Payroll tax cut weighs on Senate GOP as it tries to complete $1T coronavirus plan

Senate Majority Leader Mitch McConnell, R-Ky., is pushing to announce an approximately $1 trillion coronavirus relief bill as early as Wednesday, legislation that would include a new round of payments to individual Americans and tens of billions of dollars for schools, with some of the money tied to classrooms reopening.

But McConnell is still working to overcome divisions with the White House because President Donald Trump has insisted on the inclusion of a payroll tax cut that is deeply unpopular with Senate Republicans. Whether to include that provision remained a critical question Wednesday, a day after Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows encountered a barrage of criticism on the issue during a private lunch with GOP senators on Capitol Hill.

And it’s clear that the package McConnell is finalizing will not be fully embraced by fellow Senate Republicans. Several conservative lawmakers are irate about spending another trillion dollars after already pumping $3 trillion into the economy in March and April. Sen. Rand Paul, R-Ky., denounced the plans as “insane” and “an abomination” after storming out of the GOP lunch Tuesday to deliver a rant to reporters.

Republicans have a 53-47 majority in the Senate, and there’s little chance the legislation they are crafting would be able to secure the 60 votes needed to proceed to a final vote. But emerging from the discussions with a formal plan would give them a starting point to begin negotiations with House Democrats, who in May passed a $3 trillion tax-and-spending plan aimed at addressing the coronavirus’s impact.

Mnuchin and other administration officials insist that they must act by the end of next week because enhanced unemployment benefits are set to expire for millions of Americans at the end of July. McConnell has dismissed that timeline as unrealistic but is moving to announce his bill as soon as possible so he can expedite negotiations.

Democrats spent much of Tuesday ridiculing Republicans for not having come to agreement among themselves two months after House Democrats passed their $3 trillion plan, which included $1 trillion for state and local aid.

“We have a bill . . . we have been united in our priorities,” House Speaker Nancy Pelosi, D-Calif., told reporters after she and Senate Minority Leader Chuck Schumer, D-N.Y., met with Mnuchin and Meadows on Tuesday afternoon. “I think their delay is their disarray.”

Despite the uncertainty around the fate of the payroll tax cut and several other items, the contours of much of the legislation has come into focus over the past several days.

McConnell has said it would include $105 billion for education. Of that money, $70 billion will go to elementary and secondary schools, according to Sen. Roy Blunt, R-Mo., a senior member of the Appropriations Committee. The $70 billion will be split into two pots, with half of it going to all schools through grants and the other half reserved for schools that submit a reopening plan and can then use the funds for costs associated with reopening, according to a person familiar with the proposal who spoke on the condition of anonymity to describe it.

Reopening schools has become a major focus for Trump as coronavirus cases spike and some major school districts announce plans to start the fall with virtual learning only. In Florida, the teachers’ union sued the governor over his plans to reopen schools.

The GOP plan is not expected to include new state and local aid, but it will allow state and local leaders flexibility with how they spend the $150 billion already allocated in the Cares Act, which was passed in March. It will include about $100 billion in additional funding for the small-business Paycheck Protection Program, targeted for businesses that can demonstrate need.

The legislation will also include about $25 billion for states to conduct coronavirus testing and tracing, and billions more for the Centers for Disease Control and Prevention and the National Institutes of Health. The Trump administration had initially sought to block this spending, but it backed down under pressure from Blunt and other key senators.

McConnell has said the package will include another round of direct stimulus payments to individuals. The Treasury previously sent out $1,200 stimulus payments to everyone earning under $75,000 per year. Republican lawmakers have considered lowering that threshold in the next stimulus package, but leading GOP lawmakers—including Sen. John Thune, R-S.D. —appeared to suggest on Tuesday that they may simply follow the model for stimulus payments in the Cares Act.

“If the parameters stayed the same, we could do it really quickly,” Thune said.

Republican lawmakers also intend to cut a $600-per-week increase to unemployment benefits to about $200 per week.

Those benefits are set to expire for between 20 million and 30 million people by the end of the month. At a White House news briefing Tuesday, Trump floated changing the unemployment benefits so they amount to about 70% of a typical worker’s income while he or she were employed,  which would mean cutting the extra benefit to about $175 per week, according to Ernie Tedeschi, who served as an economist in the Treasury Department under the Obama administration. The federal unemployment benefit comes on top of existing state unemployment benefits that vary widely.

“If they lowered it to $200 a week, 30 million workers would wake up with a pay cut from a third to a half overnight,” Tedeschi said. “While $200 is marginally better than full expiration, the U.S. would still take a major economic hit from this summer and this fall as a result from it.”

U.S. gross domestic product would be 1.33 percentage points smaller at the end of the year under Trump’s proposal than if the benefit were extended at $600 per week for the rest of the year, Tedeschi said, and there would be a loss of more than 1 million jobs because of the contraction in spending.

Stephen Moore, an outside economic adviser to the White House, has been pushing the administration to support a cut in unemployment benefits from $600 per week to about $200 per week.

“That’s another big victory for us,” said Moore, citing the president’s support for the payroll tax cut he has pushed.

If the payroll tax cut is included, it is expected to defer rather than eliminate the 7.65% tax employees pay, which goes to support the Social Security and Medicare programs. That would allow the proposal to technically not add to the cost of the bill. Workers might have to repay the money at a later date, but Congress could also decide to waive that entirely.

Trump views the payroll tax cut as a good way to stimulate the economy and help workers, but GOP senators have raised objections, including that it only would benefit those with jobs, that the benefit would not be immediately felt, and that it would drain the already shaky Medicare and Social Security trust funds.