Ahead of Congressional debate over the next phase of COVID-19 relief and recovery, National Taxpayers Union is publishing a series of recommendations for policymakers on Capitol Hill and the Administration. We are hopeful that these briefs will guide lawmakers to consider the taxpayers’ perspective as they consider spending another $1 trillion or more to tackle the public health and economic impacts of the coronavirus.
This is the first of a three-part series, and covers policies and programs that can best support workers during the crisis. The next two parts will cover employers and states.
In our original Phase 4 issue brief, NTU outlined three principles for lawmakers considering a new COVID-19 relief package:
- Relief efforts should be temporary, and targeted at the workers, businesses, and families most impacted by the pandemic and economic downturn;
- Recovery efforts should make broad changes to the tax code that do not seek to benefit one industry or interest over others and have a material effect that spurs economic activity;
- All efforts in the next COVID-19 bill should come with prudent guardrails, to prevent taxpayer dollars from flowing to unrelated or unproductive causes or to projects that have nothing to do with the pandemic and recession.
Several policies below undermine these principles, and several adhere to these principles.
Tax Policy
A Payroll Tax Cut or Deferral Undermines Sound Principles
Media reports indicate that a top priority for the Trump administration in Phase 4 legislation is a temporary payroll tax cut. Some of these reports suggest that the cut would actually be a deferral on payroll taxes, which the Congressional Budget Office (CBO) would score as a lower reduction in federal revenues than a straightforward cut. Either option is suboptimal for many of the reasons already laid out by stakeholders: a payroll tax cut does not benefit the tens of millions of Americans not working, the benefit would not significantly stimulate economic growth, and the cut could further threaten the solvency of the Social Security and Medicare trust funds.
A payroll tax deferral is even more problematic. Unless every household with workers is aware that their larger paychecks are the result of a temporary deferral, rather than a tax cut, millions of households could be caught unaware by a large tax obligation months from now. Even if lawmakers or the Administration intend to ‘forgive’ the deferred taxes at a later date, making that clear now would only highlight that they are structuring the payroll tax break to achieve a favorable, if deceiving, CBO score. Payroll deferral would also have less stimulative impact than individual direct payments, which are a more efficient way to provide support to working families.
Broad Tax Changes with Targeted Impacts Are A Better Way to Help Workers
In our Phase 4 issue brief, NTU outlined a few low-hanging fruit options for lawmakers to support workers and families through the tax code: 1) offer FSA flexibility for 2020 (bipartisan legislation from Reps. Brad Wenstrup (R-OH) and Cindy Axne (D-IA) would do just that), and 2) extend a variety of individual tax provisions, such as the deduction for medical expenses above 7.5 percent of a taxpayer’s gross income, the deduction for qualified tuition expenses, and the exclusion from gross income for benefits given to volunteer firefighters and emergency responders. The latter three tax provisions would only cost lawmakers $4.3 billion to extend for one year, but could provide significant relief to a countless number of families.
If lawmakers want to provide more robust temporary support to workers, especially lower-income workers in essential jobs, one way to do so would be Sen. Mitt Romney’s Patriot Pay proposal. This proposal would provide a temporary, $12-per-hour bonus for workers in certain critical industries making up to $90,000 per year, with bonuses of no more than $1,920 per month. The bonus is structured as a payroll tax credit for employers providing the bonus, such that the federal government provides a $3 refundable credit for every $1 in bonuses provided by the employer.
Lawmakers can also explore the similar, bipartisan Rewarding American Workers Act in the House. More on that proposal is here in NTU’s Phase 4 issue brief.
Transition From UI to Work
Congress Should Not Pass a Long-Term $600 UI Boost Extension
When NTU published our Phase 4 issue brief on June 23, we wrote that “lawmakers should ... heed the warning of a bipartisan group of economic experts telling Congress not to extend UI at the $600-per-week level.” In the month that has passed, the pandemic has worsened and the economic recovery seems further off than it did in June.
NTU still believes that a long-term extension of the $600-per-week federal UI boost is bad policy. For example, we oppose the approach taken by House Democrats in the HEROES Act, which would extend the $600-per-week boost through January 2021 (and, because of technical rules, would effectively extend that boost through March 2021).
Policy Incentives Should Help Americans Transition Back to Work
The CARES Act created a cliff at the end of July where the fully federally-funded $600-per-week addition to state unemployment benefits will expire. Congress should finish the work it began with CARES by finding ways to transition workers off of unemployment benefits and back to work. The Galen Institute’s Brian Blase, Casey Mulligan, and Doug Badger recently suggested a possible phase out: $300-per-week in August and September and $150-per-week in October and November. The Committee for a Responsible Federal Budget’s Marc Goldwein suggested a $500-per-week benefit in August, followed by “automatic rules that incrementally scale down the benefit as the economy reopens and recovers.” Either option would be better than an extension of the $600-per-week benefit that lasts four months or even longer.
