WASHINGTON – Hidden in the 5,593-page spending bill that Congress rushed on Monday night, is a provision some tax experts are calling a $ 200 billion giveaway to the rich.
This concerns the tens of thousands of businesses that received federal government loans this spring with the promise that the loans would be canceled, tax-free, if they agreed to keep employees on the payroll during the pandemic. of coronavirus.
But for some companies and their well-paid accountants, that wasn’t enough. They went to Congress with another demand: Not only should canceled loans not be taxed as income, but the expenses used with these loans should be tax deductible.
“High-income business owners have benefited from unprecedented tax breaks and government grants. And the scale is huge, ”said Adam Looney, a member of the Brookings Institution and a former Treasury Department tax official in the Obama administration, who estimated that $ 120 billion of the $ 200 billion would go to the government. Richest 1% of Americans.
The new provision allows for a classic double dip in the payroll protection program, as businesses receive free money from the government and then can deduct that largesse from their taxes.
And it’s one of the hundreds included in a huge spending package and coronavirus stimulus bill that’s supposed to help struggling businesses and families during the pandemic but, critics say, has swerved well. far. President Trump on Tuesday night called it a shame and demanded revisions.
“Congress has found a lot of money for foreign countries, lobbyists and special interests, while sending the bare minimum to the American people who need it,” he said. in a video posted to Twitter that ended just before a veto threat.
The measure includes serious policy changes beyond the much-needed $ 900 billion in coronavirus relief, such as simplifying federal financial aid forms, measures to tackle climate change and a provision to stop “billing” surprise ”to hospitals when patients unwittingly receive care from doctors. of their insurance networks.
But there is also a lot of grumbling about other provisions that lawmakers had not fully considered, and a process that left most of them and the public in the dark until the draft law has been passed. The anger was bipartisan.
“Members of Congress have not read this bill. It’s over 5,000 pages, arrived at 2pm today, and we’re told to expect a vote in 2 hours, ”said Representative Alexandria Ocasio-Cortez, Democrat of New York, tweeted on Monday. “It’s not governance. It’s a hostage-taking.
Texas Republican Senator Ted Cruz agreed – the two disagree on much.
“It’s ABSURD to have a $ 2.5 trillion spending bill negotiated in secret and then, hours later, demand an upward or downward vote on a bill that no one has. ‘had time to read “, he said tweeted Monday.
The items stuck in the invoice are varied and sometimes confusing. The bill would make it a crime to offer illegal streaming services. A provision forces the CIA to report to Congress on the activities of Eastern European oligarchs linked to Russian President Vladimir V. Putin. The federal government would be required to put in place a program to eradicate the deadly hornet and crack down on online sales of electronic cigarettes to minors.
It authorizes the use of 93 acres of federal land for the construction of the Teddy Roosevelt Presidential Library in North Dakota and creates an independent commission to oversee horse racing, a priority of Sen. Mitch McConnell, Republican of Kentucky and leader of the majority.
Mr McConnell inserted this point to get around the objections of a Democratic senator who wanted it amended, but he got agreement from other leaders in Congress.
Alexander M. Waldrop, chief executive of the National Thoroughbred Racing Association, said on Tuesday that McConnell had “repeatedly said he fears for the future of horse racing and the impact on the industry, which is of course essential for Kentucky. “
That the racing legislation – versions that the industry had debated for years – passed as part of the Covid-19 relief bill was not of particular concern, Mr Waldrop said.
“It has developed this way over the past few weeks,” he said. “The only approach we had left was an independent, federally sanctioned self-regulatory organization. It was our only viable option left, and this legislation accomplishes that.
But the tax provisions – including extending a $ 2.5 billion break for racetracks and allowing a $ 6.3 billion write-off for business meals, ridiculed as the expense of the “three martini lunch.” “- caused the most difficulties.
The bill also reduces some taxes on alcoholic beverages.
