Overview
On Monday, July 27, Senate Majority Leader Mitch McConnell (R-KY) released a $1 trillion stimulus package in response to the ongoing effects of the COVID-19 pandemic. The Senate GOP released the following eight bills, which collectively comprise the HEALS Act.
- The Safeguarding America’s Frontline Employees To Offer Work Opportunities Required to Kickstart the Economy (SAFE TO WORK) Act (S.4317): Introduced by Sen. John Cornyn (R-TX), this bill would provide a five-year limited legal liability “shield” for businesses, schools, universities and hospitals from COVID-19-related lawsuits. Companies must not act negligently and operate in accordance with public health guidelines. This is Senate Majority Leader Mitch McConnell’s (R-KY) top legislative priority, and he has said he will not bring a stimulus package to the floor for a vote without liability protection.
- American Workers, Families and Employers Assistance Act (S.4318): Introduced by Senate Finance Committee Chair Chuck Grassley (R-IA), this bill provides direct assistance to individuals through a second round of $1,200 Economic Impact Payments and a continuation of reduced Federal Pandemic Unemployment Compensation (FPUC). The bill also includes measures to promote job growth and a safe return to work, including enhancements to the Employee Retention Tax Credit (ERTC), an expansion of the Work Opportunity Tax Credit (WOTC) and a new refundable credit for businesses that provide testing, PPE, cleaning supplies and other COVID-19-related reconfigurations.
- Supporting America’s Restaurant Workers Act (S.4319): Introduced by Sen. Tim Scott (R-SC), this bill would provide a 100% deduction for business meals through 2020. Current law provides only a 50% credit. This is an attempt to drive business to support the restaurant industry, which has continued to see major declines in revenue.
- Coronavirus Response Additional Supplemental Appropriations Act (S.4320): Introduced by Senate Appropriations Committee Chair Richard Shelby (R-AL), this bill would allocate $306 billion in additional federal funding for COVID-19-related expenses. Portions of the funds would be dedicated to helping schools reopen safely, state grants for testing and contact tracing, vaccine development and financial assistance for farmers
- Continuing Small Business Recovery and PPP Act (S.4321): Introduced by Senate Small Business Committee Chair Marco Rubio (R-FL), this bill provides financial assistance to small businesses adversely affected by COVID-19. It would specifically allow the hardest hit businesses to receive another round of Paycheck Protection Program (PPP) funds, improve the terms of the 7(a) loan terms for certain businesses in low-income areas, and allocate more funding for Small Business Investment Companies (SBICs) that invest in small businesses—particularly those that invest in domestic supply chains—that have been impacted by COVID-19.
- Safely Back to School and Back to Work Act (S.4322): Introduced by Senate Health, Education, Labor and Pensions Committee Chair Lamar Alexander (R-TN), this bill would allow student loan borrowers without any income to defer loan repayments, increase school choice by providing scholarships for students to return to private schools, and provide $15 billion in funding for child care providers, to ensure that they are able to remain open to support working families and economic recovery. Additionally, the bill includes $70 billion targeted assistance for K-12 schools—two-thirds of this funding is reserved for schools that meet certain minimum opening requirements established at the state level. The bill would also increase the federal stockpile with supplies necessary for another health emergency.
- The Time to Rescue United States Trusts (TRUST) Act (S.4323): Introduced by Sen. Mitt Romney (R-UT), this bill would require the Treasury Department (“Treasury”) to submit a report to Congress in January 2021 outlining which federal trust funds are “endangered.” It would also establish bipartisan congressional “Rescue Committees” dedicated to draft legislation offering solutions to the funds’ insolvency problems.
- The Restoring Critical Supply Chains and Intellectual Property Act (S.4324): Introduced by Sen. Lindsey Graham (R-SC), this bill would promote the transition of the production of personal protective equipment (PPE) from overseas back to the U.S. It would seek to accomplish this through a $7.5 billion medical manufacturing project tax credit and other incentives. Separately, the bill would direct the U.S. Department of Health and Human Services (HHS) to submit to Congress a plan to expeditiously increase domestic sourcing and bolster procurements for the national stockpile.
Five Key Takeaways
Following the release of the bills, businesses, industry stakeholders and policymakers have been reacting to the provisions. Below are the Brownstein Tax Policy Team’s key takeaways:
- Mid-sized businesses are still waiting for help. Neither the Democratic HEROES Act nor the Senate Republican bill provides the liquidity that most ordinary American businesses need. The Treasury and the Federal Reserve (“Fed”) programs enacted under the CARES Act helped some large businesses and the PPP loans are a lifeline for small businesses. However, many midsized businesses with between 500 and 5,000 employees are too large for the PPP program and are unable to meet eligibility criteria to access loan facilities set up by the Treasury and the Fed. These businesses also face severe liquidity challenges and are beginning to lay off more workers. Congress should add two provisions to the bill under negotiation: (i) allow midsized businesses to obtain an interest-free loan from the Treasury by allowing them to claim their unused tax credits that are stranded until the businesses return to profitability; and (ii) modify the new Small Business Administration (SBA) Section 7(a) loans to make them applicable to larger companies, akin to the RESTART Act, introduced by Sens. Todd Young (R-IN) and Michael Bennet (D-CO).
- Businesses get federal liability protection for a while. The liability restriction provisions will pass in some form, despite Democratic opposition. Historically, the legal landscape always changes, temporarily, after a disaster. Airlines were given limited immunity after 9/11. Amtrak’s liability was limited after a fatal derailment. The Republicans were wise to include governments, schools, hospitals and universities in the category of enterprises that are protected. Democrats will propose changes and additions to the bill, but ultimately, its inclusion will not derail the overall effort.
