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September 11, 2020

Ways & Means subpanel holds hearing on COVID tax policy inaction

The House Ways & Means Select Revenue Measures Subcommittee held a hearing September 11, "Consequences of Inaction on COVID Tax Legislation," during which Democrats and Republicans blamed one another for the impasse over a next round of coronavirus relief, which is mostly attributable to broader issues like the overall size of the package, unemployment benefits, and state and local funding.

Republicans and Democrats share an interest in tax provisions like an expanded Employee Retention Tax Credit (ERTC) and a payroll tax credit toward the costs for businesses of reopening safely. The House-passed Democratic HEROES Act includes proposals on issues like full refundability of and increased amounts for the Child Tax Credit and Earned Income Tax Credit, though Democratic leaders acknowledge such changes are unlikely to be supported by Republicans in the context of a bipartisan coronavirus relief bill. Those provisions were a main focus of the hearing along with food and rental assistance, which are called for under the House-passed HEROES Act but not Senate Republican proposals and are part of the broader stalemate.

In an opening statement, Chairman Mike Thompson (D-CA) said, "It is painfully clear that millions continue to struggle, and the hole they are in is getting deeper. According to Census data for July, 13 million adults couldn't pay their rent. 29 million adults sometimes or often didn't have enough to eat over the past week. And one in three kids did not get enough to eat because the household couldn't afford it."

Ranking Member Adrian Smith (R-NE) argued that the HEROES Act "failed the first litmus test lawmakers must ask when we write these relief packages. Our first question should be: 'What measures will be most effective in defeating this disease and helping Americans safely return to work and school?' — not simply 'How are we going to spend $3 trillion?' as the Speaker proposed."

Witnesses were:

  • Betsey Stevenson PhD., Professor of Economics and Public Policy, University of Michigan
  • Marc H. Morial, President, National Urban League
  • Tom Colicchio, Chef and Owner, Crafted Hospitality
  • Nakitta Long, Winston-Salem, North Carolina
  • Alex Brill, Resident Fellow, American Enterprise Institute

Stevenson emphasized the effects of the pandemic on children, including the disruption to acquiring both hard knowledge and social and emotional learning, the loss of normal play and socialization and formal education, and stress that can be compounded by a family's economic struggles. She advocated a fully refundable child tax credit to increase resources for children from low-income families and to combat child poverty.

Morial said employees in minority populations are less likely to have sufficient wages, work-from-home flexibility, and paid leave and health insurance benefits, and that we face a future in which the housing crisis could dwarf that which followed the great recession. He advocated the expansions of the Child Tax Credit and Earned Income Tax Credit in the HEROES Act. Long provided a firsthand description of the challenges of the pandemic, including job loss, past due bills, and eviction.

Colicchio, also the head judge on the Bravo show "Top Chef", previously participated in a documentary on hunger in the US, which he said is a widespread problem and, while there is enough food to feed all US citizens, the nation lacks the policies to ensure that is the case. He said school meals that were a lifeline for hungry families ended when schools closed and 20% of all households with children report facing hunger, and he advocated for the food assistance and direct support provisions in the HEROES Act.

Brill advocated expanding the well-functioning ERTC to more businesses, and also the expansion of the Work Opportunity Tax Credit (WOTC) and payroll tax credit to assist with the costs associated with businesses reopening. He said another round of economic recovery payments is not necessary given that such relief is not well targeted toward households directly impacted by the pandemic.

During questioning, Colicchio said many Americans who were solidly in the middle class six months ago are now lining up for food assistance and are undoubtedly psychologically affected by the inability to feed their children.

Rep. Jodey Arrington (R-TX) suggested there is a moral hazard of putting more money toward state and local funding that could be used for "bailing out" states and cities that have engaged in financial mismanagement, without fixing underlying problems. Stevenson said there is no moral hazard in providing state and local governments funding they need to pay frontline community workers to approve business permits, teach children, etc. She said she fears layoffs of state and local government workers and the associated loss of services. Brill didn't dispute that some state and local funding may be necessary but warned that the nearly $1 trillion in the HEROES Act may be too much.

Rep. Lloyd Doggett (D-TX) continued to express concern about the CARES Act excess business losses provision that extended net operating loss (NOL) relief to passthroughs and sole proprietors, which would be rolled back under the HEROES Act. He said the provision benefits a small number of millionaires and "we don't believe its right to give more to people that earn more than $1 million per year."

Regarding the suspension of the state and local tax deduction cap included in the HEROES Act Rep. Tom Suozzi (D-NY) said the SALT deduction is not a subsidy for wealthy Americans, but a subsidy for states that provide services.

Under questioning from Rep. Jimmy Panetta (D-CA), Colicchio said additional direct payments could allow some to get out of the lines at food banks and into supermarkets to spend money and stimulate the economy. He also said restaurants employ millions of workers and are threatened with permanent loss of many of those jobs.

The hearing video and witness testimony are here.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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