Law 360: Frontline Worker Tax Incentives Possible In COVID-19 Bill

By Alan K. Ota · April 27, 2020, 5:38 PM EDT

Lawmakers in both parties are rallying behind new tax incentives to reward first responders, health care providers and other key workers as part of a new relief package aimed at ensuring delivery of essential goods and services during the COVID-19 pandemic.

House Speaker Nancy Pelosi, D-Calif., and her team have vowed to deliver support to health care workers and first responders in virus relief legislation to follow up on the $2 trillion rescue law signed by President Donald Trump in March and an ensuing package last week with funding for small-business loans, hospitals and testing. House Majority Whip Steny Hoyer, D-Md., confirmed that tax incentives for certain workers and employers would be among the items on the table as lawmakers develop the new bill, which is also expected to include proposals for aid to state and local government and another batch of economic impact payments.

“That’s going to be one of the items under discussion,” Hoyer told Law360, referring to incentives for workers and employers playing key roles in the fight against the new coronavirus.

Proponents say tax incentives would compensate such workers for risking exposure to the virus on the job while many Americans obey stay-at-home orders. They say such incentives could move in a package with or without a contentious Senate Democratic plan for creating a so-called Heroes Fund to provide cash to eligible employers to allow them to pay $13 an hour in extra pay — capped at $25,000 for those earning less than $200,000 — through December.

While the direct-payment plan faces GOP opposition for being too ambitious in scope, Reps. Steven Horsford, D-Nev., and Tom Suozzi, D-N.Y., told Law360 they believed tax incentives targeting specific groups of workers could draw bipartisan support on the House Ways and Means Committee as components of virus relief legislation.

Horsford said Ways and Means Chairman Richard Neal, D-Mass., has opened the door to a broad discussion of tax measures aimed at dealing with the COVID-19 pandemic including incentives for workers in health care, law enforcement and other key sectors dealing with transportation, food and energy.

“There are things we need to do for the short term as we come out of this crisis and then for the long term as we recover,” Horsford said.

He said he was developing his own plan to provide a worker-training tax credit to employers in health care in other sectors with shortages of skilled workers.

Suozzi said he thought there could be consensus support for targeted tax items similar to those enacted after the Sept. 11 terrorist attacks of 2001, which included a tax cut and death-benefit exemption for attack victims and an exclusion for certain disaster-relief payments.

“This is kind of a nationwide 9/11. People are putting their lives on the line. We have to recognize they are making sacrifices,” Suozzi told Law360.

A recent Brookings Institution study concluded many of the estimated 49 million to 62 million workers in sectors designated by the U.S. Department of Homeland Security as critical during the COVID-19 pandemic — including those in the fields of health care, law enforcement, food and beverages and energy — earned less than the nation’s hourly median wage of about $18.58. Proposals on Capitol Hill would provide workers in some of these sectors with incentives designed to boost paychecks and prod employers to provide hazard pay.

“They really don’t have any option but to go to work. But a tax incentive would provide greater economic certainty and peace of mind,” Joseph W. Kane, a Brookings economist, told Law360.

He predicted there would be a broad debate among federal, state and local officials on ways to encourage employers to place more value on essential workers.

With such goals in mind, Rep. Joe Neguse, D-Colo., has offered a plan, H.R. 6484, to provide employers with a payroll tax credit to cover the cost of giving frontline health care workers — not including certain workers such as veterinarians and chiropractors — hazard pay equal to a quarter of their usual salary during health emergencies.

“It’s critically important. We need to ensure that our frontline health care workers are compensated for the heroic efforts they are undertaking for the public,” Neguse told Law360.

He said he was working with liberal and moderate Democrats to promote his plan, and would look for GOP co-sponsors.

For their part, some Republicans have called for income tax holidays for certain workers playing key roles in dealing with the virus. For example, Rep. Bill Huizenga, R-Mich., has promoted a proposal, H.R. 6433, to provide an exclusion for up to $50,000 in income from Feb. 15 to June 15 for qualified first responders. Those eligible would include physicians, nurses, law enforcement and corrections officers, firefighters and other medical workers in a county with at least one case of COVID-19.

Rep. Glenn Thompson, R-Pa., has promoted a proposal, H.R. 6567, with Rep. Dwight Evans., D-Pa., a Ways and Means member, to provide a similar exclusion in the same counties for up to $25,000 in earnings for grocery and convenience store workers making less than $75,000.

Thompson compared his plan to the long-standing exclusion in Internal Revenue Code Section 112 for the income of members of the military for every month while they are serving in a combat zone.

“These folks aren’t really making high wages. But what they do is so important. They sanitize, and they stock, and they serve us,” Thompson told Law360.

The bill has the backing of industry groups including the National Grocers Association and the National Association of Convenience Stores.

While such income tax holidays have gained some traction on Capitol Hill, Dean Baker, senior economist at the Center for Economic and Policy Research, warned they might have little practical benefit for many low-wage workers, who have no income tax liability.

As a short-term policy, hazard-pay tax credits for employers in certain sectors probably would be a more effective way to help certain workers in occupations with frequent exposure to the new coronavirus or with high numbers of COVID-19 cases, Baker said. But he added he was skeptical of whether lawmakers would come up with effective longer-range tax measures aimed at ensuring higher wages for workers in certain fields.

“In principle, the market should do that. It’s difficult for Congress to say these are categories of jobs we want people to be paid more to do,” Baker told Law360.