Alert 07.29.20
Alert
Alert
07.31.20
SUMMARY
Senate Republicans and House Democrats have both put forth proposals aimed to counteract the economic effects of COVID-19 on the American economy. There are areas of agreement between the proposals, but significant disagreements remain.
Negotiations have been launched, and it is clear that neither proposed legislation will become the final law, as currently drafted. However, elements of each are likely to be implemented. Below, we provide a summary of the main proposals and the current state of negotiations.
I. House Democrats’ HEROES Act
On May 15, 2020, the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). The 1,815-page legislation would provide a $3 trillion follow-up to the $2.2 trillion CARES Act aid passed into law in March. The following is intended to provide an overview of the HEROES Act’s key provisions.
A. Coronavirus Recovery Supplemental Appropriations Act, 2020
The HEROES Act covers agriculture, rural development, Food and Drug Administration, financial services and general government, Homeland Security, multiple agencies including the Environmental Protection Agency, transportation and health and human services, including education.
1. Supplemental Nutrition Assistance Program (SNAP) Contingency Reserve
The bill would provide $10 billion in contingency funding to cover increased costs associated with SNAP flexibilities provided under the Families First Coronavirus Response Act (FFCRA), to remain available until September 30, 2021.
2. Child Nutrition Programs
The bill would provide $3 billion in additional funding for the National School Lunch and Breakfast Programs, Summer Food Service Program and Child and Adult Care Food Program to respond to increased demand, and it would cover costs associated with administrative flexibilities provided under FFCRA, to remain available until September 30, 2021.
3. Coronavirus State Fiscal Relief Fund
The bill would provide $500 billion in funding to assist state governments with the fiscal impacts from the public health emergency caused by the coronavirus.
4. Local Fiscal Relief
The bill would provide $375 billion to counties and other local governments through a new Coronavirus Local Fiscal Relief Fund that would flow directly from the U.S. Department of the Treasury to help first responders, frontline health workers, transit employees, teachers and other workers providing critical services. Funds could be used for COVID-related expenses, to replace foregone revenues not projected on January 31, 2020 or to respond to negative economic impacts of COVID-19. $250 billion would be awarded within 30 days of enactment, based on population size and other formulas. The additional $125 billion would be awarded to local governments one year after the date of enactment.
5. Tribal Fiscal Relief
The bill would provide $20 billion in funding to assist tribal governments with the fiscal impacts from the public health emergency caused by the coronavirus
6. Education Stabilization Fund
The bill would provide $90 billion for the Education Stabilization Fund established under the CARES Act to support state and local funding for elementary and secondary schools and public postsecondary institutions. States would receive 61 percent of the funds according to their relative population of individuals aged 5 to 24, and 39 percent of the funds according to the relative number of children as defined by the Elementary and Secondary Education Act of 1965 (ESEA).
B. Revenue Provisions
The bill revises and expands certain CARES Act provisions.
1. Revises CARES Act Economic Impact Payments.
The bill would make retroactive changes to the Economic Impact Payments provided under the CARES Act by:
2. Provides additional direct payments to individuals.
The bill would provide an additional Economic Impact Payment of $1,200 to individuals with incomes up to $75,000, or $2,400 for married couples with combined incomes up to $150,000, following the same formula and administration as the payments provided under the CARES Act. The payment per dependent would change, however, increasing by an additional $1,200 per dependent, up to a maximum of three dependents (compared to $500 per child under age 17 provided in CARES).
3. Expands refundable tax credits.
The bill would expand and increase the flexibility of refundable tax credits for low-income individuals, including the:
C. Health Provisions
The bill includes wide ranging health provisions, including the following:
D. Continued Assistance to Unemployed Workers
The bill would extend the $600 per week FPUC supplement to state and federal unemployment benefits through January 31, 2021. The bill would also require federal programs and state and local programs that receive any federal funding to disregard FPUC payments when calculating income for the purposes of determining eligibility for benefits or assistance, and to exclude it from resource limits for nine months following receipt.
