Today, Congressional leadership released details on a major year-end spending deal that includes two major initiatives heavily negotiated by lawmakers over the past few months: 1) a $1.4-trillion government funding bill, which covers the rest of fiscal year (FY) 2021, and 2) a $900-billion COVID relief bill, the first major piece of legislation related to COVID that Congress may pass since the CARES Act in March.
The process has been far too opaque and hurried -- it appears negotiators are only offering lawmakers mere hours to read and review a bill that is nearly 5,600 pages. Taxpayers are not well-served when a few lawmakers negotiate contentious issues in private and then give the rest of their colleagues (and watchdogs outside government) mere hours to review the legislation.
However, the COVID relief bill will include the extension or expansion of several programs and initiatives that will help struggling families and businesses get through the worst of this pandemic and economic crisis. The package as a whole also extends some key expiring tax provisions that NTU has asked lawmakers to extend. Below, we review the good, the ‘meh,’ and the ugly in this massive deal.
Good
PPP expansion: Small businesses continue to struggle through the pandemic and associated shutdowns, and NTU has long called for Congress to re-up some of the assistance programs for small businesses that it first passed in the CARES Act. Though we prefer ERTC expansion to Paycheck Protection Program (PPP) expansion, NTU believes that additional funds for PPP will help many small businesses survive the next few months. Congress should also continue to insist on robust reporting and transparency requirements for PPP. In the process, lawmakers must balance respect for confidential business information with the need for taxpayers to know a minimum amount of information about where their dollars are being allocated during this crisis.
PPP expense deductibility: Last week, NTU Foundation’s Joe Bishop-Henchman warned that scores of businesses may face a surprise tax bill in the new year if Congress failed to make PPP expenses deductible. Fortunately, lawmakers appear to have overridden some surprising IRS guidance on this issue from April that appeared to run contrary to Congressional intent. Thanks to this deal, PPP recipients should be able to deduct their ordinary business expenses and avoid additional costs when filing their taxes in 2021.
ERTC: For months, NTU has pushed for expansion of the Employee Retention Tax Credit (ERTC) as a way to help employers retain workers through the COVID-19 crisis. The legislation wisely allows businesses with PPP loans to qualify for the ERTC and extends the credit through June 30, 2021. More importantly, the legislation expands the size and scope of the credit, in line with many of the recommendations NTU made over the summer. The size of the credit will expand from $5,000 per employee in 2020 to $14,000 per employee for the half-year the ERTC was extended in 2021. We are pleased to see lawmakers give ERTC the attention -- and expansion -- it deserves.
$28 billion for vaccine procurement and distribution: Quite simply put, safe and effective COVID-19 vaccines are the world’s ticket to some return to normal. The tens of billions of dollars spent on vaccines -- which will help ensure many Americans receive the vaccine at no cost to them -- pales in comparison to the trillions of dollars lost to the global economy if the virus and the widespread shutdowns were to continue without end.
$20 billion to assist states with testing: While the arrival of safe and effective vaccines is incredibly promising, Americans still have months to go before vaccine distribution is widespread enough for society to fully return to normal. A key bridge between now and then is rapid, effective, and widespread COVID-19 testing, particularly for frontline workers. A massive testing effort could also help reopen schools around the country, which should be a top priority for policymakers. This $20 billion will help states implement testing and tracing programs that work best for them.
Uses unspent CARES Act funds to offset most of the cost: Although the sticker price of the COVID relief deal is $900 billion, Congress wisely offset a majority of the cost by rescinding $429 billion in unused Federal Reserve dollars and tens of billions in unused PPP dollars. Although a net cost of $325 billion is nothing to shrug at, the bill is far more fiscally responsible than if Congress had made no attempt to offset the cost.
$25 billion in rental assistance: NTU has long supported “targeted, immediate, and temporary measures to ensure struggling homeowners and renters stay in their homes in the midst of this unprecedented health crisis.” This agreement appears to strike that balance, and according to one summary will help struggling families pay “past due rent, future rent payments, as well as … utility and energy bills [to] prevent shutoffs.”
Permanent alcohol excise tax relief: The bill will make permanent the excise tax reductions that were originally included, as a temporary measure, in the Tax Cuts and Jobs Act. NTU strongly supports these rate reductions, which have provided essential tax relief to producers of beer, wine, and spirits. This relief comes at a time when many of these businesses -- especially small, craft producers -- are facing an economic crisis due to the pandemic.
Avoid misuse of an emergency spending loophole for veterans’ programs: Unwilling to adhere to modest spending caps, some lawmakers attempted to apply an emergency designation to $12 billion in spending for veterans’ programs. This budget gimmick would have allowed appropriators to increase spending by that same amount elsewhere. Fortunately, the emergency designation was not applied to the $12 billion.
