CRS Reports

Many businesses across all sectors are experiencing disruption and incurring losses from the Coronavirus Disease 2019 (COVID-19) pandemic. The pandemic has stirred a debate among insurers, policyholders, and other stakeholders about who will be responsible for the losses that companies face from widespread shutdowns. This Insight will focus on efforts at the federal level to address business interruption (BI) insurance coverage for COVID-related shutdown losses. Insurance is primarily regulated at the state level, and there are efforts in a number of states providing for coverage of BI claims on a retrospective basis, which are addressed in CRS Insight IN11382, Business Interruption Insurance and COVID-19: State Legislative Initiatives. More detail on BI insurance itself can be found in CRS Insight IN11295, Business Interruption Insurance and COVID-19. Many policyholders who purchased BI are submitting claims to their insurers. However, insurers are largely reluctant to cover COVID-related losses. Both individual insurance carriers and the industry as a whole have asserted that BI claims related to COVID-19 are not covered, particularly as many BI policies expressly exclude coverage for viruses. The disputes largely center on the extent to which COVID-related impacts are covered by BI policies. Most disputes are not likely to be resolved quickly, leading to calls for a legislative response. For example, the Business Interruption Group, a new non-profit organization representing the restaurant industry, presented their case to the President, and he expressed support for businesses in their claims against insurers at the White House coronavirus briefing on April 10. The insurance industry has expressed the view that forcing insurers to cover such claims would potentially redistribute billions of dollars of economic losses caused by COVID-19, and would put too much financial strain on insurers that did not price premiums to reflect virus-related losses since they were excluded from policies. They argue that any attempt retroactively to cover BI policies could make it impossible for insurers to provide affordable coverage in the future. Federal Actions Related to Business Interruption Insurance A bipartisan group of 18 House Members sent a letter on March 18, 2020, to CEOs of the four major insurance trade organizations, calling upon them to cover BI losses due to COVID-19. Those organizations responded with a letter setting forth the industry position that BI policies generally do not provide coverage for losses resulting from viruses and that the policies had not been priced to provide such coverage. The bipartisan Problem Solvers Caucus recommended treating the coronavirus as a covered peril for BI policies, though it is silent on how this would be funded. Seven Senators on the Senate Banking Committee, on April 10, 2020, sent a letter to the President asking that he commit to protecting the insurance industry against state legislation, and warning that paying retroactive BI claims could lead to economic strain and potentially insolvency for commercial insurers. Legislation in the 116th Congress includes: H.R. 6494, the Business Interruption Insurance Coverage Act, would require insurers to make available BI coverage due to viral pandemics, forced closure of businesses or mandatory evacuation by government order, and public safety power shut-offs. The bill would also provide that any exclusion in force on the date of enactment would be void to the extent that it excludes the losses specified above. However, such exclusions may be reinstated if (1) reinstatement is agreed to in writing by the insured; or (2) the insured fails to pay any increased premium for providing such coverage after notice as specified in the legislation. The bill would apply to all property and casualty insurance policies, not just policies issued to small businesses. The bill is not explicitly retroactive and does not include any provision for reimbursing insurers for paying future BI claims. H.R. 6497, the Never Again Small Business Protection Act of 2020, would require insurers that offer BI policies to make available optional additional coverage that covers losses from BI due to any government order requiring cessation of activities during a national emergency. The bill would also provide that BI coverage pursuant to the bill would not be available to any business which has involuntarily terminated the employment or terminated the health insurance of any employee during the period of the national emergency. The bill would further provide that a contract for BI coverage could exclude coverage for business interruptions resulting from national emergencies only if (1) reinstatement is agreed to in writing by the insured; or (2) the insured fails to pay any increased premium for providing such coverage. These requirements, however, come into effect only after the Secretary of the Treasury certifies that there is a federal backstop mechanism in place for excess losses due to the requirements. The bill does not contain any provisions limiting the size of the businesses to which it applies. No bill providing for direct federal support for BI has been introduced, but both House Financial Services Chair Maxine Waters and Representative Carolyn Maloney have indicated interest in legislation to establish a Pandemic Risk Insurance Act (PRIA). The model for this is the federal terrorism insurance backstop, the Terrorism Risk Insurance Act (TRIA), and a discussion draft has reportedly circulated. The Risk Management Society issued a letter to congressional party leadership requesting the creation of a pandemic risk insurance program, and the concept has found support from stakeholders who have been skeptical of government intervention in the past. It is not clear how many businesses would be affected by legislation related to BI coverage. A report on disaster-affected firms by the Federal Reserve found that 17% of affected firms had BI insurance at the time of the 2017 disasters (Hurricanes Harvey, Irma, and Maria, and California wildfires). The report also found that 57% had property insurance. Other sources have suggested that 34% or 40% of businesses have BI insurance.

