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Fresh Stimulus Checks Priced Out of Renewed Virus Aid Talks

Dec. 4, 2020, 6:27 PM

There’s cautious optimism that lawmakers could reach agreement on a new pandemic relief package after months of stalled talks—but another round of direct payments to Americans isn’t part of the conversation this time.

The last round of direct payments—of up to $1,200 per person—cost an estimated $293 billion, according to the Congressional Budget Office. But with Republican leaders hoping to keep the total spending of the current package under $1 trillion, and Democrats also walking away from their multitrillion-dollar position, the expensive policy is less likely to fit in alongside other goals, like federal money for state and local governments, and renewal of unemployment insurance.

Talks remain fluid but a new round of payments hasn’t been included in public proposals, and isn’t a focus of talks behind closed doors, according to multiple sources familiar with the conversations.

Congressional negotiators also worry that another round of payments close to the beginning of the 2021 filing season would hamper the IRS’s ability to process returns and refunds at a time when people could really use some extra cash in their bank accounts.

“Just logistically it’s really tough, and it also spends a lot of money when we’re trying to keep it under $1 trillion, so it’s not really a priority right now,” said a congressional aide looped in on the state of negotiations. The aide asked for anonymity to speak freely.

Backlogged IRS

The IRS already has a lot on its plate without adding in more stimulus payments. The agency is still working through a monthslong backlog due to this year’s delayed filing deadline, processing of tens of millions of stimulus payments, and its own office closures.

“It’s a difficult time to be getting ready for the filing season just because of that,” said former IRS Commissioner Mark Everson, now vice chairman of alliantgroup LP. “It goes without saying that this would make it more difficult.”

In congressional testimony last month, IRS Commissioner Charles Rettig acknowledged the backlog and said that the IRS paid a second refund to nearly 14 million filers because of interest accumulated from when those people filed to when the IRS refunded them. Normally that figure would be much smaller.

“We are doing everything we can to reduce this backlog,” Rettig said at the time.

Mark Mazur, a former Treasury assistant secretary for tax policy during the Obama administration, thought more stimulus payments would be less of a burden for the IRS if Congress kept the same parameters used for the first round in place.

“If you change the rules a lot, then it would require programming and so on to address those new rules, which would be an interference in the filing season,” said Mazur, who is the director of the Urban-Brookings Tax Policy Center.

Since the CARES Act’s passage Republicans and Democrats have both discussed ways to expand or shrink eligibility for payments, which would change the parameters of who receives what and create more work for the IRS.

Shift in Thinking

The move away from direct payments also reflects less urgency in Congress to fire every economic bullet, the way it did in March, when the immediate impact of the once-in-a-lifetime pandemic was still uncertain.

In recent days both Democrats and Republicans have focused more on unemployment insurance instead of another round of stimulus checks. The thinking is that the relief will be more targeted than the scattershot one-time payments, and that states may be better equipped to process the large number of unemployment applications than they were last spring.

Congress intended the one-time payments to be a bridge for households until increased unemployment insurance could filter through the states, and now that states have processed most of those requests, the need for another tax rebate payment from the IRS isn’t seen as a political or policy priority for most members.

That’s not to say direct payments are without support.

“With $900 billion you could give every American almost $3,000,” former Democratic presidential candidate and universal basic income advocate Andrew Yang tweeted in reaction to the bipartisan proposal unveiled Dec. 1. “Why care more for institutions than the people?”

And the union representing IRS workers said the agency could handle new direct payments.

“IRS employees have already demonstrated that they can deliver a successful filing season and much-needed economic impact payments, even during a pandemic,” Tony Reardon, the national president of the National Treasury Employees Union, said in a statement. “With adequate resources and staffing, they can do so again.”

Another factor underlying the conversation: Despite millions of people losing their jobs, personal and household savings reached historic highs during the crisis, as most spent less than before and in many cases saved or invested government aid. That further complicates the conversation around whether another round of stimulus checks is the best use of resources versus more targeted relief like unemployment insurance and supplemental nutrition assistance.

Lawmakers now are prioritizing another round of Paycheck Protection Program funding, unemployment insurance, and aid to state and local governments. Tax deductibility for PPP-related expenses—a reversal of the IRS’s position—remains a policy with popular support in Congress. On Thursday, more than 500 business groups also pushed Congress for tax-free treatment of forgiven PPP loans within any aid deal.

Tax extenders, and making permanent an excise tax for alcohol producers (H.R. 1175, S. 362), could also factor into the conversation and potentially ride with a broader relief deal on government funding. But negotiations around government funding will play a major role in determining whether there’s a path forward.

“On the one hand it is progress, because you have consensus forming around a topline number that might be doable,” said Rohit Kumar, Washington National Tax Services Co-Leader for PwC and a former aide to Senate Majority Leader Mitch McConnell (R-Ky.). But on the other, “we’ve had any number of groups and gangs” from both parties fail because they never got buy-in from the majority of their party.

To contact the reporters on this story: Colin Wilhelm in Washington at cwilhelm@bloombergtax.com; Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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