House Democrats’ new coronavirus stimulus plan has ignited a partisan fight, but it includes one area of possible, perhaps even likely, compromise.
Democrats want to dramatically expand a tax credit designed to prevent layoffs by essentially paying businesses to keep paying their workers.
They would quadruple the size of an “employee retention credit” created in March, making it much more generous and available to a lot more businesses.
Democrats believe it will stem job losses — the official Joint Committee on Taxation predicts 59 million workers would benefit from the expanded break — while avoiding some of the problems with Congress’ other responses to the virus outbreak, such as jobless benefits and the Paycheck Protection Program.
Though Republicans have torched numerous other parts of the Democrats’ plan, many have held their fire when it comes to the employee credit proposal.
Asked about expanding the credit, Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee, said: “We’re open to it.”
“We’re interested in continuing to make that credit work and are willing to discuss in a bipartisan way how to make it work better and to expand it.”
Overall, lawmakers have had far more difficulty agreeing on another coronavirus relief measure than they did with previous bills.
But Federal Reserve Chairman Jerome Powell is putting pressure on Congress to act, saying additional stimulus is needed to avoid lasting damage to the economy, and lawmakers are anxious about an unemployment rate now approaching 15 percent. Senate Majority Leader Mitch McConnell said last week that he expects to move additional coronavirus legislation at some point.
Congress created the employee retention break as part of the last stimulus plan, modeling it after a credit that lawmakers have offered to areas hit by natural disasters.
But Democrats believe the current program, which offers businesses a 50 percent credit on the first $10,000 in wages paid to each worker, is not generous enough because it still leaves employers on the hook for half of the wages of employees who aren’t working.
They would expand it in several ways.
Their plan would cover a bigger share of pay, with the credit covering 80 percent of up to $15,000 in wages per worker each quarter. It would be capped at $36,000 per employee.
Democrats also want to make it more available to larger businesses, dumping provisions that currently target the break mostly to companies with 100 or fewer employees. Under the revised plan, those with up to 1,500 workers would have the same access as smaller firms. Democrats would also make it easier for employers to qualify for the break even if they are participating in the Paycheck Protection loan program, something that’s currently restricted.
And they would make the credit more flexible.
Currently, businesses have to either be shut down because of the outbreak or see their revenue fall by 50 percent or more. If a business has, say, a 49 percent drop in revenue they don’t qualify, so Democrats’ plan would instead phase in the break, so employers could begin to get at least some assistance once their revenue falls by 10 percent.
The Joint Committee on Taxation predicts six million employers would claim it for 59 million employees, which amounts to more than one-third of all workers.
“That’s a tremendous number of people who will rapidly and meaningfully benefit,” said House Ways and Means Chairman Richard Neal (D-Mass). “This is a proven tool that allows us to quickly provide businesses with the support they need to keep employees on payroll and receiving benefits during the Covid-19 crisis.”
The plan may also benefit from problems with Congress’ other coronavirus relief measures thus far.
Both sides are unhappy with how the unemployment insurance program is working. Democrats are concerned about state agencies being overwhelmed by a tidal wave of jobless claims while Republicans worry benefits are so generous some people won’t want to return to work.
Meanwhile, the Paycheck Protection Program has been wracked by confusion as well as complaints of money going to businesses considered undeserving.
Democrats have also touted their plan as an alternative to a much-noted proposal by Rep. Pramila Jayapal (D-Wash.) that would also have the government cover private workers’ paychecks, albeit more generously and at a far higher cost to the government.
But the employee retention credit expansion is still expensive, with budget scorekeepers predicting it would cost $163 billion through the end of next year. That’s three times as much as the original credit, and more than what Republicans’ entire Tax Cuts and Jobs Act costs in a typical year.
Though Republicans have lambasted House Democrats’ overall plan as little more than a liberal wish list, they’ve mostly complained about other parts of the nearly 2,000-page proposal, such as a plan to temporarily lift a cap on state and local tax deductions.
“The retention credit is one of the more bipartisan pieces, so an expansion of it starts in a better posture than some of the other things in the bill,” said Rohit Kumar, a former top aide to McConnell, who is now at the consulting firm PwC.
“I could see that being a place for potential compromise.”