May 11, 2020

IN11382CRS Insights

Business Interruption Insurance and COVID-19: State Legislative Initiatives

One of the most significant challenges currently facing businesses is the loss of revenue as a result of the coronavirus (COVID-19) pandemic and subsequent stay-at-home orders. Businesses across all sectors are incurring losses, and those with business interruption insurance (BI) are submitting claims to their insurers. However, both individual insurance carriers and the industry as a whole have asserted that BI claims related to COVID-19 are not covered, either because there has been no physical damage to the property or because the policy expressly excludes coverage for viruses, or both. More detail on BI insurance can be found in CRS Insight IN11295, Business Interruption Insurance and COVID-19. Insurance companies are regulated by states; the role of the federal government in regulating private insurance (other than health insurance) is more limited. Federal initiatives related to BI coverage are discussed in CRS Insight IN11383, Business Interruption Insurance and COVID-19: Federal Legislative Initiatives. Given the likelihood that many COVID-19 losses will not be covered by BI insurance, many small businesses have requested that their elected representatives intervene through legislation to require their claims to be paid, and a number of state lawmakers have drafted legislation to compel coverage. Legislators in at least eight states have introduced bills, with others considering legislation, to require insurers to provide retroactive BI coverage for coronavirus-related losses even if coverage under the policies otherwise would not be triggered. The state BI bills have certain features in common, requiring insurers with in-force BI policies or property insurance policies to cover BI losses during a defined period of a declared emergency due to COVID-19, retroactive to the date when the state of emergency was declared. The claims payment would initially come from insurers, but the proposals vary in the extent to which insurance companies or the government would ultimately fund those payments. Most of these bills would apply only to small businesses. Insurers Reimbursed for Paying BI Claims for Policies with Virus Exclusions New Jersey A-3844, New York A.10226-B, New York S.8178, New York S.8211, Ohio H.B. 589, and Pennsylvania H.B.2372 would require insurers to pay BI claims even if the policy expressly excludes losses due to viruses. Insurers would pay the claims and apply to the state insurance regulator for reimbursement, who would impose a special purpose assessment on all insurers to recover costs of reimbursement. Reimbursement would be distributed to companies which paid BI claims according to the proportion of net premiums written by the company. New York A.10226 and New York S.8211 would nullify any exclusion clauses in an insurance policy, including but not limited to loss of use and occupancy and business interruption, which allows the insurer to deny coverage for a virus, bacterium, or other microorganism. Ohio H.B.589 would create a Business Interruption Insurance Fund, and any amount remaining in the Fund after claims are reimbursed would be returned to insurers. Insurers Reimbursed for Paying BI Claims for Policies with Virus Exclusions or Requirement for Evidence of Physical Damage Massachusetts S.D.2888, South Carolina S.1188, and Washington, DC, B23-750 would require insurers to pay BI claims for losses caused directly or indirectly by COVID-19, including all mutated forms of the virus, even if the policy expressly excludes losses due to viruses and/or requires evidence of physical damage. The South Carolina and Washington, DC bills would apply to orders issued by any civil authority. The Washington, DC bill would only apply to businesses with fewer than 50 employees and less than $2.5 million in federal gross receipts or sales. All three bills would require insurers to pay the claims and apply for reimbursement from the state regulator. The state regulator would be authorized to make one or more special assessments in each fiscal year on all insurers to recover the amounts paid to insurers, who would be reimbursed according to the proportion of net premiums written by the company. In Massachusetts, noncompliant insurers could be subject to penalties under state law regulating unfair practices in the insurance industry. Insurers Not Reimbursed for Paying BI Claims Louisiana H.B.858 and Louisiana S.B.477 would require insurers to pay BI losses to businesses with BI policies in force, even if the policy expressly excludes losses due to viruses. Louisiana S.B.477 does not specify a business size. Michigan H.B.5739 would require insurers to pay all BI claims due to the coronavirus. None of these bills contain any provision for reimbursing insurers. Pennsylvania S.1114 would require insurers to pay BI losses to businesses with BI policies in force, even if the policy expressly excludes losses due to viruses or due to civil authority orders and/or requires evidence of physical damage. Policyholders classified as small businesses according to the criteria of the Small Business Administration would receive 100% of the policy limit for eligible claims for covered losses, while policyholders not classified as a small business would receive 75% of the policy limit. The bill would apply to insurance companies providing coverage against business interruption or loss or damage to property, including the loss of use and occupancy. The bill defines property damage as damage including, but not limited to the presence of a person positively identified as having been infected with COVID-19: (1) in the property; (2) in the municipality in which the property is located; or (3) in the Commonwealth of Pennsylvania. The bill does not contain any provision for reimbursing insurers. Business Interruption Claims Paid by the State Pennsylvania H.B. 2386 would establish a COVID-19 Business Interruption Grant Program to provide grants to businesses that have been impacted by COVID-19 and whose BI claim has been denied. Funding for the grant would be appropriated by the state from the general fund. If a business receives a grant, it would be required to remain open and not lay off any employees for the duration of the COVID-19 disaster emergency. Any business which receives a grant and does not comply with these requirements would be required to repay the amount of the grant plus an additional 10%.