- The employee retention tax credit is working. It is difficult to find a provision of the CARES Act that commands such broad support as the ERTC. Why? Because it is efficient. There are no applications, no complicated affiliation rules, and businesses claim the credit by withholding payments of employment taxes to the Internal Revenue Service (IRS). Now, there is bipartisan and bicameral support to expand and extend the provision. Limited resources might make it look more like the Senate version, though at 65% of up to $30,000 in wages, businesses would receive a $19,500 credit. Not included in the Senate version is the House’s effective date (retroactive to the CARES Act). This would help many more companies to keep and hire workers. After Congress finishes this COVID-19 marathon, it should consider making the program permanent and ready to turn on after the next pandemic or natural disaster.
- States are stumbling trying to give out unemployment benefits. The GOP’s goal is clear: workers should not receive more in unemployment compensation than they did in wages. As a result of the CARES Act, the unemployed are currently receiving an extra $600 in addition to traditional unemployment benefits. The Senate has included a continuation of FPUC supplement, reducing it from $600 to $200 through Oct. 5. After this, states would have to switch over to a new system in which workers would be paid 70% of their prior earnings. States that are still unable to calculate the benefit may continue to provide a flat $200 payment through November 2020. The inclusion of a “safe harbor” for states shows how little confidence lawmakers have in states’ implementation of unemployment benefits. The Senate Republican proposal will not pass in its proposed form and it will likely be further simplified. A cheaper and more targeted benefit will have to wait until states figure out how to adapt to big changes.
- New cleaning credit reflects a consensus of the policymakers: the economy won’t fully return until the virus is contained or eradicated. Advocates proposed all kinds of tax credits to help the beleaguered travel, convention and hospitality industries. Senate Republicans figured out how average Americans think. For now, they are basing economic decisions on health and safety, not price. Making travel cheaper will not persuade throngs of Americans to get on planes and travel for holidays. A tax credit for business travel will not push employers to encourage employee business travel. Two things will—eradicating the coronavirus or containing the adverse health impacts of its continued existence. This tax credit aims at both, and that’s why some form of it will end up in a bill signed into law.
State of Play and Negotiations
The HEALS Act is the starting point for negotiations between Democrats and Republicans. Democratic leadership has already come out against the bill, flagging reductions in unemployment assistance, the absence of a fund for premium pay for essential workers, funding for K-12 that is contingent on physical reopening, and most importantly, the lack of funding for states and localities. While the House Democratic HEROES Act provided $875 billion in state and local aid, the HEALS Act gives states greater flexibilities on how they can use $150 billion that was authorized but unused by the CARES Act—some of this money would go to towns and cities that thus far have received nothing. Flexibility also allows the money to be used to pay down budget deficits, something that the CARES Act prohibits.
Given the Senate GOP opening bid and the subsequent reaction from Democrats, some experts believe that the two parties are far from reaching a deal. How much of this is political jockeying? On the state and local aid issue, the inclusion of the flexibility language indicates that states and local governments will get more in the negotiations. It is a sign that those in the GOP who want to do nothing are in a small minority. If McConnell had wanted to end up with flexibility only, he would have started with nothing in his bill. Starting at flexibility means that McConnell understands that he will be providing some level of new funding in the negotiated HEALS-HEROES bill.
Similarly, on unemployment insurance (UI), the amount of assistance through the end of the year will likely be increased in negotiations—the fact that the Senate GOP included 70% of wages indicates they are open to providing assistance to those who have lost jobs or been furloughed, as long compensation does not exceed what an individual earned in wages pre-COVID-19. In addition to increasing UI payments, Democrats may seek an increase in refundable tax credits for low-income individuals to help individuals who will be hardest hit by the loss of the $600 FPUC payments.
Additionally, the Republican bill shares several Democratic priorities in other areas—stimulus checks for individuals; an increase in the ERTC; funding for schools and child care; and additional funds for testing.
Negotiations will continue over the next two weeks—though it is unclear as to whether a bill will pass before Congress is scheduled to leave D.C. for the summer work period on Aug. 7.
Stay tuned for updates on discussions.
Section-by-Section Summary and Impact
The Brownstein Tax Policy Team has summarized the following tax, education, labor and small business provisions in the bill. Each section contains an overview. Please click through for a more detailed section-by-section summary and analysis of the impact of each provision.
American Workers, Families, and Employers Assistance Act
- TITLE I—FURTHER RELIEF FOR WORKERS AFFECTED BY CORONAVIRUS
- TITLE II—ASSISTANCE TO INDIVIDUALS, FAMILIES AND EMPLOYERS TO REOPEN THE ECONOMY
- Subtitle A—Relief for Individuals and Families
- Subtitle B—Job Creation and Employment
- Subtitle C—CARES Act Clarifications and Corrections
- TITLE IV—ADDITIONAL FLEXIBILITY AND ACCOUNTABILITY FOR CORONAVIRUS RELIEF FUND PAYMENTS AND STATE TAX CERTAINTY FOR EMPLOYEES AND EMPLOYERS
- TITLE V—EMERGENCY DESIGNATION
Supporting America’s Restaurant Worker’s Act
Continuing Small Business Recovery and Paycheck Protection Program Act
- TITLE I—PAYCHECK PROTECTION PROGRAM IMPROVEMENTS
- TITLE II—SMALL BUSINESS PROGRAMS GENERALLY
- TITLE III—APPROPRIATIONS
Safely Back to School and Back to Work Act
- TITLE II—EDUCATION PROVISIONS
Click here for our full analysis.