Critical Next Steps for Congress
1/22/21
Biden’s highest priorities are to fulfill his promise to complete 100 million vaccinations within the first 100 days of his administration and to pass his emergency coronavirus plan to deliver the necessary economic funding to further the fight against this virus and to provide economic assistance to households, businesses, and state and local governments. For all to succeed, Congress needs to go along and allocate the funds requested. At this point, many of us are holding our collective breaths. With a price tag of $1.9 trillion, there’s sure to be some measure of resistance — even from members of Biden’s own Democratic party. At the same time, the growing popularity for the more generous direct payments to households and individuals at the grass roots level and the persistence of the high unemployment claims put significant pressure on Congress to pass this proposed legislation at or near the currently requested levels.
In the meantime, I’m encouraged by what I’ve seen. Besides the expansion of the direct payments to most American’s that would bump the recently enacted allowance of $600 per person up to $2,000 and the hike in supplemental unemployment insurance from $300 per week to $400 per week, the proposal increases the Child Tax Credit. Despite its name, this provision would actually function like a targeted guaranteed income program for children under the age of 17.
Generally, tax credits are structured as offsets to tax liabilities, and therefore they are limited by the amount of that liability. In this case, the full amount of the credit would be considered “refundable,” meaning that a taxpayer who didn’t earn enough to generate any tax liability would still end up getting an allowance for each child. As currently enacted, the amount of the credit is $2,000 per child under the age of 17, with the refund limited to $1,400. Under the Biden proposal, this amount would go up to $3,000 per child ages 6 through 17 and $3,600 for younger kids, with the full amount of the credit being refundable. Calling it a “tax credit” is really a misidentification. It’s a straight-out grant that has nothing to do with tax liabilities.
Turning to the assistance to businesses, the Biden proposal offers an important and promising innovation. In prior stimulus legislation, the Paycheck Protection Program (PPP) did the heavy lifting as far as aid to businesses was concerned. PPP offered loans to a limited population of qualifying businesses with the provision that the loans would be forgiven if the proceeds were used for payrolls, rents, or utilities. Under these provisions, the vast majority of these loans are expected to become grants.
I’ve been a critic of PPP (a) because it has worked like a lottery in that many qualifying businesses haven’t been able to access the funds and (b) because I feared that the benefits disproportionately helped business owners under the guise of helping employees. The new plan proposed by Biden offers a much better approach. It requires mandatory paid leave to be provided by companies with fewer than 500 employees, but the plan takes the burden off these businesses by providing tax credits equal to the salaries of the affected employees. This approach is far better than simply giving cash to business owners and trusting them to do the right thing. In keeping with that same philosophy, emergency paid leave would also be expanded to protect approximately 2 million federal workers; and state and local governments would also be reimbursed for these same benefits.
According to the plan description, mandatory paid leave under this legislation would apply to an additional 106 million people over those who already enjoy this treatment from their employers. The provision would allow those who might potentially be spreading this disease to remain quarantined without suffering a financial penalty. This element of the program represents an important improvement from earlier aid packages. Let’s hope it doesn’t get lost in the negotiations. And once this innovation is put in place, let’s make it permanent. The need will still exist long after the pandemic subsides, albeit with a much smaller affected population. To the extent that having mandatory sick leave is a worthwhile objective, its cost should be borne by society at large, as opposed to the individual companies that happen to have employees in need of this kind of assistance.
Biden has offered a comprehensive blueprint for our next steps in confronting both the coronavirus and its economic consequences. Like it or not, the reception it gets by Congress will be telling. The Congressional response to this proposed legislation will undoubtedly set the tone for future negotiations between the Democrats and Republicans in the next four years and beyond. As our former president was so fond of saying, we’ll have to see what happens.
