Pessimism creeps into revived coronavirus relief bill talks

House will vote on Democrats' $2.2 trillion aid plan on the floor Thursday; GOP calls it a nonstarter

Speaker Nancy Pelosi says the divide on taxes reflects a difference in values. (Tom Williams/CQ Roll Call)
Speaker Nancy Pelosi says the divide on taxes reflects a difference in values. (Tom Williams/CQ Roll Call)
Posted October 1, 2020 at 12:34pm, Updated at 3:49pm

There were mixed signals about the chances of a bipartisan COVID-19 aid deal throughout the Capitol on Thursday, though more signs pointed to a breakthrough remaining out of reach.

Speaker Nancy Pelosi told reporters she and Treasury Secretary Steven Mnuchin spoke several times Thursday afternoon by phone and said they might talk again later that night after she reviewed some documents he gave her.

She said no agreement was expected Thursday night and she declined to handicap the prospects for a deal coming together at all. "I don't know, it just depends," she said. We'll see."

Earlier Thursday, Pelosi went on Bloomberg TV and said she was "hopeful" for a deal, but acknowledged, "It does not mean I am positive." An hour before, she told reporters at her weekly press conference she was “optimistic,” all while laying out several areas in which the parties remain far apart.

The divisions include state and local aid; Democrats' ask to expand earned income and child tax credits and curtail tax cuts for business owners; and Republicans' demand for liability protections. The overall funding levels for health care are in good shape but there's still significant divisions on policy prescriptions that go with the funding.

House Democratic Caucus Chairman Hakeem Jeffries, D-N.Y., complained Thursday that the White House wants “to dictate to us the terms of an agreement.”

House Minority Leader Kevin McCarthy pointed blame in the opposite direction. “Pelosi continues to put the roadblock even higher,” he said.

One of the roadblocks that emerged in talks Wednesday was on tax provisions that Pelosi said reflect broader divisions between GOP and Democratic negotiators. Democrats have proposed a roughly $50 billion expansion of refundable credits for lower-income households, while they'd rescind $150 billion in tax deductions for business losses enacted in the March aid package. Republicans have so far resisted both suggestions.

“That’s why we not only have a dollars debate, we have a values debate. Still, I’m optimistic," Pelosi said.

The Democrats would raise taxes by restoring limits on deductions for owners of "pass-through" businesses such as partnerships and subchapter S corporations, who pay tax on their individual returns.

Joint Committee on Taxation estimates have shown that break mainly accrues to wealthier households. Although the provision affects a wide swath of businesses, Democrats have pointed out that real estate developers like the Trump Organization are able to take advantage of it. That issue's grown more salient since a series of New York Times stories earlier in the week about Trump's ability to erase his income tax bills through creative loss accounting.

Another provision affects net operating losses: the March law enabled firms to "carry back" losses arising in 2018, 2019 or 2020 in order to claim refunds on taxes paid in up to five prior years. Democrats want to limit that break to losses this year and last year, and only allow carrybacks to tax years starting in 2018, when corporate taxes dropped under the GOP tax law enacted the prior year.

Democrats' earned income tax credit provisions would, among other things, nearly triple the maximum credit for childless workers in 2020, to almost $1,500 and expand the pool of eligible recipients. The left-leaning Center on Budget and Policy Priorities says the provision would benefit about 15.4 million individuals, reducing the number of them "taxed into poverty" by 96 percent.

The child tax credit provisions would boost the maximum amount a lower-income household can claim, from up to $1,400 to the full $2,000 per child under age 17 that households currently earning up to $400,000 benefit from. Lower income families currently get smaller amounts because they don't have enough tax liability to soak up the presently nonrefundable credit.

"Where we ended yesterday was my concern about no money for the refundability, which is a very important part of our legislation," Pelosi said. "They seem pretty wedded to their tax cut for the high end. I hope they’d be wedded to a tax credit for low-income children and families.”

'Taking advantage of the pandemic'

Republicans typically oppose expansions of refundable tax credits, since they operate more like direct government aid to those who don't pay much income tax; though in many cases these households are subject to substantial payroll taxes.

Senate Finance Chairman Charles E. Grassley said Democrats are “taking advantage of the pandemic” to push refundable tax credit proposals they’ve failed to get in other fiscal negotiations. "The Democrats have been trying to use that for leverage for a long period of time," the Iowa Republican said.

[Exclusive: Mnuchin coronavirus relief plan includes more state, local funds]

Pelosi also said negotiators remain "far apart" on state and local aid: Democrats have proposed $436 billion, while Mnuchin floated a $250 billion figure in a Wednesday meeting with the speaker. Senate Republicans have been firm about not wanting to "bail out" Democratic-led states and cities, so it's unclear how much wiggle room Mnuchin has there.

Senate Majority Leader Mitch McConnell didn’t elaborate on the substance of the Mnuchin-Pelosi talks. “I’m wishing them well obviously,” he said. “I’d like to see another rescue package, we’ve been trying for months to get there.”

McConnell’s members had a range of reactions to the White House’s $1.6 trillion proposal.

GOP Sens. Ron Johnson of Wisconsin and Rick Scott of Florida said they would be unlikely to support such a plan. Johnson said he opposed anything larger than the “skinny” bill the conference tried to bring to the floor last month that spent $650 billion but with roughly half of it offset.

But an eventual deal would likely end up closer to $2 trillion than the $1 trillion limit most Republicans prefer, according to Sen. Roy Blunt, R-Mo.

The Missouri Republican suggested there may be ways for both sides to claim different spending numbers on a final deal, such as offsetting the cost by redirecting unused funds.

“We need a bill that half of our members could vote for,” Blunt said.

Other obstacles

Pelosi said there was more common ground on health care funding provisions, though there were still sticking points around specific policy language.

She also said they were still discussing how to treat small business aid in terms of how it would be parceled out through the Small Business Administration's Paycheck Protection Program offering forgivable loans or through direct grants from the Treasury. Democrats have proposed direct grants for restaurants and live entertainment operators, for example.

The House is set to vote on Democrats' $2.2 trillion aid package later on Thursday, as Pelosi aims to formalize her party's position in the talks as well as give her rank-and-file members something to campaign on if bipartisan discussions fall apart.

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Pelosi may not be able to count on much if any GOP support for her bill, however, which limits her own negotiating room. Beyond perhaps Rep. Peter T. King, R-N.Y., who voted for the Democrats' larger $3.4 trillion package in May, moderate and vulnerable Republicans are united against the $2.2 trillion version, a source familiar with conference thinking told CQ Roll Call.

“I would prefer to see something that hits the national debt … less than $2.2 trillion," Small Business ranking member Steve Chabot said.

The Ohio Republican, whose reelection race is a toss-up, according to Inside Elections with Nathan L. Gonzales, said Democrats’ partisan measure likely won’t help Democrats politically.

“I don't think it protects their vulnerable people, and most importantly, it doesn't help the American people who really need support right now,” Chabot said.

Still, Pelosi signaled she's not willing to give up too much ground to Republicans just to get a deal.

“It can be an opportunity cost” to take a smaller deal now, she said. "We’re not going to exploit the needs that people have in order to once again increase the national debt to help the high end.”

Peter Cohn, Rachel Oswald and Chris Marquette contributed to this report.