May 11, 2020

R46346Economic Policy

Medicaid Recession-Related FMAP Increases

Medicaid is jointly financed by the federal government and the states. States incur Medicaid costs by making payments to service providers (e.g., for doctor visits) and performing administrative activities (e.g., making eligibility determinations), and the federal government reimburses states for a share of these costs. The federal government’s share of a state’s expenditures for most Medicaid services is called the federal medical assistance percentage (FMAP). The FMAP varies by state and is inversely related to each state’s per capita income. For FY2020, FMAP rates range from 50% (13 states) to 77% (Mississippi). Medicaid is a countercyclical program, which means that the rate of growth for Medicaid enrollment tends to accelerate when the economy weakens and tends to slow when the economy gains strength. During recessions, growth in the unemployment rate results in an increase in the rate of growth for Medicaid enrollment, which increases the rate of growth for Medicaid expenditures at the same time that state revenues decline. Reduced state revenues can make it difficult for states to continue financing their Medicaid program, especially with the recession-related growth in Medicaid enrollment. Federal fiscal relief to states is provided during recessions through adjustments to the FMAP rate because this process for getting federal Medicaid funding to states is already in place. Many states have indicated that past FMAP increases allowed the states to prevent further reductions to their Medicaid programs and other portions of their state budgets. The federal government provided states with temporary FMAP rate increases to provide states with fiscal relief on two past occasions: in response to the 2001 recession through the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27) and in response to the Great Recession through the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5, as amended by P.L. 111-226). The JGTRRA FMAP increase provided a 2.95 percentage point increase to FMAP rates for the last two quarters of FY2003 and the first three quarters of FY2004. The ARRA FMAP increase provided an across-the-board increase, along with an unemployment-related increase for eligible states. The ARRA across-the-board increase was a 6.2 percentage point FMAP increase, starting in the first quarter of FY2009 and lasting through the first quarter of FY2011; the increase phased down to 3.2 and 1.2 percentage points for the second and third quarters of FY2011, respectively. Most recently, the Families First Coronavirus Response Act (FFCRA; P.L. 116-127) added a temporary Medicaid FMAP increase of 6.2 percentage points beginning January 1, 2020, and continuing through the Coronavirus Disease 2019 (COVID-19) public health emergency period. Although the country had not officially entered into a recession at the time FFCRA was enacted, a recession with significant increases in the unemployment rate was expected in the near term. The recession-related FMAP increases have similar components, but there are differences. Similarities of all three of these recession-related FMAP increases include across-the-board FMAP increases; requirements to maintain Medicaid eligibility standards that are no more restrictive than they were prior to the FMAP increases; and requirements to ensure that states do not increase the percentage that local governments contribute to Medicaid expenditures. However, there are differences in how the recession-related FMAP increases were determined. For instance, the JGTRRA and ARRA FMAP increases included hold-harmless provisions that kept the states’ regular FMAP rates from declining, and these increases excluded certain Medicaid expenditures from the FMAP increases. The ARRA FMAP increase had an unemployment-related increase that the JGTRRA and FFCRA increases did not have. Also, the JGTRRA FMAP increase did not have additional requirements for states, but ARRA and FFCRA have differing sets of additional requirements for states to adhere to in order to qualify for the FMAP increases.

