CHN: Relief Package Helps Low-Income Earners – and Corporations
Low-income earners and people with student loan debt will benefit from the $900 billion COVID-19 relief package passed late Sunday night, as will corporations who will benefit from a bevy of deductions, some new, some extensions of existing deductions.
The relief package temporarily allows people to use their earned income from tax year 2019 to determine the Earned Income Tax Credit and the refundable portion of the Child Tax Credit in the 2020 tax year. The provision, pushed by Senator Sherrod Brown (D-OH) and others, including CHN, will enable workers whose wages dropped during the pandemic to get a larger refund consistent with earnings from the previous year. “Parents whose incomes dropped in the pandemic year will be able to stave off big cuts to their Earned Income Tax Credit and Child Tax Credit because of this bill,” CHN Executive Director Deborah Weinstein said in a statement.
The package also extends, through 2025, a credit for employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income.
Also in the package: extensions of tax credits to employers who provide paid family and medical leave and paid sick and family leave. However, advocates are keenly disappointed that the legislation no longer mandates that employers provide paid sick leave, which they say is a no-brainer in a time of pandemic and only would have cost $1.8 billion. The current mandate expires on Dec. 31.
One massive deduction that has drawn controversy is a $200 billion deduction for businesses that will be able to deduct expenses originally paid for with tax dollars through the Paycheck Protection Program (PPP). PPP provides loans to businesses that do not have to be repaid if the businesses use the money to keep employees on the payroll and to meet certain other expenses. It passed last spring and is expanded by $284 billion in the new legislation. This deduction would have more than paid for the proposed $160 billion in aid to state and local governments that advocates had sought.
Another controversial tax measure included in the relief package is a provision allowing corporations to deduct the cost of business meals, referred to as the “three-martini lunch deduction” – a deduction that liberal and conservative economists have said is a bad idea, according to the Institute on Taxation and Economic Policy (ITEP).
ITEP has harshly criticized the deduction, which will go from 50 percent of the cost of a meal to 100 percent.
“Even at the current 50 percent, there’s plenty of wiggle room for unscrupulous taxpayers to turn food consumption into a tax dodge,” ITEP writes. “As long as you are eating a meal in a setting that is ‘conducive to business discussion’ and the meal isn’t ‘lavish or extravagant,’ you’re well on your way to successfully writing off the costs of your meals, a tax break that is unavailable to those who don’t own a business.”
President Trump and some Republicans have argued that the measure is needed to help restaurants recover from the pandemic, but ITEP is not buying that. “If the proposed meals deduction is an incentive, it’s a pretty lousy one: at the height of a pandemic, rewarding people for eating in restaurants is lousy health policy,” the group wrote.
The cost of the lunch deduction is not huge, relatively speaking – about $6.3 billion. But that easily would have paid for extending the paid sick and family leave mandate. And it is just part of what Frank Clemente, Executive Director of Americans for Tax Fairness (ATF), says is more than $220 billion included in the bill that will go to “powerful business interests.”
Clemente was particularly critical of the $200 billion deduction for businesses that will be able to deduct expenses originally paid for with tax dollars through the Paycheck Protection Program (PPP). Among other deductions ATF criticized: permanently lowering excise taxes on alcoholic beverages ($9 billion), failing to tax profit shifting by multinational corporations ($4.3 billion), and providing tax breaks for making movies and operating race car tracks ($2.5 billion).