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HEALS Act vs. HEROES Act: Our Comparison

On July 27th, Senate Republicans introduced their version of an additional round of economic stimulus and coronavirus response in the form of the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act. In comparison to the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act introduced by House Democrats back in May, the HEALS Act has both overlap and diversion with the Democrats’ proposed legislation. Within this article, we will compare the various main points of the two plans and discuss possible points of contention which will hopefully lead to some form of compromise between the two parties.

Stimulus Checks

One of the items that both pieces of proposed legislation agree on is an additional round of stimulus payments to individuals. The HEALS Act provides for the same amounts paid via the CARES Act ($1,200 per taxpayer and $500 per dependent). Meanwhile, the HEROES Act would provide a $1,200 check per dependent. Despite this disagreement, both the HEALS Act and HEROES Act extend their respective stimulus checks to include dependents beyond qualifying children (e.g. adult dependents and students younger than 24). For those worried about garnishment of their checks, both pieces of legislation provide for protection from garnishment against debt collection. However, the HEROES Act would also prevent garnishment due to past-due child support, whereas the HEALS Act would not.

Paycheck Protection Program

Another similarity between the two Acts relates to the Paycheck Protection Program (PPP) which provided forgivable loans to employers with 500 or fewer employees to incentivize retaining their employees during the pandemic. The HEALS Act provides for $190 billion to be allocated for first-time or second-draw loans from the PPP program, with payments limited to employers with fewer than 300 employees and who have experienced at least a 50% reduction in gross revenue in the first or second quarter of 2020 when compared to the same quarter in 2019. In comparison, under the HEROES Act, an additional $659 billion for PPP loans would be issued under the original 500 employee limitation. The Republican plan also allows for loans up to 2.5 times total monthly payroll costs and loans may be forgiven if at least 60% of the loan is used to cover payroll costs. The HEROES Act instead proposes to eliminate the requirement to spend a percentage on payroll entirely, with the mindset that employers should be allowed to use the loans as they please.

Unemployment Benefits

Potentially one of the main points of contention between the proposed legislation is the federal pandemic unemployment compensation (the extra $600 check in unemployment benefits). Under the HEALS Act, it would be gradually reduced. It would be decreased to $200 per week for two months, and after October 5, 2020, the benefit drops to 70% of a taxpayer’s lost wages when combined with state unemployment compensation, with a $500 per week cap on payments. The HEROES Act instead proposes that the additional $600 per week in federal unemployment compensation continues to January 31, 2021.

Tax Credits

Both acts propose changes to the Employee Retention Tax Credit (ERTC) against certain employment taxes. On the Republican side, this manifests as a proposed increase from 50% to 65% of qualified wages an eligible employer pays to employees after March 12, 2020 and before January 1, 2021. In addition, wages on which the tax credit can be claimed increased to $30,000 for each employee per year (including certain health plan costs). The Democrats on the other hand propose to increase it to 80% of qualified wages and use a $36,000 cap.

Although each legislation appears to coincide with one another on the aforementioned issues, they also have relatively unique propositions. For example, the Work Opportunity Tax Credit would be expanded under the HEALS Act to include a new targeted group, entitled “2020 Qualified COVID-19 Unemployment Recipients,” and increases the maximum credit for most eligible workers from $2,400 to $5,000. The HEROES Act instead focuses on the Earned Income Tax Credit (EITC), increasing the maximum credit for childless filers from $538 to $1,487.

Other Provisions

The HEROES Act provides for a temporary elimination of the $10,000 cap on state and local tax (SALT) itemized deductions. In addition, the Act proposes a limitation on net operating loss (NOL) carrybacks allowed under the CARES Act. This limitation would prevent taxpayers from carrying NOLs back to any tax years beginning before January 1, 2018, whereas the CARES Act allowed for a five-year carryback of NOLs incurred during 2018, 2019, and 2020 tax years.

The HEALS Act intends to increase the deduction for business meals (which has historically been set at 50%) to 100% through December 31, 2020. In addition, the Act would issue certain liability protections to employers, including schools and healthcare providers, to protect against lawsuits related to COVID-19. The HEALS Act also provides for a new refundable tax credit, equal to 50% of an employer’s qualified employee protection expenses, including personal protection equipment (PPE), cleaning supplies, and COVID-19 testing.

Reaching a Unified Plan

As noted above, while the HEALS Act and HEROES Act have some similarities, they also have substantial divergence. The HEALS Act is viewed by political analysts primarily as a starting point for the Republicans’ negotiations with Democrats on the next stimulus package. Some of the battleground issues based on the HEALS Act include:

Cut in Unemployment Benefits

While Republicans feel that the current subsidy of $600 per week is a disincentive for employees to return to work, Democrats call this cut “unworkable” because it is estimated to reduce federal unemployment aid by 30% at a time when almost 40 million people have filed for unemployment benefits. Further, Democrats are concerned that the proposed system is overly complicated and will overwhelm states that will need to administer a new program at a time when their resources are already constrained.

No Relief Funds for State and Local Governments

Providing more aid to state and local governments was a major priority for House Democrats: they devoted $1 trillion to relief funds in the HEROES Act. In contrast, the HEALS Act provides none. Instead, the Republican plan provides for greater flexibility in how the states are permitted to use the funds that were allocated under the CARES Act.

Liability Protection from Lawsuits Related to Coronavirus

Senator Mitch McConnell has said that this is a “red-line” issue and he will not pass a stimulus bill without this provision. Democrats view this as a mechanism that would allow large employers to escape damages from mistreating workers. They maintain that relief spending should prioritize worker safety, not corporate America.

No Eviction Moratorium or Relief for Renters

The relief provided in the CARES Act expired on July 24th and, although the White House economic advisor had indicated that it would be extended, no relief provision was included in the final version of the HEALS Act.

Funding for K-12 Schools Requires Physical Reopening

Approximately 2/3 of the relief funding to be provided to K-12 schools is conditioned upon the schools physically reopening. Democrats have stated that this is “a nonstarter.”

The negotiation process on this next phase of stimulus is expected to be more difficult than in some of the prior phases given how far apart the two sides are on certain issues. However, not all Republicans support the HEALS Act, so some level of bipartisan agreement would need to be established to pass any stimulus legislation in Congress. Though these negotiations will certainly take time, there may be a certain level of urgency due to some of the expiring provisions of the CARES Act, as well as Congress’ upcoming summer recesses. The House is expected to delay their summer recess beginning after July 31st in order to get a stimulus bill passed, but the Senate is set to begin their summer recess after August 7th. If a consensus is not reached by that date (and absent a recess delay), then a new stimulus bill could be postponed until after Labor Day.

We will keep you updated as more news on this legislation develops.

09.16.20 NBI Session 3

Webinar: The National Bank of Indianapolis 2020 Nonprofit Training Series: Managing Change in Times of Uncertainty

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