House Democrats Unveil $3 Trillion Aid Bill With Cash for States

House Democrats proposed a $3 trillion virus relief bill Tuesday, combining aid to state and local governments with direct cash payments, expanded unemployment insurance and food stamp spending as well as a list of progressive priorities like funds for voting by mail and the troubled U.S. Postal Service.

The bill comes after Congress has already spent $3 trillion on four bills in response to the economic downturn caused by the coronavirus pandemic.

“I can’t remember a point in our history where we shut down the economy of our country,” House Majority Leader Steny Hoyer said Tuesday. “As a result we need to respond in unprecedented ways with unprecedented resources.”

While there is little chance of the aid package gaining Senate approval and President Donald Trump’s signature as written, passage in the Democratic-led House gives House Speaker Nancy Pelosi a marker to set down at the same time both parties are positioning themselves for congressional elections less than six months away.

The legislation, which is slated for a House vote on Friday, is the opening bid in negotiations with the Trump administration and Senate Republicans.

It may take until June before any new deal is struck. No formal negotiations have taken place since the last relief bill was passed, though Trump chief economic adviser Larry Kudlow has said he’s talking with lawmakers of both parties on priorities.

Trump said last week he’s in “no rush” to get another aid package, but last week’s jobs report that showed employers cut 20.5 million jobs in April, and statements from the president’s economic advisers that the unemployment rate will hit 20% or more, are certain to add urgency to talks. Senate Majority Leader Mitch McConnell on Tuesday dismissed the bill as a “big laundry list of pet priorities” and indicated the GOP would ignore the Democratic proposal for now.

Among it’s key provisions, the bill would provide almost $1 trillion in aid for state and local governments as well as $1,200 cash payments to individuals and $1,200 for dependent children — up to $6,000 per household. It also would extend a $600 weekly increase to unemployment insurance into next January.

The bill also provides $200 billion to fund what it describes as “hazard pay” for essential workers who’ve had to risk exposure to the virus as they stay on the job while much of the rest of the country has been shut down.

Another $75 billion would be allocated for virus testing and contract tracing.

Tax Changes

There are numerous tax provisions in the legislation.

The bill would greatly expand a tax credit included in the last virus relief bill that gives employers tax breaks for keeping workers on the payroll. The new version would give employers a credit worth up to $12,000 per employee per quarter, an increase of $5,000 per worker for the remainder of the year. The credit would be a more targeted way to help workers than Trump’s idea to cut payroll taxes, according to proponents.

The legislation also makes a technical tweak to the treatment of forgiven Paycheck Protection Program loans that could deliver billions of dollars in tax savings to small businesses. The legislation would allow companies to deduct the payroll, rent and other costs which the PPP loans covered. The IRS had ruled that those expenses are not deductible if the loan is forgiven.

SALT Cap

The plan also includes some political priorities for Democrats from before the pandemic. It would suspend the cap on state and local tax, or SALT, deductions for two years. Trump’s 2017 tax law imposed a $10,000 cap on those tax breaks, which Democrats, particularly those from high-tax New York and New Jersey, have been seeking to repeal since the law passed. Republicans have resisted raising the cap, saying that would only help the wealthy.

The legislation would partially repeal a tax break included in the last rescue plan that would allow businesses to use losses to offset profits to generate a refund from the Internal Revenue Service. That provision has since garnered scrutiny from some Democrats who say it’s a giveaway to corporations and the wealthy, though the measure wasn’t controversial when it passed in March.

The bill would make payments for up to $10,000 in student loans per individual through September 2021. The Census would receive a $410 million infusion to overcome delays caused by COVID-19.

In one example of Democrats using the wide-ranging package to reach beyond the immediate response to the pandemic, it includes a safe harbor provision for banks that provide services to cannabis companies, something long sought by the industry. Banks would be shielded from prosecution under federal drug laws for serving the now cash-based sector in states where the cannabis trade is legal.

The core of the bill is the state and local government aid. House Speaker Nancy Pelosi argues that state and local governments must be aided in order to avoid layoffs of firefighters, paramedics and police.

But some Republicans have outright opposed aid to states, while other GOP lawmakers have said they would back some assistance with limits to ensure that mismanaged pension funds for state workers are not bailed out, a position that mostly targets Democratic-leaning states like New York and Illinois.

McConnell said Tuesday that as more states reopen, the Senate will instead act on separate legislation intended to limit legal liability for businesses.

“Our legislation is going to create a legal safe harbor for businesses, nonprofits, governments, workers, and schools who are following public health guidelines to the best of their ability,” McConnell said on the Senate floor.

The separate Senate bill could set the framework for a compromise between the parties, with Democrats saying the state and local aid as well as direct payments are their must-have items.

Pelosi in a Monday television appearance said that while the House will not be cavalier about granting legal protections, she is willing to have a conversation about it as part of a negotiation on the next stimulus deal.

– With assistance from Billy House.

— Related on ThinkAdvisor:

• Ed Slott: Clients Confused About RMD Relief
• IRS: 6 Reasons a Stimulus Check Could Be Less Than Expected
• IRS Says No Double Tax Benefits From PPP Loans

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.