2. Extends benefit phaseout rule for Pandemic Unemployment Assistance (PUA).
The bill would extend PUA benefits provided to workers who do not qualify for regular unemployment compensation through January 31, 2021. Individuals would receive all the weeks of benefits so long as they are for weeks ending by March 31, 2021
3. Extends benefit phaseout rule for Pandemic Extended Unemployment Compensation.
The bill would extend Pandemic Extended Unemployment Compensation (PEUC), which provides 13 additional weeks of unemployment benefits to individuals who have exhausted other benefits, through January 31, 2021. Workers would be able to apply for PEUC through January 31, 2021 and to receive the full 13 weeks so long as they are for weeks ending no later than March 31, 2021.
E. Small Business Provisions
The bill would increase the applicable percentage of wages reimbursed for employers retaining employees from 50 percent to 80 percent. It would also modify the gross revenue requirement for businesses to allow a partial credit, phased in for a decline in gross revenue between 10 percent and 50 percent compared to the same calendar quarter of the previous year. It would increase the limit on wages taken in per employee from $10,000 for the year to $15,000 per quarter (capped at $45,000 for the calendar year).
2. Provides 50 percent payroll credit for certain fixed expenses of employers facing closure.
The bill would provide a 50 percent refundable payroll tax credit for certain expenses, including certain rent obligations, mortgage obligations and utility payments. This credit would be limited to employers with no more than 1,500 full-time employees or no more than $41.5 million in revenue for 2019.
3. Provides a 90 percent income tax credit for certain self-employed workers.
The bill would provide a 90 percent refundable individual income tax credit for certain self-employed individuals who have experienced a significant loss of income as a result of the pandemic. The credit may be claimed on “qualified self-employment income,” which is the loss in total income for self-employment that exceeds a 10 percent reduction from 2019 to 2020. The amount of qualified self-employment income considered could not exceed the reduction in gross income from 2019 to 2020 and would be capped at $45,000. The credit would phase out beginning at incomes of $60,000 ($120,000 for married filing jointly).
4. Allows payroll tax deferral for recipients of the Paycheck Protection Program.
The bill would allow businesses receiving Paycheck Protection Program loan forgiveness to defer payment of payroll taxes under Section 2302 of the CARES Act.
5. Expands the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).
The bill would expand the SBA’s PPP to include all nonprofits by providing another $659 billion for the PPP as well as an additional $10 billion for the Economic Injury Disaster Loan program at the SBA.
F. American Coronavirus/COVID-19 Election Safety and Security (ACCESS) Act
The ACCESS Act would make several changes to state and local government election administration requirements, including establishing vote-by-mail and election contingency plans and providing postage-free voting materials. The ACCESS Act would also provide additional funding to the U.S. Election Assistance Commission (EAC) to make payments to eligible states for the costs of complying with the new requirements under the bill.
II. GOP Proposal
On July 27, 2020, Senate Republicans released their proposal for the next coronavirus relief package: the Health, Economic, Assistance, Liability Protection and School (HEALS) Act, presented as a series of eight separate bills from various committees. The following is intended to provide an overview of the Acts’ key provisions
A. American Workers, Families, and Employers Assistance Act
Introduced from the Senate Finance Committee, the HEALS Act covers federal unemployment benefits, stimulus checks, employee retention tax credits, and a new tax credit for employers that purchase personal protective equipment.
Under this Act, individuals would receive stimulus checks up to $1,200 (with an adjusted gross income up to $75,000) and up to $2,400 for those married filing jointly (with an adjusted gross income up to $150,000) with an additional $500 for each dependent, regardless of age. The payments phase out as income goes up and are available for individuals making up to $99,000 and couples making up to $198,000. Income would be determined by a taxpayer’s 2019 tax return if filed or their 2018 tax return as an alternative.
