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Senate Republican Coronavirus Package Is Undermined by Complexity & Impermanence

6 min read

The Senate is poised to vote on a coronavirus aid relief package today, which would provide additional funding for individuals, businesses, and states combatting the pandemic. The “Delivering Immediate Relief to America’s Families, Schools, and Small Businesses Act” enters the negotiations as a Senate Republican response to multiple packages proposed by Democrats and Republicans in Congress over the last three months. While the bill may not pass the Senate and is likely to be rejected by the House, it provides greater insight into what some Senate Republicans see as major policy priorities going into the home stretch of the 2020 election cycle.

Among many other spending provisions, the bill creates a non-refundable education tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for individuals and corporations along with a doubling of the $300 “above-the-line” charitable contribution deduction available for filers under the CARES Act. These provisions represent a Republican counter-offer to the wide-ranging tax credits provided in the HEROES Act and a follow-up to the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act proposed in July.

While the legislation provides legal protections and additional flexibility for parts of the country trying to re-open this fall, it leaves much to be desired. As my colleague Garrett Watson pointed out in July: It is important for Congress to finalize a relief package that is well-targeted at providing liquidity to firms and households, puts the country on a track for economic recovery, and tackles the underlying public health challenge.

Even though these taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. provisions would bring slight relief to individuals and businesses, they do not belong in a proposal designed to maintain the economic recovery. If policymakers desire to create credits for educational expenses and revisit the debate surrounding the charitable deduction, that discussion should take place after the economy is stabilized and with a view toward long-term policy design.

What does the Senate Republican coronavirus bill do?

Individual & Corporate Education Scholarship Tax Credits (Title VI)

  • The legislation includes a non-refundable credit for businesses and individuals for eligible educational expenses between 2020 and 2022. The credit can be carried over for 5 years.
  • The education credit is limited to 10 percent of a taxpayer’s adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” (i.e. gross income minus certain “above-the-line” deductions and before claiming the itemized or standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. s) on contributions to non-profit organizations that provide primary and secondary education to students, irrespective of whether the institution providing the education is private or public.
  • Qualifying expenses are primarily allocated to scholarships for the pupils rather than compensating the educators. Up to 90 percent of the contributions must fall into this category. The bill imposes a national limit of $5 billion annually (fiscal year) on the amount of credits that can be claimed.
  • This non-refundable credit would also be available for C corporations. Notably, contributions must be limited to 5 percent of domestic corporate taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. for a given tax year. All contributions must be made before the end of 2022.

Increased Charitable Contribution Limits for All Filers (Title IX)

The CARES Act provided a $300 above-the-line deduction for charitable contributions for taxpayers to claim for 2020. This expansion is notable because current law limits charitable contribution deductions to filers who itemize their deductions, which tends to be higher-income taxpayers who represent a minority of filers (around 13 percent of all filers in 2019).

The Senate legislation doubles the CARES Act deduction and adjusts for married filers, bringing the total deduction available to $600 for singles and $1,200 for joint filers. These provisions are still limited to contributions in 2020, and are not a permanent change.


There are at least four reasons why these tax credits are not the best means to promote macroeconomic stability or tax relief during the coronavirus pandemic:

  1. Creating more temporary, targeted tax credits introduces more economic distortions into the tax code and increases its complexity.
  2. Credits and deductions will not provide relief until taxpayers file for the 2020 tax year, a scenario which is not likely to occur for at least another 7 months. This means credits are not a well-timed method of relief.
  3. Deductions disproportionately benefit higher-income filers due to the progressive nature of the tax code, meaning that value of deductions rises with marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s.
  4. The provisions are temporary, doubling down on making the code more complicated and increasing confusion for those simply trying to follow the law.

The age-old wisdom from the Founders is apt: simplicity and transparency are ideal principles for the government to follow

James Madison commented in Federalist No. 62 that “it will be of little help to the people if the laws are written—even by the people they elect—if those laws are so long that they cannot be read or incoherent that they cannot be understood. Moreover, if they are repealed or changed…and undergo such incessant changes that no man, who knows what the law is today, can guess what it will be tomorrow” (my paraphrase).

Even if Madison’s language is a bit archaic, the point is not lost on the average taxpayer trying to fill out the tax forms on their own or giving up in frustration and seeking a third-party consulting service. While third-party services provide valuable assistance, the average taxpayer should not be so confused by the system that it is next to impossible to comply without outside help.


The gap between the White House and Congressional lawmakers on the ceiling of pandemic relief spending has led both sides to propose their preferred policies as the route to relief. Lawmakers should continue to discuss and debate which policies provide short-term relief to American businesses and individuals. For example, Congress could allow businesses to “cash out” allowances for depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. or net operating losses made in previous years, provide an additional round of targeted payments if individual relief is needed, or focus on reaching a compromise over unemployment insurance (UI) compensation benefits. Congress should also think about long-term ways to induce growth coming out of the crisis.

Instead, lawmakers continue to lob tit-for-tat proposals that are unlikely to gain bi-cameral support and put the American people in a waiting game until the election on November 3. In the “lame duck” session which follows the election, more progress may be made to pass legislation to fund the government until the next Congressional session begins in January, though it is unlikely to lead to larger breakthroughs.

Whether the proposal is favored by Republicans or Democrats, any tax components should make the code simpler, more transparent, and more stable. Creating temporary credits and boosting charitable contributions may lead to greater psychological assurance that lawmakers are watching out for civil society. However, there are better ways of providing short-run relief without making the code more complicated. A route to that alternative begins by lawmakers actually debating and discussing solutions on Capitol Hill.

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