However, no break is greater than the soon to be allowed deductions under the Paycheck Protection Program. Businesses have been lobbying the Treasury Department and IRS since the spring to deduct expenses from program loans, but Treasury Secretary Steven Mnuchin strongly objected, saying the deduction of expenses from funds not considered taxable income violated “tax 101”.
The paycheck protection program was the most visible part of the federal government’s coronavirus relief efforts this spring to keep small businesses afloat. So far, the government has distributed more than $ 500 billion in loans, which could be canceled and turned into permanent grants provided companies use most of the money to pay workers and workers. keep people employed.
In passing the law in the spring, Congress explicitly said that paycheck protection program funds should not be included as taxable income – unlike, for example, unemployment benefits.
Despite these largesse, companies wanted more. In May, the heads of the tax drafting committees – Senator Charles E. Grassley, Republican of Iowa, Senator Ron Wyden, Democrat of Oregon, and Rep. Richard E. Neal, Democrat of Massachusetts – wrote to Mr. Mnuchin to urge him to reconsider his opposition.
“Small businesses need help maintaining their cash flow, no more stress,” they wrote.
But an analysis from the Brookings Institution said the change would help a lot more wealthy than mom-and-pop business owners.
“So there are no entry and exit costs – those two don’t add up,” said Richard L. Reinhold, former chair of the tax department at Willkie Farr & Gallagher and professor at Cornell Law School. . Congress could have simply expanded the program, but it did so almost stealthily, thanks to a tax deduction.
“This is the part that is the problem,” he says.
While there was talk of limiting the deduction to beneficiaries of the Paycheque Protection Program below a certain income threshold, the final provision was made available to anyone, regardless of income.
The Small Business Administration released data this month showing that only 1% of the program’s 5.2 million borrowers received more than a quarter of the $ 523 billion disbursed.
That 1 percent included high-priced law firms like Boies Schiller Flexner and the operator of New York’s largest racetracks, which received the maximum loan amount of $ 10 million.
“2020 will be one of the most uneven years in modern history,” said Mr. Looney. “Part of the inequity is the effect of Covid, which has hammered the service sectors the most and allowed wealthy and educated people to work on Zoom. But the government has wholly compounded these inequalities with its response.
Yet in the end, only six senators, all Republicans, voted against the coronavirus relief plan and spending bill, citing mainly budgetary concerns about rampant spending, while 85 House members – a mix of Democrats and Republicans – voted against its military provisions. The bill increased military spending by about $ 5 billion.
Representative Ro Khanna, Democrat from California, opposed military spending but voted for other aspects of the bill. He and his fellow Liberals had been pushing for direct payments for most Americans as part of a relief program, and he said he shared his colleagues’ concerns about the lack of time to review the law. final.
“We need a better system for members to review the text online as it is written and have their say,” Khanna said. “That said, the leaders kept us informed almost daily of appeals on the essential aspects of the bills and the issues.”
West Virginia Democrat Senator Joe Manchin III and one of the leaders of the bipartisan group that pushed for a $ 900 billion stimulus, said leaders intentionally waited until the last minute to unveil the proposals finals.
“Leadership loves the process as it is,” he said. “Wait until the deadline, then there’s nothing left at all. They say take this or not. I’m tired of the way this game has been played.
That said, there was a lot to encourage lawmakers. They sent out press releases promoting privileged provisions such as a ban on most surprise medical bills, reinstating college financial aid for incarcerated people, and restrictions on the use of powerful chemicals. that warm the planet which are commonly used in air conditioners and refrigerators. The bill also creates new museums honoring women and Latinos.
“What you see at the end of every convention is a cleanup of the bridges,” said Josh Huder, senior researcher at the Government Affairs Institute at Georgetown University. “That’s all we wanted to achieve but couldn’t. Everyone would like to see legislation passed individually, but it really is a feature of a bygone era that does not come back.
“There are a lot of good things,” he said, “but something definitely creeps up.”