May 7, 2020

IN11378Economic Policy

IRS Guidance Says No Deduction Is Allowed for Business Expenses Paid with Forgiven PPP Loans

May 6, 2020

R46349Asian Affairs

North Korea: A Chronology of Events from 2016 to 2020

This report provides a detailed chronology of events relevant to U.S. relations with North Korea from January 2016, when North Korea conducted its fourth nuclear test, through the end of March 2020. (For background, the chronology includes a number of milestone events before 2016.) That nuclear test launched a new period of concentrated attention on North Korea (officially the Democratic People’s Republic of Korea, or DPRK). The Obama and Trump Administrations made denuclearization of North Korea one of their top foreign policy priorities, and Congress has devoted considerable attention to North Korea and the executive branch’s North Korea policy. The 2016-March 2020 period can be divided into two chapters: the “belligerent phase” and the “diplomatic phase.” During the belligerent phase, in 2016 and 2017, North Korea conducted scores of missile tests and three nuclear weapons tests. The Obama and Trump Administrations responded by expanding multilateral and unilateral sanctions against North Korea. Under its “maximum pressure” approach, the Trump Administration led the United Nations Security Council (UNSC)—including China and Russia—to pass three new sanctions resolutions that expanded the requirements of U.N. member states to halt or curtail their military, diplomatic, and economic interactions with North Korea. In repeated public remarks during 2017, Trump Administration officials, including the President, emphasized the possibility of launching a preventive military strike against North Korea. The diplomatic phase began in early 2018. North Korean leader Kim Jong-un dropped North Korea’s belligerent posture and embarked on a “charm offensive” that led to a flurry of diplomatic activity. Over an 18-month period, Kim held 12 summit meetings with the leaders of several major regional powers: five with Chinese President Xi Jinping, three with South Korean President Moon Jae-in, three with President Trump, and one with Russian President Vladimir Putin. In the course of these events, Kim publicly stated that he would “work toward complete denuclearization of the Korean Peninsula.” To that end, he pledged not to conduct nuclear or long-range missile tests while dialogue continued and agreed to the “permanent dismantlement” of the Yongbyon Nuclear Scientific Research Center “as the United States takes corresponding measures.” South Korea, North Korea, and the United States agreed to build a “peace regime,” the first step of which apparently would be a declaration formally ending the Korean War. In addition, President Trump unilaterally cancelled most large-scale U.S.-South Korea military exercises, a step long sought by North Korea and China. The two Koreas signed a military confidence-building agreement designed to reduce tensions, particularly at the demilitarized zone that separates North and South Korea. Since Kim and President Trump’s first summit in Singapore in June 2018, however, little progress has been made on denuclearization, despite two more Kim-Trump meetings. Since the June 2019 meeting, only one round of talks has been held and it did not produce a breakthrough. U.S. officials say their North Korean counterparts have refused to engage in additional negotiations. The deadlock largely is due to disagreements over the timing and sequencing of concessions that each side should provide. In particular, North Korea is seeking significant sanctions relief in return for the steps it claims it already has taken, but U.S. officials have said sanctions will not be eased until denuclearization is complete. Meanwhile, North Korea appears to be enhancing its military capabilities. In addition to continuing to produce nuclear material, between May 2019 and late March 2020, North Korea conducted multiple short-range ballistic missile (SRBM) tests; such tests violate United Nations Security Council prohibitions. In February 2020 written testimony before the Senate Armed Services Committee, the Commander of U.S. Northern Command said “recent engine testing suggests North Korea may be prepared to flight test an even more capable ICBM design that could enhance Kim’s ability to threaten our homeland during a crisis or conflict.” President Trump has dismissed the significance of these tests. Since the Hanoi summit, North Korea also has largely refused to interact with South Korea, spurning Moon’s efforts. In a possible signal that the active diplomatic phase of current U.S.-DPRK relations may be coming to an end, Kim in December 2019 announced that, due to the United States’ policies “to completely strangle and stifle the DPRK ... there is no ground” for North Korea to continue to maintain its nuclear and missile testing moratorium. Kim criticized the United States’ continuation of sanctions, joint military exercises with South Korea, and shipments of advanced military equipment to South Korea. Kim warned, “the world will witness a new strategic weapon to be possessed by the DPRK in the near future.” The statement noted that this could be adjusted depending on the “U.S. future attitude.”

