March 12, 2020
Washington, D.C. is moving towards a bipartisan Coronavirus relief package. Although the two parties are still far apart, there are common threads between the various proposals. Ultimately, neither party will want to be seen as preventing the enactment of relief. While it will be tempting to see if the other party can be positioned to take the blame for any failure, the current situation is already too serious to make that a practical political approach.
At this time, the primary differences between the two parties is the focus of legislation. Democrats are focused on relief from the burden created by the coronavirus, while Republicans would combine relief proposals with economic stimulus. Republicans have floated a number of tax proposals, along with direct spending and regulatory changes, while the Democrats seem more focused on direct government spending designed to offset the economic dislocations being experienced. The ultimate package is likely to include elements from both sides. Expressions of disapproval from either side are most likely for negotiating purposes, not necessarily lines in the sand.
The following discussion of possible tax provisions is based on public and private statements from Administration and Congressional officials, as well as past experience with other legislation. Direct spending provisions are also expected, but are only discussed where they are part of a possible compromise with tax provisions. The following is a best guess as to what provisions may be included. Some may not be enacted or enacted in a very different form.
Possible Tax Provisions in a Bipartisan Coronavirus Relief Package
Delaying the April 15 filing date – The New York Times has reported that delaying the April 15 filing date is under consideration. While possible, a more likely approach would be for the IRS to announce that it will waive penalties and interest for late filing and payment. This could be done without legislative involvement and would be consistent with the approach taken in other disaster situations. While this could be limited to those taxpayers “affected” by the coronavirus, the limitation would be difficult to enforce and general availability of forgiveness seems more likely.
Employment Tax Holiday – The President has proposed a holiday on the collection and remittance of payroll taxes. The Democrats have raised objections, primarily because relief would be limited to those who continue to be paid and of no benefit to those whose lose the ability to work and, at least with respect to those under the FICA cap, the benefit is not equally shared by all wage classes.
Some form of employment tax holiday would seem likely. Democrats have supported this as a stimulus measure in the past, and it provides relief from what is viewed by most Democrats as a regressive tax. A provision that mirrors the 2-point payroll tax cut that was part of stimulus legislation during the Obama administration is a possibility.
Employment credits – There is going to be a push for a credit equal to a portion of normal salary and wages paid to workers who are sick or required to be quarantined. This stands a good chance of success. A broader proposal to provide credits for continuing salaries and wages for employees who would otherwise be furloughed due to reduced economic activity will be considered, but is less likely to succeed. Employment credits are a likely companion to provisions expected to be urged by Democrats to provide government payments to workers who are not able to draw wages during a period they are sick or quarantined.
Deferred payment of transportation taxes – The Administration has stated that it will seek to provide support for the airline, cruise ship and hotel industries. This is likely to take the form of government payments or loan guarantees. A deferral of airline ticket taxes and cruise ship port fees will also be considered. The fees will still be collected, but will not have to be remitted to the government until later. Eventual forgiveness of deferred remittances could occur, but is not thought likely to be included in the first round of legislation.
Corporate tax rates – Previously, the Administration indicated it was considering cutting the corporate tax rate from 21 to 20 percent. Recent discussions indicate that this proposal, which would be vigorously opposed by the Democrats, is no longer a leading candidate for consideration.
Restoration of pre-TCJA rules – Several of the revenue offsets that were included in the 2017 Tax Cut and Jobs Act (TCJA) will have a significant effect on companies that suffer losses or significantly reduced profits as a result of the coronavirus. Prominent among these are:
Elimination of NOL carrybacks – Prior to TCJA, an otherwise profitable business that suffered a one-time loss could recover previously paid taxes by carrying back the current year loss to offset taxable income in the prior year.
Limitation on interest deductions – The TCJA limits the amount of otherwise allowable net interest expense that can be deducted to 30 percent of adjusted taxable income. This limitation means that businesses suffering a one-time reduction in profitability may be limited in their ability to deduct interest that would have been allowable under normal circumstances.
Restoration of pre-TCJA rules does not appear to be under consideration for the current legislation. Should the coronavirus situation continue these and other provisions may be considered in a second bill at that time.
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