Extension of “Look Through Rule”: The legislation provides a five-year extension of the look-through rule for controlled foreign corporations. As NTU has previously written, this provision will preserve coherent tax policy and help businesses avoid a tax penalty for normal movement of investments.
FSA flexibility: NTU has supported a number of efforts to offer millions of Flexible Spending Arrangement (FSA) holders flexibility and relief for their account dollars in plan years 2020 and 2021, due to ongoing uncertainty caused by COVID-19. The compromise deal reached by lawmakers allows FSA holders to “rollover unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022,” according to a Ways and Means Committee summary of the legislation.
Meh
$45 billion for transportation: When Speaker Nancy Pelosi rolled out the HEROES Act in the spring, NTU warned that her proposed $15 billion for highways and $15 billion for transit was wasteful and not necessary to combat the immediate impacts of the pandemic. This new legislation includes $14 billion for transit and $10 billion for highways, along with $16 billion for airlines and another $1 billion for the beleaguered Amtrak program. While some transportation networks and companies may require a small amount of assistance to procure personal protective equipment (PPE) and handle additional expenses due to the pandemic, and while we are awaiting further details on the transportation provisions of the package, a $45 billion appropriation seems ill-advised and poorly targeted.
$300 million for rural broadband infrastructure: While NTU strongly supports efforts to close the digital divide, such as opening up spectrum to new technologies, this legislation should focus on addressing acute needs stemming from the pandemic. This provision would fund the construction of new broadband infrastructure, which would take years to complete.
$600 stimulus checks: According to a Democratic summary of the legislation, sending $600 checks to most individuals making up to $75,000 per year will cost taxpayers $166 billion. Data from earlier this year indicates that, for individuals making more than $30,000 per year, the majority of the CARES Act’s $1,200 payments went to savings and debt payments. Limited tax dollars should be directed to individuals and families who need it for basic expenses, so at the very least the income threshold for these $600 checks should have been much lower.
Surprise billing: While Congress should have considered a surprise billing proposal as standalone legislation, with the opportunity for Members to make amendments in Committee and on the floor, this latest compromise is an improvement on prior iterations of a surprise billing fix. Watchdogs inside and outside of government must closely monitor the implementation of the arbitration process to ensure it is fair to all parties involved in payment disputes -- without being too costly or cumbersome to taxpayers.
Meals deduction: NTU stands by what we wrote in July about the proposal to allow businesses to deduct meal expenses from their taxes: “[w]hile there are few indications this would be a particularly expensive provision of any Phase 4 package, tax experts on the right and the left have questioned its usefulness during a pandemic.”
Ugly
Exceeding the 2019 BBA caps: In July 2019, NTU strongly criticized the Bipartisan Budget Act (BBA) of 2019 for raising defense and non-defense spending caps well beyond what is necessary or prudent for taxpayers. The 2019 BBA also accelerated the nation’s debt and deficits crisis, and made the federal government less prepared and able to spend taxpayer dollars combating COVID-19 this year. The $1.4 trillion omnibus spending deal exceeds the revised BBA cap on non-defense spending by $15 billion, according to the House Appropriations Committee. At a time of record debt and deficits, Congress must focus on getting its fiscal house in order in FY2022.
Fails to help remote workers: Many Americans are telecommuting during the pandemic. According to NTU Foundation, at least 2 million of these individuals will face new tax obligations due to their remote working status. Congress should have included a legislation introduced by Senators John Thune (R-SD) and Sherrod Brown (D-OH) that would have protected remote workers from unfair, overzealous out-of-state tax collectors.
$13 billion in direct payments, loans and purchases for farmers and ranchers: The federal government is already on pace to spend a record $46.5 billion in direct payments to ranchers and farmers this year. As NTU has previously noted, this is more than double the amount from 2019 and several times more than the recent annual average. An additional $13 billion is excessive and Congress should instead pursue other avenues to assist farmers and ranchers, such as better trade policies that open up foreign markets to US agricultural products.
$10 billion in loan forgiveness for USPS: While we are sympathetic to the challenges facing the Postal Service during the pandemic, it is irresponsible to continue to provide substantial taxpayer support to USPS without instituting common sense reforms that would allow for more efficient and less costly operations.
Water Resources Development Act (WRDA): This is flawed legislation that shifts more costs from private businesses to taxpayers for infrastructure projects and expands budgetary gimmicks that make fiscal restraint more difficult to achieve. NTU joined other conservative organizations in opposing this bill earlier this year.