May 5, 2020

R46342Economic Policy

COVID-19: Role of the International Financial Institutions

The international financial institutions (IFIs), including the International Monetary Fund (IMF), the World Bank, and regional and specialized multilateral development banks, are mobilizing unprecedented levels of financial resources to support countries responding to the health and economic consequences of the COVID-19 pandemic. More than half of the IMF’s membership has requested IMF support, and the IMF has announced it is ready to tap its total lending capacity, about $1 trillion, to support governments responding to COVID-19. The World Bank has committed to mobilizing $160 billion over the next 15 months, and other multilateral development banks have committed to providing $80 billion during that time period. At the urging of the IMF and the World Bank, the G-20 countries in coordination with private creditors have agreed to suspend debt payments for low-income countries through the end of 2020. Policymakers are discussing a number of policy actions to further bolster the IFI response to the COVID-19 pandemic. Examples include changing IFI policies to allow more flexibility in providing financial assistance, pursuing policies at the IMF to increase member states’ foreign reserves, and providing debt relief to low-income countries. Congressional Role Congress exercises oversight of U.S. participation of the IFIs and authorizes and appropriates U.S. financial contributions to the IFIs. In response to the overwhelming demand for IFI resources, in March 2020 Congress accelerated authorizations that were under consideration in the FY2021 budget request to increase funding for the IMF, two World Bank lending facilities, and two African Development Bank lending facilities (P.L. 116-136). Some of the policy actions under discussion to bolster the IFI response to the COVID-19 pandemic, such as IMF gold sales, IMF policies to bolster foreign reserves, and additional debt relief for low-income countries, would require congressional legislation. Some Members of Congress may seek to shape or exercise broader oversight of U.S. policy towards IFI policy changes as well as new IFI programs that could exceed $1 trillion.

