WASHINGTON, DC – MARCH 13: U.S. Speaker of the House Rep. Nancy Pelosi (D-CA) speaks to members of … [+]
Last Wednesday, House Democrats put out the text of a bill to respond to the coronavirus emergency by boosting food aid and unemployment insurance, mandating free/no-out-of-pocket testing, and, as a centerpiece, a paid leave program for those affected by quarantines and school closings. (I described the bill’s provisions here.)
Now, as a result of negotiations between Speaker of the House Nancy Pelosi and Treasury Secretary Steven Mnuchin, the House passed a revised form of the bill late Friday night/early Saturday morning which is expected to be passed by the Senate and signed by the president, though, according to Mnuchin at a press conference today, there will be a “technical correction” along the way — which means that, of the flaws in the bill as written, it’s not yet possible to know which of these will be cleaned up, as mere oversights at the moment, and which will be true deficiencies of the program when implemented.
But having said that, here’s a read-through of the new version of the bill, with a particular eye toward changes since the first iteration, and with a consideration of their social-insurance elements (that is, without making any claims about their macroeconomic or epidemiological effects).
The same additional food assistance money and program waivers, etc., as in the original bill are reproduced here.
In addition, the same unemployment insurance waivers and additional funding are included.
And the same requirements of no-copay or free virus testing are maintained.
Emergency Paid Leave Benefits
This is the key change in the bill. The new version of the bill provides for, in Division C, the Emergency Family and Medical Leave Expansion Act, first, 14 days of unpaid leave, and, thereafter, paid leave at a rate of 2/3rds the employee’s regualar rate of pay for the employee’s usual work hours, for all employees with 30 days of work history and at employers with less than 500 employees. (The bill does not specify the duration of the benefit but I presume this is meant to last as long as the “regular” Family and Medical Leave Act benefits, that is, 90 days maximum.)
In addition, Division E, the Emergency Paid Sick Leave Act, requires employers to provide 80 hours of paid sick time, for purposes of quarantine or care of family members due to coronavirus, with prorated amounts for part-time workers.
Finally, Division G covers Tax Credits for Paid Sick and Paid Family and Medical Leave.
With respect to the Paid Sick Time (Division E), employers are given tax credits in the amount of “100 percent of the qualified sick leave wages paid by such employer.” These credits are limited to $200 per day, or $511 for time taken off for purposes of the sickness or quarantining of the employer him/herself (that is, as opposed to caring for a quarantined family member or a child whose school/daycare has been closed), and are limited to 10 days per calendar quarter.
In addition, self-employed individuals can take “sick time” as well, with a tax credit applied against their self-employment taxes, based on their usual income during this time period.
With respect to the Paid Family Leave (Division C – the 2/3rds rate benefit), a similar tax credit is applied, set at a maximum of $200 per day or $10,000 per individual in aggregate over the course of the one year program. Again, self-employed individuals can have their self-employment tax similarly reduced.
In all these cases, because it is the payroll (FICA) tax which is reduced, equivalent amounts shall be added into the applicable Social Security trust funds from federal general revenues.
In other words, rather than a new government bureaucracy starting up, as in the original proposal, they’ve moved to a much simpler method. And, unlike the original self-certification process, there will be oversight.
What’s this mean?
In the first place, the employer mandates are being widely reported, the tax credits not so much, but the two work hand-in-hand.
What’s more, the largest puzzle in this bill is the provision that this program is limited to employers with fewer than 500 employees.
That’s being reported as a pernicious favoring of Big Business by the administration, by leaving them to decide on leave benefits for their employees as they choose. But at the same time, it is the smaller businesses who are the only ones being given tax credits to make them whole for the mandatory leave they will be required to provide. Given the rush in assembling this bill, and in particular in revising the format from being administered through the Social Security Administration through a benefit coming from employers themselves, it’s not clear what the true intent was; I could well imagine a plan to mandate the leave for everyone, but only provide government funding for small/medium-sized businesses (since Mnuchin states multiple times that the intent was to provide assistance for this group specifically), but it’s not out of the question that larger employers would be believed to be pressured into offering benefits even without a mandate.
To be honest, my preferred approach would be credits up to the 500th employee of any business, so that businesses are not penalized for having 501 employees (or left to fight a determination of when the headcount is assessed, if they terminate employee number 501 at some point in the year).
In addition, as Mnuchin clarified at the press briefing, the IRS will pay out the funds in advance, with guidelines issued to provide a process.
Finally, there’s a larger challenge to putting together a package such as this. The initial legislation stated that benefits would be provided to everyone who attested to qualifying for them, with no documentation; here there are provisions to allow unspecified documentation to prove eligibility. But there is a balance to be struck here, and, let’s face it, a moral hazard issue: how do you balance benefits to minimize the financial distress of affected individuals, and overall economic effect, while at the same time, preventing a situation in which individuals too quickly leave their jobs to take advantage of an opportunity to collect pay, for example, when children are at home from school but aren’t truly so young as to require constant direct supervision or when other caregivers (e.g., an older sibling, the other parent) are available to supervise them? This is, as I explained in my first social insurance explainer, the key trade-off that lies behind many issues in social insurance of all types, and a tough nut to crack in general.
As always, you’re invited to comment at JaneTheActuary.com!