House Democrats included an array of tax cuts for households and businesses as well as long-sought pension relief for union retirees and others in their massive $3 trillion-plus COVID-19 aid plan.
The centerpiece of the proposals is another round of direct payments to individuals and families worth up to $1,200 per person, an amount that phases out for single filers earning more than $75,000 in adjusted gross income and joint filers earning above $150,000.
But in one generous tweak for families, dependent children would now qualify for the full credit amount, up from $500 in the March round. Additionally, dependents who are over the age of 17 but younger than 24 ⚊ such as college students stuck in their parents’ basements due to shuttered dormitories ⚊ would now qualify.
The catch is each household’s tax payments would be capped at $6,000, so only the first three children would qualify; but that’s still more than a nine-person household would receive under the March aid package.
There are other generous provisions for families included in the Democrats’ package as well.
Child tax credits for parents of children under 17 would jump from $2,000 to $3,000 for six years, and to $3,600 for children under six years old. The credit would also be fully refundable, compared to current law which limits the refundable part to $1,400 for families lacking the income to make full use of $2,000 credit.
For 2020 only, the measure would double the child and dependent care tax credit to $6,000 for single filers and $12,000 for couples, while also making the credit fully refundable. The provision changes the phaseout of the credit to begin at an income of $120,000 rather than at $15,000, making it into much more of a middle-income benefit than it is today.
At the same time the bill would more than double the exclusion from gross income for employer-sponsored flexible spending accounts for dependent care this year, to $10,500. Since many parents can’t even access child care due to pandemic-related lockdowns, Democrats would allow beneficiaries to carry over unused balances to next year, temporarily waiving “use it or lose it” rules in current law.
The measure would also nearly triple the maximum earned income tax credit benefit for childless adults in 2020 from $538 to $1,487, according to House Democrats’ summary of the bill.
The EITC provision would primarily benefit lower-income workers. Democrats would also take care of their upper middle-income to wealthier constituents through a two-year elimination of the 2017 GOP tax law’s $10,000 cap on state and local tax deductions.
Republicans have panned that proposal as disproportionately benefiting the rich in blue states like New York, New Jersey and California. Democrats say the middle class in those parts of the country get squeezed by higher taxes and also have been hit harder than most by COVID-19.
New Jersey is not only one of the hardest hit states by the coronavirus, it also contributes far more to federal coffers than it gets back, unlike some other states that Rep. Josh Gottheimer, D-N.J., calls “Moochers.”
“It’s time to remind the Moochers that, from time to time, even they can look out for those in the direct eye of a storm,” Gottheimer said in a statement.
Even before the measure came out, Neal’s GOP counterpart, House Ways and Means ranking member Kevin Brady of Texas, called it a “political messaging bill” that “will go nowhere.”
The legislation also has a pair of measures coveted by big business that have seen pension assets pummeled by the stock market plunge.
Companies with defined benefit pension plans would be allowed to come up with 15-year rather than 7-year plans to address shortfalls while also saving money through a six-year extension of an Obama-era law, known as interest rate smoothing, which had been scheduled to begin phasing out next year. Both of those measures will allow companies to reduce their required contributions to their pension plans for years to come.
“The gravity of our new reality demands substantial solutions, and that’s what Ways and Means Democrats offer in this latest response package,” House Ways and Means Chairman Richard E. Neal, D-Mass., said in a statement Tuesday.
Employer tax credits
An expansion of the worker retention tax credit initially signed into law as part of the March aid package also has drawn bipartisan support.
“I think the larger bill is a negotiating start point,” said Rep. Stephanie Murphy, D-Fla., a leader of the moderate Blue Dog Coalition and a co-author of the expanded retention credit.
The employee retention tax credit would go from having a maximum benefit of $5,000 per employee retained under the March law to as much as $36,000 per employee.
Also, the March law had forced employers to pick between the employee retention credit and the popular Paycheck Protection Program, while the rewrite allows an employer to get both benefits, Murphy said.
The current program allows companies a tax credit of 50 percent of up to $10,000 in second-quarter wages for each employee retained during that quarter. It applies to businesses with fewer than 100 employees that suffered a revenue loss of 50 percent or more.
The revised version would increase the credit to 80 percent of up to $15,000 in wages for the second, third and fourth quarters of the year. The companies would have to qualify for each quarter, but the bill would also relax the threshold, allowing companies with revenue losses of less than 50 percent to get the credit. And companies having up to 1,500 employees but no more than $41.5 million in revenues would be eligible.
The original employee retention tax credit cost $55 billion, according to the Joint Committee on Taxation. Murphy says the expanded program would cost an additional $157 billion, or a total of $212 billion. But, she said, it would impact an estimated 59 million workers, keeping many off of unemployment insurance and other safety net programs.
And there are at least two revenue-generating tax provisions, courtesy of Rep. Lloyd Doggett, D-Texas, a senior member of House Ways and Means who has blasted tax “giveaways” in the March bill. The new House Democrats bill scales back a $25.5 billion loss carryback provision for corporations in that bill and repeals the elimination of a cap on excess losses incurred by owners of “pass-through” businesses scored to cost the Treasury $135 billion over 10 years.
“Pleased that the House will vote to repeal this unjustified, massive giveaway to the ultrarich,” Doggett said in a statement.
When it came to rescuing failing union pension funds, in March Democrats proposed to include in relief legislation a House-passed measure to provide low-interest loans and grants to affected plans. The Senate never took up the House bill and Senate Republicans came out instead in favor of a plan to expand the Pension Benefit Guaranty Corporations powers to “partition,” or take over, ailing plans.
The new House Democrats’ bill has a similar partition plan that would allow the PBGC to take over benefit payments of the failing parts of the plan, most notably the “orphaned” retirees whose former employers are no longer contributing to plans due to bankruptcy or other financial difficulties. That would leave behind a presumably healthier pension plan now able to meet its obligations.