Partisan battle expected over future tax relief

Tax Hot Topics newsletter Lawmakers on both sides of the aisle are considering additional tax proposals in response to COVID-19 but will likely have to resolve major political differences first.

Ways and Means Committee Chair Richard Neal (D-Mass.) announced last week that House Democrats are preparing legislation to aid state and local governments, many of which have had their budgets upended and are projecting significant declines in tax revenue as a result of COVID-19. The proposal is expected to include direct payments and tax-favored bonds and could be expanded to serve as a vehicle for broader stimulus and relief.

However, it already faces a major obstacle in the Senate. Majority Leader Mitch McConnell (R-Ky.) has insisted the next round of COVID-19 legislation include liability and litigation protections for businesses and employees as cities and states reopen, which Democrats strongly oppose.

Congress has already passed four bills totaling more than $2.5 trillion to address the pandemic, most recently reconvening briefly to advance a $480 billion package that included urgent funding for the Paycheck Protection Program (PPP). But it appears to be headed toward a protracted political battle over the fifth round, with Democratic and Republican priorities differing significantly.

McConnell has generally dismissed proposals emerging from the House as wishful. House Democrats have previously floated several long-standing priorities that were likely to be met with pushback, such as retroactively rolling back the $10,000 cap on the state and local tax deduction and bolstering the Earned Income Tax Credit and child tax credit. They have also discussed making additional direct payments to individuals, expanding the recently enacted sick pay and paid family leave requirements to larger employers and providing a more generous employee retention credit.

President Donald Trump has indicated he is uninterested in additional direct payments to individuals, preferring to suspend payroll taxes until the end of the year instead. House Majority Leader Steny Hoyer (D-Md.) called that proposal a non-starter during stimulus and relief negotiations in March.

Talks to resolve such differences could move slowly, particularly with the House indefinitely pushing back its May 4 return to Washington. However, Congress could be pressed into action if the economic or public health situation deteriorates so significantly that swift action is again warranted. Additional funding for the PPP may also provide a vehicle for some proposals, but they are likely to be limited in scope.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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