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The two main issues in Washington remain the prospects for additional coronavirus relief/stimulus legislation and the presidential and congressional elections. The Senate is back in session today — the House doesn't come back until next week — and may vote this week on a narrowly targeted roughly $500 billion package that is intended to demonstrate a unified position of Republicans and backing of a majority 51 senators, though broad support is threatened by a rift over a school choice tax credit proposal. There is still a lot of uncertainty over a bipartisan deal. The President continues to hold news conferences and rallies and tweet, while Democratic nominee Joe Biden said September 4 that he will spend the next three weeks "laying out the sharp contrast with President Trump" on the pandemic and the economic and other concerns of working families.

The narrative over partisan gridlock hasn't changed much over the past month. Democrats insist on a coronavirus relief/stimulus package of at least $2.2 trillion and Treasury Secretary Steven Mnuchin, in a hearing last week, rejected that figure and suggested $1.5 trillion as the maximum Republicans support. On Fox News Sunday, Secretary Mnuchin said, "The speaker has refused to sit down and negotiate unless we agree to something like a two and a half trillion-dollar deal in advance." President Trump dismissed suggestions that his participation in the talks could make a difference, saying during his news conference yesterday, "I don't have to meet them in order to be turned down" and "they don't want to make a deal because they think that if the country does as badly as possible, even though a lot of people are being hurt, that's good for the Democrats."

Regarding the potential for a narrow Senate GOP bill, CNN reported September 4 that Senator Ted Cruz (R-TX) is insisting on a $5 billion school choice tax credit and that he and other conservatives could oppose the package without it, while other Republicans have made clear that they would like their own preferred tax and other provisions included if the proposal is added. Demonstrating that there is a package that can get 51 Senate votes is intended to beef up the chamber's negotiating position and insulate Republicans up for reelection from charges of inaction in the face of economic hardship.

The Wall Street Journal said the Senate may vote even without 51 Republican votes secured to demonstrate that senators in competitive races favor more aid. "I can see starting with a bill that perhaps doesn't cover every need but covers the most urgent needs that we have," said Sen. Susan Collins (R-ME).

A New York Times story that focused on the need for more state and local funding said "states and cities have made an array of fiscal maneuvers to stay solvent and are planning more in case Congress can't agree on a fiscal relief package after the August recess," that "some of the biggest cuts will be to education and health care," and Maryland is among states reducing pension contributions.

Coronavirus relief/stimulus legislation is being kept separate from the expiration of government funding September 30, as Secretary Mnuchin and House Speaker Nancy Pelosi (D-CA) have agreed to not attach coronavirus relief items to a continuing resolution (CR). On Fox, Secretary Mnuchin said, "The Speaker and I have agreed, we don't want to see a government shutdown. So, we've agreed that we are going to do a clean CR. We'll do this separately from the CARES Act negotiations." He said he hopes to have details of a CR nailed down by the end of the week and would expect it to go through early December. (Reports have cited some Democrats as wanting the CR to last into early 2021.)

Election — In his September 4 remarks in Wilmington, DE, Biden mentioned some of the relief priorities sought by congressional Democrats: rental, food, unemployment assistance, student loan relief, small business support, and aid to schools and state governments. He implored President Trump to "Call the leaders of Congress together. Get them into the Oval Office. Make a deal that delivers for working people."

The President continues to warn of higher taxes and a faltering market if Biden is elected and tweeted yesterday: "Biggest & Fastest Financial Recovery In History. Next year will be BEST EVER, unless a very Sleepy person becomes President and massively raises your taxes - In which case, CRASH!"

On Fox, Secretary Mnuchin said that a second Trump term could include a focus on managing the nation's debt, in response to a question citing the Congressional Budget Office (CBO) projection that federal debt held by the public could near 100% of GDP in 2020. "[T]here's no question in a second term, once the economy is back, we will focus on this issue," he said, adding that before COVID, "I thought the debt was very manageable."

Both Vice President Pence and Democratic vice presidential nominee Senator Kamala Harris (D-CA) yesterday campaigned in Wisconsin, a crucial state in the presidential election.

A Times op-ed by a pair of authors from the Brookings Institution questioned why Biden, Pelosi and other Democrats back an undoing of the Tax Cuts & Jobs Act (TCJA) $10,000 state and local tax deduction cap, saying it is the one seriously progressive element of the TCJA and that the deduction should be removed altogether. The authors said "the SALT deduction appears to be popular among richer voters in blue cities and states," and that by raising the issue in coronavirus talks, "Senator Schumer and others are dressing up the cut in anti-Covid clothes, suggesting that it would help people in decimated cities like New York."

The House Ways and Means Committee will hold a hearing on Friday, September 11 at 12 p.m., "Consequences of Inaction on COVID Tax Legislation."

Also on Friday, September 11 at 12:00 p.m. is the EY Webcast, "Tax in the time of COVID-19." The coronavirus (COVID-19) and the resulting economic crisis have made reacting to tax and trade developments more complicated and more difficult. To determine what information your company needs to know now, join our panelists for a series of conversations about operating the tax function in this time of National Emergency created by the COVID-19 virus. Register.

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