Senate Policymakers Release $908 Billion Bipartisan COVID-19 Relief Proposals

Federal Tax

Monday, a bipartisan group of congressional policymakers released two compromise relief bills to address the COVID-19 pandemic, totaling about $908 billion: The Emergency Coronavirus Relief Act and the Bipartisan State and Local Support and Small Business Protection Act. Bipartisan Emergency Coronavirus Relief Act of 2020 The latter bill addresses both state and local aid and liability protection for businesses operating during the pandemic, which have been controversial and subject to ongoing congressional negotiations, while the former contains provisions which have broader support.

The Emergency Coronavirus Relief Act is estimated to cost about $748 billion and centers on emergency assistance for workers and businesses to provide relief until a vaccine is widely available next year. Two of the main focuses are renewed support for the Paycheck Protection Program (PPP) and an extension of unemployment assistance benefits provided by the CARES Act in the spring and set to expire at the end of the year.

The PPP was one of the most heavily used programs established by the CARES Act for businesses struggling to remain open as the economy contracted and public health restrictions were tightened. By providing forgivable loans for qualifying expenses, such as employee wages or operating expenses like rent and utilities, many businesses avoided having to close permanently. This relief proposal would provide an additional $300 billion to the Small Business Administration (SBA) for loans to small businesses with 300 or fewer employees and would include set-asides for smaller borrowers and communities underserved originally.

The bill would also make the tax treatment of forgiven PPP loans more generous by allowing business expenses paid for by PPP proceeds to be deductible. Under current law, income that is excluded from taxable income cannot also have associated expense payments deducted from taxable income to prevent a double benefit. However, some policymakers in Congress have argued that it was Congress’ intent to provide for both benefits. This provision would clarify that status of PPP expense deductions, which have been disallowed by the Internal Revenue Service (IRS) in related administrative guidance. 

Three major CARES Act expansions of unemployment assistance would be extended. The Pandemic Unemployment Assistance (PUA) program, which makes unemployment compensation available to qualified gig economy workers and independent contractors, would be extended for an additional 16 weeks, through the end of April 2021.

Pandemic Emergency Unemployment Compensation (PEUC), which extends the base unemployment period from 26 weeks to 39 weeks, would also be reauthorized. If these two expansions are allowed to lapse at year end, approximately 12 million jobless workers would see their incomes drop to zero. Federal Pandemic Unemployment Compensation (FPUC), which provided an additional $600 per week unemployment assistance benefit and expired at the end of July, would be extended for 16 weeks at $300 per week.

The Emergency Coronavirus Relief Act also provides grants and aid to bolster coronavirus testing and tracing efforts conducted by states, localities, and territories; increases support for health-care providers and mental health treatment; and provides additional aid to airports and public transit systems. Supplemental Nutrition Assistance Program (SNAP) benefits would temporarily increase by 15 percent for four months, and $25 billion in rental assistance would be provided to states and localities through the Coronavirus Relief Fund (CRF). Finally, the bill also extends federal student loan forbearance through April 1, 2021 and provides support for education providers and for broadband deployment to increase digital access during the pandemic.

The Bipartisan State and Local Support and Small Business Protection Act separates out aid to states, localities, and tribes as well as liability protection for businesses from the broader relief bill. The bill would provide $160 billion in state and local aid through three tranches ($91.2 billion to states, $60.8 billion to local governments, and $6 billion to tribal governments). One-third of the aid would be distributed based on population, with the remaining two-thirds allocated by revenue losses with a minimum state aid amount of $500 million.

As our colleague Jared Walczak notes, this allocation formula has some limitations: it would not take into account revenue decisions made by states or the underlying source of revenue declines, and there may be an incentive for states to adjust their receipts to maximize their aid under the formula. However, the formula does benefit from using calendar year 2019 as a baseline for revenue loss, instead of state revenue projections that reward states for overly optimistic projections and punish those with conservative ones.

State and local aid and liability protection for businesses are two of the biggest barriers to coming to a broader agreement for pandemic relief. Another disagreement centers around whether to provide a second round of relief payments like those in the CARES Act, which neither bipartisan bill includes. Additionally, a separate group of lawmakers pulled together a package to extend a variety of unrelated tax breaks that are scheduled to expire at year end with hopes of riding on the coattails of broader relief that would be provided in the Emergency Coronavirus Relief Act.

Policymakers in Congress are aiming to attach a relief bill into the government funding omnibus later this week. If that effort fails, it is likely that additional pandemic relief will wait until the new year, negotiated by a new Congress and presidential administration. Given the increasing number of Americans suffering from the virus, tightening of public health restrictions, and warning signs of slowing economic activity, additional support to bridge the gap until the vaccine is widely available would help avoid unnecessary economic hardship.

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