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Tax experts urge Congress to redesign coronavirus rebate checks

Tax experts are urging lawmakers to make changes to the coronavirus rebate checks being considered by Senate Republicans. 

Economic policy analysts at think tanks have flagged several aspects of the checks proposal that they think are problematic, including the fact that the lowest-income people wouldn't qualify for the full amount of the checks, and that the check amounts that people would receive in the near-term are based on their 2018 income.

As Republicans and Democrats race to reach a deal, experts hope that improvements will be made to any rebates proposal included in the final package so that it better helps low-income people.

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“We would recommend writing a more broadly based rebate,” said Garrett Watson, a senior policy analyst at right-leaning Tax Foundation. 

Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellSenate GOP eyes Oct. 26 for confirming Barrett to Supreme Court GOP noncommittal about vote on potential Trump-Pelosi coronavirus deal Overnight Health Care: Trump takes criticism of Fauci to a new level | GOP Health Committee chairman defends Fauci | Birx confronted Pence about Atlas MORE (R-Ky.) on Thursday unveiled a stimulus package aimed at providing tax relief to individuals and businesses affected by the coronavirus pandemic.

The centerpiece of the package is a proposal to give Americans rebate checks so that they quickly have more funds to cover expenses at a time when many small businesses have shut down because of state rules intended to prevent the spread of the coronavirus.

Lawmakers quickly raised some concerns about the checks proposal.

Many Democrats, as well as some Republicans, would prefer to expand unemployment insurance instead of issuing checks, arguing that a one-time infusion of cash isn’t enough for people who have lost their jobs.

Some lawmakers on both sides of the aisle have also expressed concerns that lower-income people wouldn’t receive the maximum check amount.

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Tax experts on both the left and the right see rebate checks and expanding unemployment insurance as complimentary to each other and think both would be beneficial. But they argue that the eligibility requirements for the checks under the Senate GOP proposal are problematic.

The check amounts people would receive this year under McConnell’s plan generally depend on their income and tax liability in 2018. 

To be eligible to receive a check, a person has to have had at least $2,500 in income, meaning that the lowest-income people wouldn’t qualify.

Eligible households would receive at least $600 for an individual and $1,200 for a married couple, and the amounts would increase depending on a households’ tax liability until they hit a maximum of $1,200 for individuals or $2,400 for married couples. Eligible households would also receive an additional $500 for each child.

The check amounts also phase out for higher-income households, and would be fully phased out for individuals with income over $99,000 and married couples with income over $198,000 in 2018.

Analysts criticized the fact that lower-income households would not receive the full rebate amount.

According to a chart by the Tax Foundation, a single filer with no children would not receive the maximum rebate amount unless he or she made almost $25,000 in 2018, while a married couple with two children would not receive the maximum amount unless they made nearly $50,000.

Chuck Marr, senior director of federal tax policy at the left-leaning Center on Budget and Policy Priorities, said that many of the people who are losing their jobs during the pandemic, such as retail and restaurant workers, would be poised to not receive the maximum check amount.

“The people who are most vulnerable, you’re giving second-class checks to,” he said.

Seth Hanlon, a senior fellow at the left-leaning Center for American Progress, took issue with the differing rebate amounts for children and adults. He pointed out that a household with two adults and no children could receive up to $2,400, while a single parent with two children would, at most, get $2,200.

“I think the payments should be the same for adults and kids,” he said.

Another critique experts had with the design of the checks is that the payment amounts are generally based on people’s 2018 income. The IRS can use someone’s 2019 income if they haven’t filed a 2018 tax return.

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Kyle Pomerleau, a resident fellow at the right-leaning American Enterprise Institute, noted that someone who had income this year but didn’t have income in 2018 might not qualify for the credit. 

“Obviously, there are some pretty significant holes in this approach,” he said.

Tax experts argued that the rebate checks shouldn’t phase in for people at the lower end of the income spectrum. Some analysts recommended that Congress provide every person with the exact same check amount now, but then claw back the benefit for high-income taxpayers when they file their 2020 taxes next year.

Marr also said that “the legislative language needs to ensure that low-income people actually receive the money.” He said that the IRS cannot be the agency solely responsible for delivering the checks to people because the agency may not interact with the lowest-income people who may not file tax returns.

A spokesman for Senate Finance Committee Chairman Chuck GrassleyCharles (Chuck) Ernest GrassleyGOP noncommittal about vote on potential Trump-Pelosi coronavirus deal Republicans: Supreme Court won't toss ObamaCare Barrett sidesteps Democratic questions amid high-stakes grilling MORE (R-Iowa), who played a key role in drafting the tax portions of the Senate GOP proposal, said that the checks are designed to get money to people quickly and are designed to prevent high-income people from benefiting. He added that the proposal is a starting point for negotiations.

“Considering the urgency of the situation, Sen. Grassley is encouraging his colleagues to provide timely feedback so any potential modifications can be made quickly and assistance can reach Americans as soon as possible,” Grassley spokesman Michael Zona said.