Legislation

Not yet, states

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— Republicans and Democrats are on the verge of approving new funding for small businesses and hospitals, but state and local governments that are hemorrhaging revenues will have to wait.

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— What to do about those states? There’s a bipartisan proposal to give them a half-trillion dollars in new funding.

— Some Democratic lawmakers now are saying they didn’t even know that the tax break on losses for pass-through businesses, now the most controversial tax provision in the phase three coronavirus package, was in the deal until after the fact.

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THIS CLOSE: The agreement to add more than a quarter-trillion dollars to the Small Business Administration’s Paycheck Protection Program and give hospitals an extra $75 billion could be announced at just about any moment.

Such a deal would push the debate over whether to give an infusion of funding to struggling states — which are seeing a variety of revenue streams dry up, from income to sales taxes — to a future set of negotiations over coronavirus relief. President Donald Trump said himself that he was in favor of boosting aid to state and local governments in a future bill, after Republicans pushed to exclude it this time around.

But there are questions bubbling up on the left about that, with outside analysts and congressional aides wondering whether Trump might play hardball on more funding for states in order to squeeze them into opening up their economies sooner.

For its part, the National Governors Association has continued to press for states to get money — and fast. The group released another statement on Friday thanking Trump for saying he would work with them, but stressing that states would have to make severe cuts without substantial assistance. But at the same time, the chairman of the NGA, Gov. Larry Hogan of Maryland, didn’t seem too concerned about being left out this time.

“Look, we do not want to hold up funding to these small businesses,” Hogan said on CNN’s “State of the Union,” before adding that he hoped the Senate “can come together in a bipartisan way and get something moving for the American people.”

What’s next? Sens. Bill Cassidy (R-La.) and Bob Menendez (D-N.J.), both members of the tax-writing Finance Committee, announced a proposal on Sunday that would create a new $500 billion fund for states — just the figure that the NGA has been pushing for. Both Louisiana and New Jersey have been relatively hard hit by the coronavirus, and the legislation would offer aid to smaller towns and counties that aren’t eligible for assistance from the phase three measure and seeks to funnel relief to the harder-hit parts of the country.

NOT LETTING GO OF THIS: It’s not just that Democrats are practically united in opposition to the CARES Act provision that gives pass-throughs more latitude to spread out losses across tax years, at a cost of $140 billion for just 2020 and 2021 and with the vast majority of the benefits going to those at the top end.

Now, some of the Democrats who backed the full phase three measure (or at least didn’t object to it) are even saying that Republicans snuck it in at the last moment or that they didn’t know the pass-through part was in the final text, The Intercept reports.

Among those Democrats cited by The Intercept: Sen. Sheldon Whitehouse (D-R.I.) and Rep. Lloyd Doggett (D-Texas), the two most vocal Democratic critics of the provision. Whitehouse’s spokesperson didn’t respond to a request for comment on whether the senator was unaware that the pass-through change was ever under discussion. Doggett’s spokesperson told Morning Tax that the bill came out while he was in Texas, and that he wasn’t aware of the specific provision or how it came to get into the bill.

Republicans were pressing for those changes on pass-through loss limits, and were quite public about it, from basically the beginning of the discussions over the phase three package. (To be fair, the descriptions of the provision could be a bit vague.) But there’s also no doubt that the entire process for crafting that measure was uncharted territory, and the pass-through provision didn’t become controversial until later. (The Joint Committee on Taxation didn’t release the provision’s price tag until after the phase three package had passed the Senate.)

Both Whitehouse and Doggett are pushing to repeal the changes for pass-throughs. That wouldn’t seem to have much chance of happening, but all this attention could easily set up a fight over whether to at least bring back the limits established by the 2017 tax law as scheduled next year.

GLOBAL CORONA ROUNDUP: South African officials are considering a one-time wealth tax to potentially give the economy a boost as a five-week coronavirus lockdown is scheduled to end at the close of the month, Bloomberg reports. The government is holding a key meeting on the economy today, and the one-off wealth tax crafted by a group of economists was first presented to the cabinet last week.

Along those lines: Argentina is also thinking about a wealth tax as it tries to balance a coronavirus response with a debt program with the International Monetary Fund, as Bloomberg noted as well. Economy Minister Martin Guzman said the tax would be on some 11,000 people who are worth at least $2 million.

Up in Europe, Denmark announced almost $15 billion of new measures (100 billion krones) over the weekend, Reuters reported, which included extended tax deadlines.

And in Germany, senior ministers aren’t on the same page on how to use tax policy to battle the pandemic, as Reuters also noted. Peter Altmaier, the economy minister, said he was open to lowering value-added taxes for tourism-related industries like restaurants and hotels. But unlike Finance Minister Olaf Scholz, Altmaier isn’t on board with higher taxes on the rich to fund further assistance programs.

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A NEW SIDE EFFECT: The coronavirus outbreak could spark the latest fight about taxes in Texas — this one over property taxes, as the Texas Tribune reported. At issue: A new law that gives voters the power to strike down any property tax increases of more than 3.5 percent. Previously, voters only weighed in on property tax hikes of at least 8 percent, but the measure that Texas lawmakers passed last year had an escape clause for disasters. And as it happens, Gov. Greg Abbott declared a state of disaster in Texas last month because of the coronavirus. But both the governor and GOP lawmakers behind the new property tax law are at least suggesting that they don’t think Abbott’s proclamation would allow local governments to put property tax increases of more than 3.5 percent into place without voter approval. At the same time, it’s not clear whether that’s a route that many localities will want to take, and local governments still have months to figure out their budget situations.

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