When will the economy come back? Federal Reserve Vice Chair Richard Clarida told CNBC yesterday that the economy could begin growing again in the third quarter. But he didn’t sound all that convinced. “We’re living through the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetime,” Clarida said. Recovery “could begin in the second half of the year.” Third quarter growth is, he said, “within the range of possibility.”
Next Coronavirus Package: Lots on the table, but little action—yet. House Speaker Nancy Pelosi says she hopes to circulate a new $1 trillion relief plan by the end of the week. The House could vote on the package as soon as next week. What will be in it? A lot of aid to state and local governments, possible relief for renters and homeowners, and a possible extension of small business loans and unemployment benefits. Senate Majority Leader seems in no hurry to move a measure, however.
President Trump’s wish list. As for President Trump’s call for a payroll tax cut, Senate Republicans remain divided over the issue. Speaker Pelosi calls the issue a nonstarter. The White House is again promoting a capital gains tax cut and a restoration of tax breaks for business entertainment costs—the infamous three martini lunch.
Health insurance and employee retention tax credits. The IRS issued guidance that requires firms that claim employee retention tax credits under the CARES Act to pay worker wages. But House Ways & Means Committee Chair Richard Neal and the chair and ranking Democrat on the Senate Finance Committee, Chuck Grassley and Ron Wyden, say businesses should get the credits as long as they continue to pay health insurance premiums. So far, Treasury Secretary Steven Mnuchin is backing the IRS.
California sues Uber, Lyft over driver classification and payroll taxes. The state argues that the ride sharing companies have been misclassifying their drivers as independent contractors instead of employees, depriving drivers of paid sick leave and unemployment insurance. California seeks millions of dollars in civil penalties and wants the companies to restore unpaid wages to drivers. It also argues that Uber and Lyft must contribute to state payroll taxes used to fund general health-welfare programs.
State revenue shortfalls will be bad, and worse. The Center on Budget and Policy Priorities has done an early estimate of the damage done by the pandemic. And it isn’t pretty. For fiscal 2021, states project revenue declines ranging from 3 percent in Colorado to 13 percent in Maryland. For fiscal 2020, the shortfalls range from 3 percent in Arkansas to as much as 27 percent in New Mexico.
Local governments weigh whether to delay property tax collections. From Alabama, to Minnesota, to North Carolina, Ohio, to Wisconsin, counties are trying to decide how best to delay tax collections and waive associated penalties while still trying to maintain their cash flows for public services, including public education.
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