State of COVID-19 Stimulus Negotiations
This week, Speaker of the House Nancy Pelosi (D-CA) set a new red line for any negotiations going forward by announcing Congress needs to provide at least $2.2 trillion in COVID-19 emergency supplemental funding. This represents a rough midway point between earlier COVID-19 packages discussed during negotiations. The Speaker suggested the proposed $2.2 trillion was a modest concession on the part of Democrats, since they had earlier offered to reduce the price tag of their May COVID-19 emergency legislation by $1 trillion, which would have brought the cost down to $2.4 trillion. The effort to resume bipartisan negotiations on a coronavirus relief package this week fell apart almost before they started. White House Chief of Staff Mark Meadows said that Democrats want a package without any guardrails or parameters, dismissing the latest offer after meeting with Speaker Pelosi. Senate Majority Leader Mitch McConnell (R-KY) has also stated that he does not see any near term breakthroughs in the negotiation process. He also hinted at a possible Continuing Resolution to fund the government after Sept 30 and adding $500 billion in additional stimulus to the resolution. This would put the Democrats in a precarious position, either voting for a bill with only $500 billion in COVID-19 relief or voting against the funding measure, which would lead to a government shutdown. The Senate is scheduled to return from recess on September 8, leaving Congress with roughly three weeks to reach an agreement before funding for the government expires.
Opportunity Zones Raised $75 Billion
On August 24, the Council on Economic Advisors announced that Opportunity Zones led to Qualified Opportunity Funds raising $75 billion in capital by the end of 2019. The Opportunity Zone program was designed to increase investment in low-income areas and allows investors to forgo and potentially defer paying capital gains taxes if they invest in a Qualified Opportunity Zone Fund. The report compares the advantages of Opportunity Zones with those of other Federal antipoverty programs and documents the characteristics of the nearly 8,800 low-income communities designated as Opportunity Zones. The report also quantifies the effect of Opportunity Zone investment and finds that a large increase is already benefiting residents while potentially having only a small effect on the Federal budget. The Council’s report said that new capital represents 21 percent of total annual investment in Opportunity Zones. The report estimates that Opportunity Zone designations led to a 1.1 percent increase in home values. HUD Secretary Ben Carson praised the Opportunity Zone program for decreasing poverty levels. In tandem with the release of the report, President Trump signed an executive order on August 24 to push federal agencies to move into Opportunity Zones. The president’s order will direct some federal agencies such as the Department of Labor and Department of Housing and Urban Development to look outside of city centers and relocate their offices to designated census tracts under the Opportunity Zones program. However, the program does not require equity holders and funds to report on the impact of their investments, which makes it difficult to determine the program’s success. There are about 8,700 federally designated Opportunity Zones throughout the U.S.
To view the full report on the Initial Assessment on the Impact of Opportunity Zones, click here.
Tax Deferrals On Hold Without IRS Guidance
In early August, President Trump instructed the U.S. Treasury, through an executive order, to halt collection of payroll taxes from September 1 through December 31 for workers who earn less than $4,000 every two weeks or those earning less than $104,000 a year. The Treasury Department is expected to issue guidance on how the deferral will work and will seek to address a number of uncertainties. Many employers have stated recently they would not implement the deferral if the Internal Revenue Service did not issue any rules by the September 1st start date. The U.S. Chamber of Commerce has stated that many companies are unlikely to implement the deferral, even with the Internal Revenue Service guidance, because it would force a large tax bill on employees in the future and would be very difficult for employers to administer. Following the executive order, Treasury Secretary Steven Mnuchin explained that he can’t force companies to implement the deferral, but said he hopes many companies will participate voluntarily. President Trump has also said recently that he would forgive the tax bills if he’s elected to a second term. The executive order addresses the 6.2 percent employee’s share of Social Security taxes (but doesn’t apply to the 1.45 percent employee’s share of Medicare taxes), and an act of Congress would be required to cut the funding source for Social Security.