The shape of the recovery: A swoosh not a V. The Congressional Budget Office figures the economy won’t return to pre-recession levels at least through 2021. While the economy will hit bottom in the second quarter of this year, recovery will take years. By the fourth quarter of 2021, CBO figures the unemployment rate still will be 8.6 percent, and real economic output will be 1.6 percent lower than it was at the end of 2019. White House officials, however, continue to insist, at least publicly, that the economy will recover by Fall.
Fed Chair and Treasury Secretary disagree too. In a Senate Banking Committee hearing yesterday both warned that the US economy could suffer profound long-term damage because of the pandemic, but did not agree on how to repair it. Treasury Secretary Steven Mnuchin wants to reopen businesses and put Americans back to work with adequate protections. But Federal Reserve Chairman Jerome Powell suggested that people still might not shop or work without “pretty good confidence that it's safe to go out.” As a result, he said, Congress may have to enact more fiscal relief while Mnuchin wants to “wait and see” if the country needs another stimulus bill. Mnuchin did promise to quickly distribute nearly $500 billion in already-enacted business assistance.
Will Treasury require companies to retain workers if they accept an emergency stabilization loan? Mnuchin also suggested that Treasury cannot require companies to retain their employees in exchange for the loans: They only must promise to make their "best efforts" to support jobs. Sen. Elizabeth Warren insisted Treasury has the authority to make employment a condition of the loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Lost opportunity: The CARES Act charitable deduction. TPC’s Gene Steuerle argues that Congress could have improved the tax incentive to give to charity but missed the chance in the CARES Act. The law’s one-year charitable deduction of $300 for filers who claim the standard deduction will cost $1.5 billion, but is unlikely to benefit recipients of charitable services very much.
A low chance of another relief package? GOP Sen. John Kennedy wants Treasury to let states use already appropriated funds to cover revenue shortfalls. He’s introduced a bill that would allow states to use the $150 billion in current coronavirus relief for expenses unrelated to COVID-19. He insists there is a less than 50/50- chance Congress will pass another coronavirus relief package.
In Colorado, an emergency tax? Progressives think now is the time to raise taxes under the state’s Taxpayer Bill of Rights. The never-used emergency provision would allow the state to temporarily raise income taxes. They’d raise taxes on households earning more than $250,000 and slightly reduce tax rates for all others. They estimate their plan would raise about $600 million from June through November.
For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at firstname.lastname@example.org.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
- © Urban Institute, Brookings Institution, and individual authors, 2020.