Hear Ye, Here Ye! On Saturday, President Trump took executive action to defer payroll taxes, set up an assistance program for lost wages to supplement unemployment benefits, extend the federal moratorium on evictions and defer student loan payments. The Brownstein Tax Policy Team has already done the hard work for you and analyzed the payroll tax deferral and unemployment benefits Executive Orders (EOs). Click here for Brownstein’s:
Democrats wasted no time in rebuffing President Trump’s executive actions. In a joint statement released over the weekend, Speaker Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schumer (D-NY) criticized the EOs, saying the “meager announcements” from the president “provide little real help to families.” Pelosi later argued on Sunday that the EOs, even if they accomplished what they set out to, could not replace the benefits provided by a legislative agreement. Schumer has also promised to litigate the legality of the EOs.
While the president did receive applause from some congressional Republicans, including House Ways and Means Committee Ranking Member Kevin Brady (R-TX) and Senate Finance Committee Chair Chuck Grassley (R-IA), the GOP was not unanimous in its support. On Saturday, Sen. Ben Sasse (R-NE) objected to the EOs, issuing a press release that argued “President Trump does not have the power to unilaterally rewrite the payroll tax law.”
Now, the question is: how will these EOs affect the COVID-19 negotiations? The Trump administration has credited the EOs with giving the stock market a boost. Despite the controversy regarding the EOs, the president has contrasted his actions against congressional gridlock on the next COVID-19 stimulus package. However, the president’s latest actions seem to have had little, if any, impact on the tensions between the two parties. On Sunday, President Trump said “I hear that Nancy Pelosi wants to call to see if she can do something.” Schumer (D-NY) rejected those claims, saying on Monday morning “I didn't call him. Speaker Pelosi didn't call him. No, we didn't call him." Neither side shows any serious signs of making the necessary concessions to get the negotiations and the economy back on track.
Following the weekend EOs, no progress appears to have been made during the first half of the week. Treasury Secretary Steven Mnuchin, ever-optimistic about the odds of reaching a deal, said on Monday he thinks Democrats may want to reach a compromise. For the time being, though, it appears the two sides remain far apart. Republicans maintain that Democratic demands are too expensive, and Democrats argue that a package less than $2 trillion will not pass the House. Schumer and Pelosi have called on Republican negotiators to return to the negotiating table and “meet [them] halfway,” but Mnuchin said that the Democrats’ ask of $1 trillion for state and local aid—the top priority for Democrats but viewed by Republicans as a bailout for states that over many years have not seriously tackled their budget problems—is “absurd.”
Amidst the continued stalemate, President Trump has suggested he may take further unilateral action. At a White House press conference on Monday, President Trump said he is “looking at also considering a capital gains tax cut, which would create a lot more jobs.” Although the proposed EO appears to be in early stages, White House advisers are counseling the president that he could unilaterally index capital gains to inflation without the help of Congress. President George H.W. Bush’s administration previously considered a similar EO. However, his legal team determined that the action was not legal. Mnuchin underscored this point on Wednesday, saying “The president would like to do capital gains tax cuts — we do need legislation to do what we want on that front.”
Looking ahead, little action is expected on issues unrelated to the next COVID-19 package. Although negotiators will continue their attempts to make headway, many of their colleagues will remain in their home states until called back for votes. Unless negotiators reach a breakthrough, lawmakers are not expected back in Washington in the near-term.
Aside from a few key negotiators, most members of both chambers are back in their home states, subject to a 24-hour recall if negotiations experience a breakthrough. No hearings, markups or other activity is scheduled in either the House or Senate.
The introduction of new proposals has slowed since the height of the pandemic. Some of the most recent proposals are outlined below.
Below are last week’s biggest stories from Capitol Hill and the administration.
Democrats Prepare Inequality Agenda. With elections around the corner, Democrats continue to rollout their policy platform, a central tenant of which is addressing wealth and income inequality. To that end, a number of Democratic lawmakers introduced proposals last week to get the ball rolling.
If Congress fails to impose higher taxes on the wealthy, state and local lawmakers have said they will take action. New York City Mayor Bill de Blasio (D) said over the weekend as “the rich are getting richer, […] it’s time to look that in the face and say, ‘You know what, wealthy New Yorkers can afford to pay a little bit more so that everyone else can make it through this crisis.’”
New York Gov. Andrew Cuomo (D) poured cold water on DeBlasio’s idea. Cuomo warned of the capital flight that could occur if tax rates are raised to dramatically on the wealthy, saying “a single percent of New York’s population pays half of the state’s taxes and they’re the most mobile people on the globe.” To underscore that point, United Van Lines recently cited a 95% spike, year over year, in interest in moving out of Manhattan between May and July, versus just 19 percent nationally.
The Wizard of OZ. Sen. Tim Scott (R-SC) wants to delay the Opportunity Zone (OZ) tax deferral date by two years, according to the senator’s tax staffer. Under the Tax Cuts and Jobs Act (TCJA, P.L.115-97), which enacted the OZs into law, investors can defer taxes on capital gains until the end of 2026 if the funds are reinvested into OZs. Outside of Congress, Scott’s effort to add another two years to the deferral timeline has support from organizations like the U.S. Conference of Mayors, which has advocated for a longer deferral period.
Time for Another Infrastructure Week? Negotiations around the next COVID-19 package have received most of the attention in Washington, causing other measures to once again recede to the shadows of the legislative calendar. The infrastructure discussion among lawmakers, including House Ways and Means Committee Chair Richard Neal (D-MA) and Treasury Secretary Steven Mnuchin, has ebbed and flowed during the COVID-19 pandemic, as negotiators have explored potential paths to driving economic activity. Interest in an infrastructure package has lost its enthusiasm for the time being, but Congress will be forced to act on infrastructure-related measures in the near future.
Lawmakers face a looming deadline to renew the Fixing America’s Surface Transportation (FAST) Act (P.L.114-94), which contains funding for surface transportation—highways, public transportation and rail—and expires on Sept. 30. Both Senate Appropriations Committee Chair Richard Shelby (R-AL) and House Ways and Means Committee Chair Richard Neal (D-MA) have supported an extension, although Neal says he “hopes to avoid kicking the can down the road.” Time is soon running out, however, particularly as Neal and Mnuchin have agreed to stall negotiations until the next COVID-19 package is completed.
When talks between the duo resume, they will have to reconcile the differences between the proposal favored by House Democrats and the leading measure among Senate Republicans.
The House passed a $500 billion infrastructure package in July that would—in addition to funding water infrastructure, internet connectivity and a number of other projects—allocate $145 billion to the Highway Trust Fund from the general account. The measure was not warmly received by Republicans, as Senate Majority Leader Mitch McConnell (R-KY) indicated it would fail in the Senate.
Republicans have a proposal of their own, the America’s Transpiration Infrastructure Act (S.2302), that was advanced by the Senate Environment and Public Works Committee in August 2019. It would, among other things, reauthorize the federal aid highway program and the transportation infrastructure and finance innovation program for FY 2021 and FY 2022, establish new climate-related grant programs and expand the flexibility of formula funds provided from the Highway Trust Fund. President Trump has signaled his support for this bill in a previous State of the Union Address.
After lawmakers rushed to enact legislation, agencies are now attempting to keep up by quickly releasing regulations and other guidance. A look at select COVID-19-related implementation guidance and non-COVID-19 related guidance released during the previous week will be published here by the Brownstein Tax Policy Group.