May 4, 2020

IN11376CRS Insights

Noncitizens and Eligibility for the 2020 Recovery Rebates

Some policymakers have expressed concern that certain individuals, including some immigrants (referred to as noncitizens, foreign nationals, or aliens in law and throughout this Insight), are ineligible for direct payments under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). The statute refers to these payments as 2020 recovery rebates. The Internal Revenue Service (IRS) refers to these payments issued in 2020 as Economic Impact Payments. For more detailed information on these payments, see CRS Insight IN11282, COVID-19 and Direct Payments to Individuals: Summary of the 2020 Recovery Rebates/Economic Impact Payments in the CARES Act (P.L. 116-136). There are three main categories of individuals who are ineligible for these payments (not necessarily mutually exclusive): children over 16 years old and adult dependents; certain noncitizens who have individual taxpayer identification numbers (ITINs) or are nonresident aliens; and higher-income taxpayers (generally with income over $99,000 if single, $198,000 if married, with higher thresholds for those with qualifying children). Generally, receipt of these payments in 2020 will be based on individuals’ eligibility using information from 2019 (or, if unavailable, 2018). This Insight provides an overview of one category of individuals who are ineligible for the 2020 recovery rebates—certain noncitizens who have ITINs or are nonresident aliens. How are noncitizens classified for federal tax purposes? The 2020 recovery rebates are structured as refundable tax credits. Hence, to understand how the eligibility rules of these benefits will affect certain noncitizens, this Insight first examines how the federal tax code classifies noncitizens. Under U.S. immigration law, noncitizens are generally admitted into the United States as immigrants to live permanently or as nonimmigrants to stay on a temporary basis. Like citizens, noncitizens may be required to file a federal tax return (or other documents with the IRS) or even if not required, may find it advantageous to do so (e.g., to get back excess taxes withheld from their paychecks). For federal tax purposes, however, noncitizens are classified as either resident or nonresident aliens, regardless of their status as immigrants or nonimmigrants, or whether they are in the United States unlawfully. This classification is for federal tax purposes only and does not affect the individual’s immigration status. Resident and nonresident aliens are generally taxed differently and subject to different tax filing requirements. Like U.S. citizens, noncitizens must have a taxpayer identification number to file their federal tax returns or other documentation with the IRS, pay taxes, and otherwise comply with federal tax law. For many noncitizens, their taxpayer ID will be a Social Security number (SSN). Those who are ineligible for an SSN (see below) are required to use an individual taxpayer identification number (ITIN) instead. Nonresident Aliens A noncitizen will typically be classified as a nonresident alien if he or she is not a lawful permanent resident or is not in the United States for a substantial period of time—at least 31 days in the current year and 183 or more days in the past three years, weighted toward the present year (called the “substantial presence” test). There are numerous exceptions that result in individuals who pass the substantial presence test still being classified as nonresident aliens for tax purposes. For example, foreign students, teachers, diplomats, au pairs, and other types of exempt individuals are generally considered nonresident aliens. In addition, noncitizens who pass the substantial presence test can still be deemed a nonresident alien if they have a closer connection to a foreign country. Nonresident aliens generally file a Form 1040-NR income tax return. (In contrast, resident aliens use the same federal income tax return as U.S. citizens, the Form 1040.) In 2017, 771,809 Form 1040-NRs were filed with the IRS. As reference, in 2017 more than 150 million Form 1040s were filed. Data are not available on how many 1040-NRs were filed using an ITIN. Individual Taxpayer Identification Number (ITIN) Filers Individuals who are ineligible for an SSN are required to use an individual taxpayer identification number (ITIN) when filing their tax returns and other documents with the IRS. ITINs are issued by the IRS and are for federal tax purposes only. Thus, ITINs enable noncitizens who do not have SSNs to comply with federal tax law. SSNs are issued by the Social Security Administration (SSA) to U.S. citizens and certain groups of noncitizens—specifically, lawful permanent residents (green card holders), asylees, refugees, and aliens who are authorized to temporarily work in the United States. This Insight refers to these SSNs collectively as “work-authorized SSNs.” (The SSA also issues SSNs to a small share of aliens without work authorization who need an SSN to receive certain public benefits.) Deferred Action for Childhood Arrivals (DACA) recipients and those with temporary protected status (TPS) generally have work-authorized SSNs. Use of an ITIN does not necessarily mean an individual is unlawfully present. The IRS and the Treasury Inspector General for Tax Administration believe, however, that a large proportion of ITIN filers are unlawfully present aliens working in the United States. There is limited publically available data on other characteristics of ITIN filers. While some taxpayers using ITINs may be living and working in the country unlawfully, not all noncitizens who are unlawfully present or unauthorized to work file their taxes using an ITIN. For example, some may file using an SSN they lawfully received at one time (e.g., they may have been lawfully present and authorized to work but overstayed their visa). In 2017, 3,892,194 Form 1040 tax returns were filed that included at least one ITIN (i.e., for the taxpayer, spouse, and/or dependent). On these returns, a total of 7,512,076 ITINs were used. (Data provided to CRS by the IRS.) These do not include ITIN filers who used IRS Form 1040-NR. Even if all 1040-NRs (almost 800,000) were filed using ITINs, the vast majority of ITIN filers use a Form 1040, suggesting that most ITIN filers are resident aliens. Which noncitizens are ineligible for the 2020 recovery rebates? Noncitizens who are ineligible for the 2020 recovery rebates include nonresident aliens; and ITIN filers, who by definition do not have a work-authorized SSN (defined for the child tax credit) as well as aliens whose SSNs are associated with public benefits. For married joint filers, both spouses must have work-authorized SSNs, unless one is a member of the Armed Forces. A taxpayer’s qualifying children must have work-authorized SSNs (or adoption taxpayer identification numbers [ATINs]) for the taxpayer to qualify for the $500 payment per qualifying child. Nonresident aliens As a result of limiting eligibility to noncitizens who are resident aliens, certain noncitizens in the United States for limited periods—including au pairs, foreign students and teachers, and diplomats—are generally ineligible for these payments. ITIN Filers As a result of limiting eligibility to those with work-authorized SSNs, many noncitizens who are unlawfully present or unauthorized to work in the United States (and thus may use ITINs) are ineligible for these payments. Mixed-Status Families Mixed-status married couples who file their taxes jointly—where one spouse has a work-authorized SSN and the other an ITIN—are ineligible for the payment. Mixed-status married joint filers with U.S. citizen children (who hence have work-authorized SSNs) are also ineligible for the payment, even if their children are otherwise eligible. Are there legislative proposals to modify these eligibility requirements? In the House, the Coronavirus Immigrant Families Projection Act (H.R. 6437) would expand the definition of taxpayer ID required to claim the 2020 recovery rebate to include ITINs. (To date, proposed Senate legislation has not been introduced.) Similar legislation includes H.R. 6438. The Recovery Rebates Improvement Act (H.R. 6485) would allow eligible married joint filers with at least one work-authorized SSN to receive the direct payments, expanding eligibility to mixed-status couples. The Take Responsibility for Workers and Families Act (H.R. 6379) also proposed direct payments, although they differed from the CARES Act’s 2020 recovery rebates. The payments in H.R. 6379 would have been available to taxpayers with both SSNs and ITINs (nonresident aliens were ineligible for these payments).