2. Unemployment
The proposal would include a supplemental Federal Unemployment Compensation benefit of $200 per week through September 2020 and in October would provide a payment that replaces 70 percent of a recipient’s lost wages when combined with state UI compensation up to $500 per week. Additionally, under the proposal, states would be required to notify individuals of the state’s return to work requirements. The proposal would also provide $2 billion to help states upgrade their employment insurance systems.
3. Employee Hiring and Retention Tax Credits and Work Opportunity Credits
The bill would increase the employee retention tax credit in the form of a refundable payroll tax credit from 50 percent of $10,000 in wages paid by employers to employees during the COVID-19 crisis to 65 percent of $30,000 in wages paid. Some employers would be eligible for both the employee retention tax credit and the paycheck protection program.
The bill would also create a new class of Work Opportunity Tax Credit-eligible employees, which would allow employers to qualify for the credit by hiring an employee who had qualified for unemployment assistance prior to hiring. Such employees must begin work after the date of the bill’s enactment and before January 1, 2021.
4. Safe and Healthy Workplace Tax Credits
Under this proposed provision, employers would have the opportunity to receive a payroll credit equal to 50% of the cost of different types of expenses incurred for the purpose of preventing the spread of and exposure to COVID-19. Eligible expenses would include personal protective equipment, modifications to workspaces, and technology improvements. The credit is capped at $1,000 per employee for the first 500 employees, $750 for the next 500 employees, and $500 per employee for all other employees.
B. Continuing Small Business Recovery and Paycheck Protection Program Act
The bill would make several changes to the PPP, including changes to documentation requirements and certain eligibility criteria. Perhaps most importantly, the bill would allow small businesses that already have received PPP loans to receive Second Draw loans if their revenue fell by more than 50 percent in the first two quarters of 2020.
Notably, however, such Second Draw applicants would be subject to an employee-based size threshold of 300 employees – reduced from the CARES Act general standard of 500 employees. Eligible borrowers would be entitled to receive a loan amount up to 2.5 times their average total monthly payments in the year prior to the loan, capped at $2 million. The Second Draw loan provisions of the bill feature eligibility carve-outs for businesses in the hospitality and restaurant industries, similar to those included in the CARES Act. The bill also expands the list of forgivable expenses, incurred before January 1, 2021, to include property damage and worker protection costs. First-time PPP borrowers also will be eligible to receive loans of up to $2 million.
C. Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economic Act (SAFE TO WORK) Act
The SAFE TO WORK Act creates liability protections for businesses, educational institutions, healthcare providers, and employers, an issue Republicans have raised as essential to any new stimulus package. The bill’s stated purpose is to establish temporary rules governing liability for coronavirus-related tort claims to combat potential harm posed by the rapid increase in litigation across the country arising from coronavirus exposure.
1. Businesses, Services, Activities, or Accommodations
The law would create an exclusive cause of action for coronavirus exposure actions, preempting state laws related to personal injuries caused by exposure to the virus. Pursuant to the proposed law, a plaintiff bringing a claim for damages arising from coronavirus exposure would need to prove by clear and convincing evidence that: (1) the defendant did not make reasonable efforts to comply with applicable government standards and guidance; (2) the defendant engaged in gross negligence or willful misconduct; and (3) actual exposure to coronavirus caused the personal injury to the plaintiff. Notably, the “clear and convincing” standard established in the proposed law creates a higher burden of proof that the preponderance of evidence standard traditionally employed in civil cases. The bill provides definitions of “gross negligence” and “willful misconduct” and explains that in complying with government standards and guidance, a defendant would have the right to liability protection by showing that it complied with at least one source of government guidance.
The proposed law would put a one-year statute of limitations on any action commenced in federal, state or tribal government courts arising from exposure to coronavirus.
2. Healthcare Providers
The proposed law would also create an exclusive cause of action for coronavirus-related medical liability actions and provide liability protection to health care providers, except in cases where a plaintiff can show by clear and convincing evidence that a health care provider engaged in gross negligence or willful misconduct, which directly caused the injury. The bill establishes that omissions or decisions resulting from resource or staffing shortages would not be considered willful misconduct or gross negligence.
