Negotiations over a second round COVID-19 stimulus and relief legislation could ramp up next month, with a number of significant tax proposals in the mix.
National Economic Council Director Larry Kudlow indicated discussions would begin “in earnest” after July 4. Senators close to Majority Leader Mitch McConnell (R-Ky.) echoed that sentiment, acknowledging that a package is unlikely to come together before the holiday, but that lawmakers will likely turn their attention to it when they return from their two-week recess on July 20. Republicans on Capitol Hill and administration officials have already begun outlining their priorities, many of which have tax implications, including:
- Offering return-to-work incentives for unemployed individuals
- Suspending payroll taxes through the end of the year
- Cutting the capital gains tax rate
- Allowing businesses to accelerate tax credits
- Expanding the employee retention credit
White House adviser Peter Navarro has also suggested that President Donald Trump is seeking $2 trillion in stimulus to bolster the manufacturing industry, with a specific focus on incentivizing the return of manufacturing jobs to the United States. The details of the plan are unclear, but its enormous price tag is likely to present challenges in Congress, even among Republican lawmakers.
House Democrats have already outlined their priorities in a $3 trillion bill that passed on May 15. The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act proposes several major tax changes, but only a handful, such as expanding the employee retention credit and reversing IRS guidance denying deductions for expenses that result in loans being forgiven under the Paycheck Protection Program, are likely to garner bipartisan support. For more details on the HEROES Act, see our Tax Legislative Update, “House stimulus bill proposes major tax changes
Infrastructure may present an opportunity to compromise. House Democrats unveiled their new highway bill earlier this month. The $500 billion proposal would address deteriorating roads and bridges and invest in public transportation and green energy solutions, such as electric vehicle charging stations. The White House is also putting together its own $1 trillion infrastructure plan.
It is uncertain how quickly bipartisan legislation will come together with significant hurdles to overcome. Democrats are facing increasing pressure from their base to repeal the five-year net operating loss (NOL) carryback and temporary suspension of the excess business loss limitation enacted by the CARES Act. Rolling back these benefits has drawn opposition from Republicans and will present administrative challenges. A compromise involving a rate “haircut” that denies taxpayers the benefit of deducting losses against the higher, 35% pre-Tax Cuts and Jobs Act tax rate may be possible. However, it is likely only administratively feasible for NOLs arising in 2020.
The two sides are also at odds over several other issues. Republicans have been reluctant to back another round of refund checks to individuals and have previously opposed the other tax breaks geared toward workers and low-income families included in the HEROES Act. Democrats have dismissed past calls by the president to suspend payroll taxes and cut the capital gains tax rate as non-starters.
It may take some time to resolve such issues unless a pressing need for legislative action develops.
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