May 1, 2020

IN11366Agricultural Policy

COVID-19 Disrupts U.S. Meat Supply; Producer Prices Tumble

U.S. livestock and poultry producers entered 2020 with an optimistic outlook for prices and income. Then in mid-March the food service sector, which accounts for a substantial share of meat consumption, was largely shut down as most states closed all but essential businesses. A temporary surge in retail meat purchases offset some of the reduction in food service demand. However, in early April, the situation worsened for producers as COVID-19 outbreaks began spreading in meatpacking plants around the United States, disrupting meat processing and leading to some shortages of meat products in grocery stores. The reduction in slaughter is weighing on livestock prices, reflecting shrinking meatpacker demand for slaughter-ready livestock and poultry. On April 12, 2020, Smithfield Foods, the largest pork processor in the United States, indefinitely closed its Sioux Falls, SD, pork processing plant because of the spread of COVID-19 among plant workers. With an estimated daily slaughter capacity of 19,500 head, the Sioux Falls plant accounts for 4% of estimated daily U.S. hog slaughter. More pork slaughter capacity has been lost since then because of COVID-19 outbreaks in plants operated by other processors. On April 13, JBS USA announced it was closing its Greeley, CO, beef plant until April 24 because of an outbreak of COVID-19 among plant workers. Cattle Buyers Weekly estimates daily slaughter capacity of 6,000 head at the Greeley plant, which would be 4%-5% of daily national cattle slaughter capacity. Other beef plants have had to close due to COVID-19 outbreaks among workers. Outbreaks of COVID-19 have hit beef, pork, and poultry plants across the country. As of April 27, at least 15 meatpacking plants were reported closed. Some plants have shut down temporarily to clean and reconfigure work stations; others have not set reopening dates. Reportedly, some plants have implemented onsite temperature monitoring of employees, spread out workers within plants, set up plexiglass dividers between workers who normally operate in tight spaces, and spread the work of one shift over two shifts, thus slowing operating speed. Even so, some meat plant employees have asserted that packers have not implemented adequate protective measures in their plants. On April 26, 2020, the Occupational Safety and Health Administration updated guidelines to address workplace conditions for meat plant workers. On April 28, 2020, President Trump announced that he plans to sign an executive order that would use the Defense Production Act to classify meat processing as critical infrastructure to keep production plants open. Production Shortfall The Commodity Futures Trading Commission reported in its April 22, 2020, Agricultural Advisory Committee meeting that U.S. meat plants were operating at about 60% of capacity. The estimate is based on plant closures combined with open plants that are running at 50%-75% of normal capacity as plants slow operations to protect workers. Steve Meyer of Kerns and Associates has estimated that nearly 30% of pork processing capacity will be offline as of April 24 because of COVID-19 outbreaks. The shutdown of some meat slaughter plants may have a cascading effect on consumer products, because slaughter plants often supply intermediate products to food plants for further processing, thus leading to a sequence of supply disruptions. Estimated meat production (beef, pork, and chicken) for the week ending April 25 declined 13%, compared with the same week a year ago, while during the three weeks since April 4, meat production was 10% lower than the same period last year. As long as COVID-19 disruptions continue, there may be shortages of meat products in some grocery stores. However, there are ample numbers of cattle, hogs and broiler chickens to meet demand, especially given reduced demand from institutional markets such as schools and restaurants. As of April 9, the U.S. Department of Agriculture (USDA) forecasts record U.S. meat and poultry production of 108 billion pounds in 2020, or 3% more than in 2019. USDA also reported that stocks of beef, pork, and chicken in cold storage warehouses exceeded 2 billion pounds at the end of March. This quantity amounts to about one to two weeks of meat supply. The industry operates on a “just in time” delivery system, and this quantity is about 6% more than a year ago. If the shutdown of livestock processing facilities spreads to additional plants, or if shutdown periods are extended, then both meat supplies and livestock prices could be further reduced. Price Declines At the farm level, the disruptions at meat plants have triggered rapid declines in livestock and poultry prices to producers over the past few weeks, lowering returns that were originally projected to increase compared with 2019. In February 2020, USDA forecast a 5% increase to $136 billion in cash receipts for livestock and poultry producers in 2020 compared with 2019. With prices falling since February, USDA will likely significantly reduce the cash receipts forecast later in the year. Cash market prices for cattle, hogs, and broilers have fallen during April by between 10% and nearly 30% (Table 1). Table 1. Cattle, Hog, and Broiler Prices 2019 Jan Feb Mar April 1-23 % change, March to April 5-Area Steer, $/cwt 116.78 123.89 