ECONOMIC COMMENTARY

Updated: Congress passes fixes to Payroll Protection Program and the House of Representatives passes a fourth economic stimulus package

House action creates a path for senate action on a fourth stimulus bill

A part of the Washington Policy series

Senate Republicans’ resistance is softening making way for a fourth round of economic relief. Political winds and sentiments can shift quickly and dramatically in Washington especially in election years. Several factors are pushing reluctant Republicans to the negotiating table.

Congress and the Administration underestimated the economic harm caused by COVID-19 on workers and businesses on many sectors. Business loan programs in early economic stability legislation like the Payroll Protection Program were slow to roll out and inadequate for months. The prospects of passage will increase dramatically with the resurgence of COVID-19 across the states triggering renewed business restrictions and closings.

Second, many states have nearly depleted their unemployment funds and are asking for federal help. Cutting employment checks a few months ahead of a general election is not a smart political move. Third, business lobbying groups (an important Republican constituent) have descended on Capitol Hill asking for legislation to shield businesses from COVID-19 related lawsuits as the economy reopens. A new stimulus bill provides negotiation leverage to include liability relief despite traditional Democratic opposition.

Third, Senate Republicans are defending twice as many seats as Democrats in November and could easily lose their slim 3 seat margin. Vulnerable Republicans must show they can get things done especially in a time of crisis. At least 4 seats currently held by Republicans in traditionally reliable red states are trending blue and could break for the Democrats giving them a Senate majority.

And last, the Democratic controlled House of Representatives (House) has passed a fourth economic stimulus bill in May (summarized below) putting pressure on Republicans to act. There are provisions in the bill many Senate Republicans will find attractive. The House bill provides another round of payments to individuals and families plus additional funding for depleted state unemployment funds, state and local governments, heavily impacted hospitals, health care professionals, and first responders.

What is likely to be in a fourth economic stimulus bill

The bill that emerges from the Senate will be smaller and more targeted than the House-passed $3 trillion Heroes bill including stimulating targeted areas of the economy. This will set the stage for difficult negotiations with the House. In my view, negotiations will center on the following (areas where the political parties can find common ground):

  • Federal funding for depleted state unemployment benefit programs.
  • Aid to state and local governments to help with growing deficits related to COVID-19.
  • An extension of the $600 supplemental federal unemployment benefit, however, the benefit will be adjusted to increase incentives to return to work. The current benefit expires in July. The White House is pushing for a payroll tax holiday for workers. A provision that includes both is likely.
  • Business liability relief from many types of COVID-19 related lawsuits.
  • Eliminate certain out-of-pocket health insurance costs for COVID-19 treatment and vaccines. Prior legislation did not address the costs of preventing and treating COVID-19, just testing for the virus.
  • Additional funds for hospitals and other eligible healthcare providers for expenses and lost revenue related to COVID-19-especially critical for COVID-19 surging states.

Temporary restoration of the deduction for state and local taxes.

  • Targeted economic incentives for certain industries like travel and hospitality.
  • Assortment of tax benefits related to loss income on activities like commercial and residential leases.

Payroll Protection Program fixes and the road to a fourth economic stimulus package

In March and April of this year, Congress responded with remarkable bipartisanship passing five pieces of economic stability legislation in respond to the coronavirus pandemic: the Paycheck Protection Program and Health Care Enhancement Act enacted on April 24; the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted on March 27 the Families First Coronavirus Response Act, enacted on March 18; and the Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6. In May, the House of Representatives passed the “Payroll Protection Program Flexibility Act of 2020 and a fourth economic stimulus package called the “Heroes” Act. The bills address shortcomings in prior relief legislation.

Congress approves the Payroll Protection Program Flexibility Act of 2020

The House passed the “Payroll Protection Program Flexibility Act of 2020 by a vote of 417-1 on May 28, 2020. The Senate approved by voice vote on June 3, 2020. The new law provides much needed fixes to the program as the economic harm of COVID-19 extends into the summer. Timing of the new law is urgent because the 8-week spending period to use loan proceeds on payroll expenses began expiring in late May for the first loan recipients after the Small Business Administration program opened April 3. The law increases small businesses’ ability to have their Payroll Protection Program loans fully forgiven and will ease loan forgiveness compliance.

