Republicans and Democrats in the Senate have released separate sets of tax proposals aimed at alleviating the effects of the coronavirus pandemic, in contrast to the two bipartisan bills that have been signed into law already.
Senate Majority Leader Mitch McConnell, R-Kentucky, released his proposal Thursday afternoon, centered around giving “recovery checks” of up to $1,200 to individuals and families, plus $500 for each child in the family. The checks would be reduced for higher-income taxpayers and begin phasing out after a single taxpayer has $75,000 in adjusted gross income ($150,000 for joint filers), according to a summary of the GOP tax policy recommendations released by Senate Finance Committee chairman Chuck Grassley, R-Iowa. The IRS would base these amounts on the taxpayer’s 2018 tax return.
The rebate amount would be reduced by $5 for each $100 a taxpayer’s income exceeds the phase-out threshold. The amount would be completely phased out for single taxpayers with income exceeding $99,000 ($198,000 for joint filers).
Taxpayers with little or no income tax liability, but at least $2,500 of qualifying income, would be eligible for a minimum rebate check of $600 ($1,200 if married). Qualifying income would include earned income, as well as Social Security retirement benefits and certain compensation and pension benefits paid to veterans.
“Preventing the spread of the coronavirus will take a financial toll on individuals, families and businesses,” Grassley said in a statement. “These recommendations would blunt the impact for most Americans and limit the damage to the U.S. economy. ... These recommendations won’t be the end of the congressional response to the coronavirus.”
Grassley was joined in the tax policy recommendations by Senate Majority Whip John Thune, R-S.D., and Sen.Tim Scott, R-S.C., Rob Portman, R-Ohio, Tom Cotton, R-Arkansas, and Mitt Romney, R-Utah.
The bill's other provisions include:
- Waiving the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes. In addition, income attributable to those distributions would be subject to tax over three years, and the taxpayer would be able to recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
- Allowing a partial above-the-line deduction for charitable contributions, permitting taxpayers to deduct up to $300 of cash contributions, whether they itemize their deductions or not.
- Increasing the limitations on deductions for charitable contributions by individuals who itemize, in addition to corporations.
- Allowing corporations to postpone the estimated tax payments due after the date of enactment until October 15, 2020. There would be no cap on the amount of tax payments postponed.
- Delaying the payment of employer payroll taxes. It would allow employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. The provision would require the deferred employment tax be paid over the following two years.
- Relaxing the limitations on a company’s use of losses from prior years. The provision would provide that a loss from 2018, 2019 or 2020 could be carried back five years. The provision would also temporarily remove the taxable income limitation to allow an NOL to fully offset income.
- Modifying the limitation on losses for taxpayers other than corporations. It would modify the loss limitation applicable to pass-through businesses and sole proprietors, so they can benefit from the NOL carryback rules described above and access critical cash flow to maintain operations and payroll for their employees.
- Modifying the credit for prior-year minimum tax liability of corporations. The corporate AMT was repealed as part of the Tax Cuts and Jobs Act of 2017, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability for companies to recover those AMT credits, enabling companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
- Temporarily increasing the amount of interest expense businesses could deduct on their tax returns, by increasing the 30 percent limitation to 50 percent of the taxable income for 2019 and 2020.
- Enabling businesses, particularly in the hospitality industry, to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.
Democrats’ plan
Sen. Ron Wyden, D-Oregon, released the Democrats’ economic policy priorities Thursday soon after McConnell and Grassley released theirs. Republicans and Democrats are expected to negotiate the details and come up with a compromise, with input from the House and the Trump administration.
“I have two simple priorities to save our economy from another depression: Get money to American workers who have lost their jobs overnight and get money to small businesses that are struggling to survive,” Wyden said in a statement Thursday. “The American people saw in 2009 how executives and powerful interests seize any opportunity to swallow up taxpayer-funded assistance, so I'm going to work to make sure that any potential taxpayer help is focused on workers and comes with strict guardrails, including a prohibition on stock buybacks and executive compensation.”
On the tax side, Wyden’s proposals would include sending emergency rebate checks to small businesses to address immediate cash flow needs and replace the demand many are losing due to quarantines. The checks would be equal to a percentage of gross receipts from a previous tax year.
Wyden also proposed a small-business retention tax credit to help small businesses keep workers on payroll by subsidizing a portion of wages beyond the subsidies offered in the Families First Act that Congress passed this week. His proposal would defer 2020 estimated tax payments for small-business owners. He would also reduce the safe harbor, which currently requires businesses to pay 100 percent of their previous year’s quarterly taxes, to help account for their 2020 revenue losses.
Other proposals include:
- Allowing workers to tap into their 401(k) savings early and recontribute those amounts in later years without being subject to a penalty.
- Allowing larger loans to be made from retirement plans, and extend repayment deadlines for plan loans.
- Waiving the 10 percent additional tax on early distributions from IRAs and retirement plans for distributions taken in 2020.
- Waiving the need for required minimum distributions from IRAs and 401(k) plans for 2020 and allow the re-contribution of required minimum distributions taken in 2019.
