Legislative Update: USMCA Update and Coronavirus Stimulus Package

USMCA

The USMCA will not go into force on June 1 as the U.S., Mexico, and Canada had hoped. After missing the Tuesday, March 31 midnight deadline to exchange letters certifying that they have fulfilled all the necessary obligations outlined in the deal the soonest the deal could go into effect is now July 1.  A bipartisan group of 19 senators, led by Senate Finance Chairman Chuck Grassley (R-IA) and ranking member Ron Wyden (D-OR), had signed a letter to the United States Trade Representative (USTR) Ambassador Robert Lighthizer stating the USMCA should not go into effect until it is clear that all three countries are fully complying with the deal’s rules.

Coronavirus Stimulus

Congress has spent the last month writing and passing over $2.3 trillion in a historic three-phase emergency stimulus package in response to the COVID-19 epidemic. The Phase I (H.R. 6071) the “Coronavirus Preparedness and Response Supplemental Appropriations Act” provides $8.3 billion in emergency funding for federal agencies; Phase II (H.R. 6201) the “Families First Coronavirus Response Act” provided $3.5 billion to small business proposals such as paid sick leave, expands the Family and Medical Leave Act, tax credits, and unemployment benefits; Phase III (H.R. 748) the “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act” provides stimulus to businesses and industries hit hard by the economic effects of the pandemic. All three bills were signed into law.

Families First Coronavirus Response Act

Below are the policy changes in the “Families First Coronavirus Response Act” (H.R. 6071) that apply to businesses with fewer than 500 employees. The Secretary of Labor is authorized to exempt businesses with fewer than 50 employees, but only when the leave requirements “would jeopardize the viability of the business as a going concern.”

• Emergency Family and Medical Leave Act
  • The bill expands the Family and Medical Leave Act (FMLA) to provide employees of employers with the right to take up to 12 weeks of job-protected leave under the FMLA. The first 10 days of leave may be unpaid and the remainder of which must be paid at a rate of no less than two-thirds of the employee’s usual rate of pay for the duration of the FMLA leave and is subject to a cap of $200 per day and $10,000 in aggregate. The FMLA leave is job-protected with certain exceptions for employers with fewer than 25 employees. These requirements go into effect on April 2, 2020.

• Emergency Paid Sick Leave Benefits
  • Under the bill, employers will be required to provide full-time employees with 80 hours of paid sick leave for qualifying reasons that include being diagnosed or quarantining due to COVID-19, as well as caring for an individual or family members quarantined, diagnosed or experiencing symptoms of COVID-19. It also allows employers to pay the benefits for employees to care for a child whose school has closed or a childcare provider is unavailable, due to COVID-19 precautions. These requirements go into effect on April 2, 2020.
  • Paid sick leave related to the employee’s own coronavirus-related needs is paid at 100% of the employee’s usual rate of pay, subject to a cap of $511 per day and $5,110 in the aggregate.
  • Paid sick leave related to the employee’s caring for another individual; due to school closures or the unavailability of a child care provider; or taken for a recognized “substantially similar condition” is paid at two-thirds of the employee’s usual rate, subject to a cap of $200 per day and $2,000 in the aggregate.

• Tax Credits
  • The bill, in its current form, provides for a series of refundable tax credits for employers providing paid emergency sick leave or paid FMLA.

CARES Act

Below is funding provided in the CARES Act (H.R. 748), that may be helpful to small businesses with fewer than 500 employees and individual workers:

• Paycheck Protection Program
  • Provides $349 billion in loan guarantees to small businesses and nonprofits. The program offers small businesses with funds to pay up to eight weeks of payroll costs, including benefits. Funds are intended to keep workers on the payroll and to pay rent, utilities, and the mortgage. The Federal government guarantees 100% of these loans made by 7(a) lenders of amounts up to $10 million through December 31, 2020. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75 percent of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Small businesses and sole proprietorships can apply starting April 3, 2020, and independent contractors and self-employed individuals can apply starting April 10, 2020. For more information about small business guidance and loan resources available through the U.S. Small Business Administration, please click here. 

• Employee Retention Tax Credit for Employers
  • Provides a refundable payroll tax credit for 50 percent of qualified wages paid by eligible employers in 2020, up to a maximum of $10,000 in wages, to certain employees during the COVID-19 crisis. (With respect to employers with more than 100 employees, qualified wages are only those paid to employees not providing services at the time such wages are paid.) The credit is available to employers whose operations have been fully or partially suspended as a result of a government order, or whose gross receipts in any 2020 calendar quarter are less than 50 percent of the comparable 2019 quarter. Effective for qualified wages paid between March 12, 2020 and December 31, 2020.

• Net Operating Losses
  • Allows business losses from tax years 2018, 2019, and 2020, to be carried back 5 years, and temporarily removes the taxable income limitation to allow a net operating loss (NOL) to fully offset income. Effective upon enactment. 

• Deductibility of Interest Expense
  • Increases the 30 percent limitation on the deductibility of interest expense to 50% of taxable income (with adjustments) for 2019 and 2020. Effective immediately.

• Deferment of Payment Obligation
  • Includes deferment of payment obligations of 2020 payroll taxes (i.e., employer share of OASDI [6.2% social security] payroll taxes) until the end of 2021 (50%) and the end of 2022 (50%). Effective on enactment and ends December 31, 2022.

• Acceleration of Alternative Minimum Tax (“AMT”) Credit Recovery
  • Allows corporations to claim 100 percent of alternative minimum tax (AMT) credits in 2019 as fully refundable and provides an election to accelerate claims to 2018, with eligibility for accelerated refunds. Effective immediately and ends on December 31, 2020.

• Direct Payments for Individuals/Workers
  • All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not dependent on another taxpayer and have a work-eligible social security number, are eligible for $1,200 ($2,400 married) rebate; and $500 per child (for families). Full rebates are available to individuals with no income, as well as those whose income is derived entirely from nontaxable benefit programs, such as SSI benefits.

Phase IV

While the House and Senate are in recess until April 20, Democrats are working aggressively on drafting Phase IV of the coronavirus relief package. House Speaker Nancy Pelosi (D-CA) said the first two bills passed dealt directly with the health emergency, while the third bill mitigated the damage done by economically shutting down.  She says a fourth bill is necessary for economic recovery. Democrats have signaled that the package will address the health and safety of frontline health workers, additional funding for state and local governments, and infrastructure. Speaker Pelosi and Energy and Commerce Chairman Frank Pallone (D-NJ) told reporters on March 30 that the Phase IV legislation will make investments in water infrastructure. Pelosi said, “clean water and infrastructure for broadband and the rest” were “really essential for preparing the country for what we are engaged in and comes next.” Senate Environment and Public Works Chairman John Barrasso (R-WY) has been pushing for his infrastructure bill, S. 2302, to be part of a future package.

While there is Republican support for the Phase IV, there is some pushback from Republican House and Senate Leaders. Minority Leader Kevin McCarthy (R-CA) told reporters that discussions of additional legislation were premature. At the same time, Senate Majority Leader Mitch McConnell (R-KY) said he would like to wait and “see how things are working out.”  President Mike Pence said the administration was open to a fourth bill to support states based on feedback from governors. On March 31, President Trump showed enthusiastic support for a Phase IV bill saying now is the time to move forward on a “very big and bold” $2 trillion infrastructure bill.