Highlights of the new law:

  • Extends the program from June 30 to Dec. 31, 2020.
  • Allows loan forgiveness for expenses incurred beyond the 8-week period to 24 weeks or the end of 2020, whichever comes first and extends the rehiring deadline.
  • Increases the current limitation on the use of funds for non-payroll expenses (such as rent, utility payments and mortgage interest) from 25% to 40% while still qualifying for loan forgiveness;
  • Extends loan terms from two to five years.
  • Ensures full access to the payroll tax credit (included in the third stimulus law) for PPP loan recipients.

By way of review, the Payroll Protection Program provides short-term loans to businesses to help them stay afloat. Loans from the program are forgiven if the business owner spends at least 75% of the funds on payroll and employee benefits within 8 weeks of receiving the loan. As business closures extend into June in many states, many early loan recipients find themselves unable to meet the payroll spending requirement to receive loan forgiveness.

Heroes Act

On May 15, 2020, the House passed a $3 trillion wide-ranging economic stimulus package called the Heroes Act. The Heroes act includes a second direct payment to qualifying individuals and households of $1,200 per family member among other economic relief programs.

The Heroes Act, officially the Health and Economic Recovery Omnibus Emergency Solutions Act drew immediate criticism and opposition by Senate Republicans. Senate Republicans dismissed the bill as a “liberal wish list” and went so far as to say it is dead on arrival.

Highlights of the legislation:

  • A second round of direct payments up to $1,200 per family member, up to $6,000 per household.
  • Funding for mortgage relief and rental assistance.
  • Student loan debt relief.
  • Extending current enhanced unemployment benefit of $600 per week (on top of states' typical unemployment payout) to January 2021.
  • Extending the employee retention payroll tax credit to help employers keep workers on the payroll.
  • Funding salaries for first responders, health care workers, teachers, and other essential workers in danger of losing their jobs. The bill would also fund hazard pay for workers with high-risk jobs.
  • Additional funding for Coronavirus testing, tracing, and treatment.
  • Financial assistance COBRA health insurance payments.
  • Funding for the US Postal Service, census, and safe elections.
  • Restores the deduction for state and local taxes or 3 years.

Congress extends the small business lending program

A few hours before the expiration of the Paycheck Protection Program on June 30, 2020, Congress extended the small business lending program through August 8, 2020. Over $130 billion is still available for lending to small businesses. Since the original publication of this article on June 9, 2020, the resurgence in COVID-19 across several states, and increasing economic challenges that follow, are pushing Congress to act on a fourth stimulus bill before their planned August recess which they cleverly call their “ August work period”.

Federal Reserve Chairman Jerome Powell testified before Congress on June 29, 2020 saying, “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus”. Treasury Secretary Mnuchin testified at the same hearing offering a more positive outlook on the economy. The Trump administration has indicated it would be willing to back further economic support on top of the nearly $3 trillion in support already approved. Negotiations on the package will heat up now that Congress has returned from their July 4th holiday.

The path through the senate for a fourth stimulus package

The COVID-19 resurgence and the economic pain that follows when added to a challenging November election for Republicans should motivate Senate Republicans to work out a deal with the House Democrats before summer’s end. Negotiations will be tense and difficult with each party trying to score political points with their constituents. And in the end, neither party will be happy with the result. This is usually a good sign that a reasonable compromise has been reached.

We will keep you updated on the federal government’s response to the coronavirus. If you have any questions or want to discuss how this may impact you, please do not hesitate to contact your SVB Private representative.


SVB Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress. Doug provides strategic insight into the political and policy developments in Washington which impact the wealth management business. Advising wealth management clients on business, tax, and retirement issues, he helps firms and their clients understand the legislative and regulatory landscape and how to maximize business opportunities.

Doug served as tax counsel to the U.S. Senate Finance Committee and led the development of the Roth IRA, Simple retirement plan, the health savings account, and the 529 college savings plan. He co-authored the Small Business Jobs Protection Act, the Balanced Budget Act of 1997 and the Health Insurance Portability and Accountability Act.

After serving on the Senate Finance Committee, Doug led Fidelity Investments’ federal government relations and public policy teams. During that time, he focused on financial services, tax, retirement, and health care policy impacting Fidelity and its clients.

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