Democrats’ coronavirus relief plan would curb tax payments for high earners

House aid package would phase out rebate checks completely for individuals making more than $75,000, couples above $150,000

House Ways and Means Chairman Richard E. Neal, D-Mass., released a package of recommendations for the coronavirus relief bill Democrats are putting together. (Caroline Brehman/CQ Roll Call file photo)
House Ways and Means Chairman Richard E. Neal, D-Mass., released a package of recommendations for the coronavirus relief bill Democrats are putting together. (Caroline Brehman/CQ Roll Call file photo)
Posted February 8, 2021 at 9:04pm

The House Ways and Means Committee on Monday released its nearly $941 billion worth of recommendations for the broader coronavirus relief bill Democrats are putting together, including the tax rebates President Joe Biden wants but with a more limited scope based on income.

The package unveiled by Ways and Means Chairman Richard E. Neal has much steeper declines in direct payment amounts to households above certain income thresholds. Unlike previous virus aid rounds, which phased out the payments at a rate of 5 cents on the dollar above $75,000 in adjusted gross income for individuals and $150,000 for married couples filing jointly, the $1,400 per person payments would dwindle to zero at $100,000 and $200,000, respectively.

That's a nod to the concerns of critical Democratic votes like Sen. Joe Manchin III of West Virginia, who's suggested cutting off payments above $50,000 for individuals and $100,000 for joint filers. On Monday, he said he hadn't seen details of the House plan, but suggested he was looking for a "hard stop" to prevent households earning up to $300,000 from getting payments.

"As long are we're targeting to people that really need it," Manchin said.

When the $1,400 payments are added to the $600 checks distributed in a December law, that equals the $2,000 promised by Democrats as part of their successful effort to take control of the Senate by winning two Senate seats in Georgia.

Under the previous income thresholds and phaseouts, a family of four earning more than $200,000 could still get decent-sized checks; for example, even at $250,000, they would still get a combined $600. Under Neal's new proposal, by comparison, no families above $200,000 would get any rebate, regardless of the number of dependents.

The Joint Committee on Taxation estimated an earlier version the House passed late last year, which contained the old income phaseouts, would have cost $464 billion. The JCT said Monday the new, more tailored rebates would be a little cheaper, at $422 billion.

Unemployment benefits, pension relief

That would make room for numerous other items in the Ways and Means' suite of proposals, ranging from boosted unemployment benefits, health insurance for laid off workers, aid to struggling union pension plans, refundable tax credits for lower-income individuals and families and more.

“Our nation is struggling, the virus is still not contained, and the American people are counting on Congress to meet this moment with bold, immediate action,” Neal, D-Mass., said in a statement. “While it is still our hope that Republicans will join us in doing right by the American people, the urgency of the moment demands that we act without further delay."

Neal has set aside Wednesday through Friday for his committee to mark up the legislation, which will be rolled into a larger measure expected to cost up to $1.89 trillion under the terms of the fiscal 2021 budget resolution adopted last week.

Although Neal has set aside three days to mark up the legislation, Ways and Means ranking member Kevin Brady, R-Texas, said last week he doesn’t expect more than two days will be needed. “We won’t be offering any delaying or procedural motions for the heck of it,” said Brady, adding that Republicans would stick to “substantive” amendments during the markup.

Another top Democratic priority is to extend and increase the federal add-on to unemployment insurance. The December law provided a $300 added weekly benefit on top of regular state benefits, but only through mid-March. That March 14 deadline for the expiration of benefits is perhaps the biggest driver for Democrats to quickly pass the relief package.

Besides extending the federal plus-up until Aug. 29, the bill would also boost the benefit to $400 a week. The enhancement had been $600 a week in the first months of the pandemic, but Republicans complained that unemployed people in lower paying jobs had little incentive to go back to work since many were earning more on unemployment than they had made previously.

The unemployment provisions aren't included in JCT's estimate of the tax package, which by itself would cost $593 billion.

Refundable tax credits

The direct payments to households are by far the biggest chunk of that cost. But the Ways and Means package also would significantly expand three traditional tax credits for 2021, two for defraying the cost of children and another for lower-income childless workers, at a cost of $143.5 billion.

Child tax credits would go from $2,000 per child to $3,000, and to $3,600 for children under 6 years of age, and be made fully refundable for lower-income workers who don't have enough tax liability to benefit from the full credit in current law. Those changes are the most expensive of the three credit expansions, at $109.5 billion.

The added benefit above the existing $2,000 would be subject to the same income thresholds as the direct payments, also phasing out rather quickly, at a rate of $50 for each $1,000 above the thresholds. So for each child aged 6 or older, the extra $1,000 would dwindle over the next $20,000 above the threshold, for instance. Current-law income thresholds to receive the existing $2,000 child tax credits in full — $200,000 for individuals and twice that for joint filers — wouldn't change.

Starting July 1, households would have the option to receive half of their beefed-up child tax credits in advance monthly installments, or somewhat less frequently if the Treasury Department finds that monthly payments aren't feasible. Recipients could elect to claim the credits in full on their 2021 tax returns, as in current law, if they choose.

Separate tax credits for child and dependent care expenses would be recast as more of a middle-class benefit, by increasing the income threshold to get the full credit to $125,000 instead of the current $15,000, though it would also become fully refundable. And the maximum credit would jump from 35 percent of expenses up to $3,000 per dependent — capped at $6,000 — to 50 percent of expenses worth up to $16,000 for two or more dependents. The 50 percent credit would slide down to 20 percent after $125,000 and then start phasing out completely after $400,000.

The measure would also nearly triple the maximum earned income tax credit for childless adults, to $1,500 a year, while reducing the minimum age to claim the credit from 25 to 19 and increasing the income amounts above which the credit starts to phase down.

Meanwhile, the bill includes provisions to aid union pension plans headed toward insolvency and relaxing contribution rules for single-employer defined benefit plans. The latter actually raises a little revenue, $22.8 billion, because it increases taxable income by letting firms delay deductible pension contributions. And the measure would expand the scope of pension relief for community newspapers provided in a 2019 law.

Another small revenue raiser, at $22.3 billion, would again postpone long-delayed rules for multinational corporations allowing more generous treatment of worldwide interest expenses.

The wide-ranging Ways and Means package would also extend and expand tax credits for employers that provide paid leave to workers who get sick or need to care for children out of school. It would provide subsidized health insurance for laid-off workers still receiving coverage through their employers while expanding tax credits to purchase health coverage on the 2010 health care law's exchanges.

The proposals also include more state funding for child care programs and a cash infusion for emergency aid to low-income children and families.

Lindsey McPherson contributed to this report.