal for a payroll tax credit for businesses and nonprofit groups capped at $15,000 to cover 50% of qualified expenses for purchasing, installing or upgrading systems to filter air and mitigate the spread of airborne diseases.

"We want to incentivize businesses to make this investment, so that as we get therapeutics and vaccines rolled out, people are happy to go back indoors to restaurants, shopping and events," she told Law360.

And Rep. Suzan DelBene, D-Wash., has backed a bipartisan plan to broaden Internal Revenue Code Section 45B to allow beauty salons and barber shops — not just restaurants — to claim a credit for payroll taxes on workers' tips. Supporters said beauty salons and barber shops provided essential services and deserved help during the pandemic.

GOP lawmakers have opposed revenue-raising measures in the pandemic response law, and they strongly criticized Biden's call for business tax increases to finance infrastructure. But they have voiced interest in more incentives to help businesses recover from setbacks during the pandemic.

Sen. Mike Crapo, R-Idaho, the top Republican on the Finance Committee, has said the plan to raise business taxes during the pandemic was "incredibly misguided," but he said he would be open to more incentives to help businesses deal with COVID-19.

"It should be focused on COVID," Crapo told Law360.

Rep. Kevin Brady, R-Texas, ranking member on the Ways and Means Committee, has criticized proposed business tax hikes and said the new pandemic response law did "virtually nothing to stimulate the economy, to either help Main Street businesses or get people back to work."

Brady said he backed extensions of temporary business incentives in the 2017 Tax Cuts and Jobs Act . He also vowed to continue promoting a proposal for a refundable payroll tax credit to cover 50% of the cost of COVID-19 testing, personal protection equipment, disinfecting, extra cleaning and workplace reconfiguration.

"It helps our businesses offset the cost of creating a safe and healthy workplace for their workers and their customers," Brady told Law360.

While strongly opposing the use of a reconciliation bill to advance parts of Biden's recovery plan, Brady and several other senior Republican lawmakers said they believed there could be bipartisan agreement on pandemic-related business incentives. Such measures could be added to items in Biden's infrastructure plan, including incentives for renewable energy and domestic manufacturing.

Sen. Rob Portman, R-Ohio, a senior tax writer on the Finance Committee, said continuation of the employee retention credit for businesses hurt by the pandemic could serve as a model for similar incentives to cover other pandemic-related costs. As modified by last year's Consolidated Appropriations Act, the refundable payroll tax credit covers 70% of up to $10,000 in quarterly wages per employee.  

Portman said proposals for more business incentives, including a payroll tax credit to cover some of the cost of cleaning and reshaping workspaces to deal with COVID-19, could attract broad bipartisan support.

"That would be a good possibility," he told Law360.

--Editing by Robert Rudinger and Neil Cohen.

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