3. Employer Protection
The law would include liability protection for employers who comply with government health guidance for claims related to coronavirus exposure.
The bill also provides liability protections for employers from personal injuries resulting from coronavirus testing, except where injuries are caused by gross negligence or intentional misconduct.
D. Supporting America’s Restaurant Workers Act
This bill would increase the tax deduction for business meals from 50 percent to 100 percent until January 1, 2021.
E. Restoring Critical Supply Chains and Intellectual Property Act
This piece of legislation would provide tax credits and incentives to encourage production of PPE, including clothing, sanitizing supplies, ancillary medical supplies, and other textile equipment in the United States. The bill would establish a $7.5 million medical manufacturing project tax credit to buildout and retrofit factories to meet the increased demand for PPE.
F. School Choice Now Act and Safely Back to School and Back to Work Act
The School Choice Now Act would provide one-time, emergency appropriations funding for scholarship-granting organizations in each state, authorizing such organizations to use one-time funding to provide families with direct educational assistance, including private school tuition and home-schooling expenses. It would also provide dollar-for-dollar federal tax credits for contributions to scholarship-granting organizations, capped at $5 billion per year, and shift oversight of education providers to states.
The Safely Back to School and Back to Work Act would provide relief to student loan borrowers by allowing for $0 monthly payments for borrowers who have no income and capping monthly payments at 10 percent of a borrower’s income after deducting other costs, including the cost of housing and food. However, it would not extend the student loan payment deferral included in the CARES Act, which is set to expire at the end of September. It would also provide scholarships for K-12 students to attend private schools and strengthen the federal stockpile of medical products while increasing the development and distribution of diagnostic testing for emerging infectious diseases.
G. Time to Rescue United States’ Trusts (TRUST) Act
The TRUST Act would require the Treasury Department to deliver a report to Congress on the state of endangered federal trust funds by the January 2021 and create “Rescue Committees” for each trust fund to enact legislation with the goal of bringing the funds back to solvency.
H. Coronavirus Response Additional Supplemental Appropriations Act
This Act would put forth $306 billion toward agriculture, the FDA, Department of Defense, and Department of Commerce.
III. The Status of Negotiations
It is no surprise that Democrats and Republicans oppose key provisions of each other’s proposal. What is surprising is the fractured response within the GOP.
A. Democratic Opposition to the Senate Republicans’ HEALS Act. Among other things, Democrats are unhappy with the size and structure of federal unemployment benefits, which are cut by 66% from current levels under the HEALS Act. Republicans fear that the current $600 weekly benefit incentivizes people to remain out of work. Democrats claim it is a lifeline for families struggling to survive in the pandemic. Democrats are opposed to proposed immunity from COVID-related litigation for corporations, claiming immunity will make it impossible to hold corporations accountable for unsafe practices. Democrats also want a reinstated moratorium on evictions (this protection lapsed July 25) and additional funding for states, both missing from the HEALS Act.
B. Republican Dissent to the HEALS Act. The primary concern for dissenting Republicans is the price tag. Also frustrating to some Republicans are several items unrelated to the pandemic that are baked into the Act, including a contentious $1.75 billion for a new FBI headquarters.
C. Republican Opposition to the HEROES Act. Republicans accuse Democrats of passing a grab-bag of liberal policies, and not a bill aimed to address the pandemic. Republicans are also turned off by the HEROES Act’s cost: an estimated $3 trillion dollars.
Despite some common provisions between the parties that seem likely to pass—notably, a new round of stimulus checks and an extension of PPP funding—the differences in the HEALS and HEROES Acts suggest additional negotiations across party lines will be necessary before any new relief makes its way to Americans.
Pillsbury is closely monitoring and analyzing the global legal, economic, policy and industry impacts of COVID-19. For our latest insights, visit our COVID-19 and Economic Impact Resource Center.