It would also be wise to pair a phased-down or phased-out UI boost with a hiring bonus to incentivize the transition from UI to work, when it is safe to do so in various states and municipalities. In our Phase 4 issue brief, we pointed to proposals from House Ways and Means Committee Ranking Member Kevin Brady (R-TX) and Sen. Rob Portman (R-OH):
- The Brady proposal, the Reopening America by Supporting Workers and Businesses Act of 2020, would allow UI beneficiaries returning to work “to keep up to two weeks of the supplemental federal unemployment benefits after accepting a job, comparable to a $1,200 hiring bonus.” Bonus eligibility would run out on the same day the federal UI boost runs out.
- The Portman proposal would provide a short-term $450-per-week bonus to UI beneficiaries who return to work. Portman bonus eligibility is also designed to run out on the same day the federal UI boost runs out.
Hiring bonuses must be carefully designed so that they are time-limited, and lawmakers should put in place guardrails to protect against abuse of the program.
Health Coverage
ACA Expansion or a 100% COBRA Subsidy Is Neither Timely Nor Cost-Effective
Millions of Americans have lost health coverage through their employer during the pandemic and recession, though there is a significant debate over just how many Americans have lost health coverage. While Kaiser Family Foundation (KFF) shocked stakeholders with a May estimate that 27 million people had lost their health coverage, more recent estimates from Families USA and the Galen Institute indicate coverage loss may be in the three to five million range.
Lacking certainty on the scope of this problem, lawmakers should tread with caution. Permanent expansion of Affordable Care Act plans, through more generous premium tax credits (PTCs) and through expanding PTC eligibility to households beyond 400 percent of the federal poverty line, is far broader a change than is needed to support the most vulnerable workers. Such changes would also cost $212 billion over 10 years, according to CBO.
While preferable to an ACA expansion, a 100% COBRA subsidy is also suboptimal policy. As NTU has noted before, COBRA is one of the most expensive ways for individuals to obtain health coverage. The average employer-sponsored premium for an individual plan in 2019 was $599 per month. This means the average COBRA premium for an individual plan could be $611 per month ($599 per month multiplied by 102 percent), which for millions of Americans would add up to enormous costs for federal taxpayers. Employer-sponsored family plans are even more expensive. The Joint Committee on Taxation recently estimated that 11 months of a 100% COBRA subsidy would cost the federal government around $98 billion - less than permanent ACA expansion, but still very expensive.
HSA-Like Pandemic Health Accounts Are A Better Way To Help Struggling Americans
NTU has proposed Pandemic Health Accounts (PHAs) for individuals and families losing employer-sponsored coverage during the pandemic. These accounts would function similarly to Health Savings Accounts (HSAs) and would be pre-funded with a one-time deposit through the IRS. Unlike HSAs, the funds in PHAs could be used to cover health insurance premiums. We propose a PHA benefit amount of roughly $2,000 for individuals and $6,000 for joint or family accounts. This is intended to help individuals afford two to three months of a COBRA premium, four to five months of a marketplace plan, or six-plus months of short-term limited duration insurance (STLDI) coverage. A key element here is leaving the choice open to the beneficiary.
Individuals or families could retain the PHA as an HSA once their pre-funded balance has been drawn down, and the account would be subject to the same rules and limits as existing HSAs. PHA holders could also use any portion of their balance on the same qualified medical expenses that HSA holders can pay for.
We believe the PHA proposal would also serve taxpayers better in the long run than permanent ACA expansion or a 100% COBRA subsidy. Even if 5.4 million individuals (from the Families USA estimate) accessed a $2,000 PHA benefit, the cost to the government would be only $10.8 billion (compared to a $98 billion cost for the COBRA subsidy and a $212 billion cost for ACA expansion). If lawmakers are to pursue legislation supporting individuals with employer-sponsored health coverage gaps, they should choose the PHA option.
Conclusion
We believe that a payroll tax cut or deferral, long-term federal UI boost, permanent ACA expansion, and 100% COBRA subsidy all fail to meet one or more of the principles NTU outlined in its Phase 4 issue brief. Temporary “hazard pay,” a time-limited hiring bonus, and a targeted PHA benefit do meet these principles, and are far better options for lawmakers to consider as they craft the next phase of COVID-19 legislation.