118.59 112.48 101.00 -10% National Hog Carcass, $/cwt 47.95 58.69 54.81 58.86 48.00 -18% Broilers, Wholebird, ¢/lb. 88.60 90.56 80.64 79.35 56.00 -29% Source: USDA’s benchmark prices for cattle, hogs, and broilers as reported monthly in the World Agriculture Supply and Demand Estimates. The price data are from USDA’s Agricultural Marketing Service. Notes: Reported annual average for 2019 and reported monthly prices for January-March 2020. CRS compiled the April estimates from average daily prices for steers and hogs and average weekly prices for broilers available from April 1-23. cwt=100 pounds. Based on cattle and hog futures prices on the Chicago Mercantile Exchange (CME), the outlook for producer prices have trended down since January 2020, with the June cattle contract price falling more than 30% and the May hog contract falling by 38% (see Figure 1 and Figure 2). The outlook for fall prices (as of April 24), based on CME October contracts, are 20% lower for cattle and nearly 30% lower for hogs than at the beginning of the year. Figure 1. Live Cattle Futures, June Contract / Source: RBM Group, CME, Contract LEM20, April 23, 2020. Figure 2. Live Hog Futures, May Contract / Source: RBM Group, CME, HEK20 contract, April 23, 2020. Producer Losses In April 2020, the Food and Agricultural Policy Research Institute, which provides analysis of agricultural markets and policies to Congress, estimated a decline of $20 billion in cash receipts for the livestock industry in 2020 due to COVID-19. Of this total, cattle comprised $9.5 billion, hogs $2.2 billion, and poultry $4.1 billion. Trade groups representing the cattle and hog industries have released higher estimates of income losses this year, amounting to $13.6 billion and $5 billion, respectively. The sheep industry has estimated its losses at more than $300 million. USDA Assistance On April 17, 2020, USDA announced the Coronavirus Food Assistance Program (CFAP), which is to provide $19 billion in emergency aid to farmers and ranchers to address ongoing market disruptions. CFAP includes $16 billion in direct payments to producers and $3 billion in purchases of fresh produce, meat, and dairy products for food banks and other feeding programs. In its announcement, USDA states that it will begin purchasing an estimated $100 million per month each for livestock (pork and chicken), dairy products, and fresh produce. USDA has indicated that the purchase and distribution of these commodities could begin by mid-May. USDA has not provided operational details about the direct payments to producers. However, on April 17, Senator Hoeven issued a statement that USDA would provide a total of $9.6 billion to livestock and dairy producers, of which $5.1 billion is for cattle, $2.9 billion for dairy, and $1.6 billion for hogs. The remaining $6.4 billion would be distributed to other agricultural producers. According to Senator Hoeven’s statement, agricultural producers would receive a payment based on 85% of price losses that occurred between January 1 and April 15, 2020, and a second payment for 30% of losses occurring from April 15 through the following two quarters. Producers would be subject to a payment limit of $125,000 per commodity and an overall limit of $250,000 per individual. The statement notes that USDA is expediting its rulemaking to begin signup in early May and distribute initial payments by the end of May and early June. Producer Response Industry groups have expressed appreciation for the aid that USDA announced but note that the amounts fall short of industry loss estimates for cattle and hogs. Some industry stakeholders assert that the $125,000 payment limit will severely restrict needed aid to individual producers. On April 23, 28 Senators sent a letter to the President Trump requesting that these limits be removed for livestock, dairy, and specialty crop producers. A group of 126 Members of the House sent a similar letter.

Apr 29, 2020

IF11523Health Policy

Health Insurance Options Following Loss of Employment

Apr 28, 2020

R46333Economic Policy

Fintech: Overview of Financial Regulators and Recent Policy Approaches

New technologies in the financial services sector can create challenges for the various federal agencies responsible for financial regulation in the United States. As these regulators address the potential benefits and risks of innovation, policymakers have demonstrated significant interest in understanding the types of technologies that may benefit consumers and financial markets while identifying the risks that new financial services may present. As Congress considers the potential tradeoffs of financial technology or fintech, it can be useful to understand how the financial system regulators are approaching these issues. The financial system regulators can be grouped into three general categories: (1) depository institution regulators, (2) consumer protection agencies, and (3) securities regulators. Each type of regulator has the authority to write rules, publish guidance, supervise institutions, and enforce compliance with the laws they implement. Further, there are similarities and differences among each regulator’s mandate, which shed light on the approaches the regulators tend to take when considering new fintech. The banking regulators generally are responsible for banks and credit unions, particularly focusing on the safety and soundness of these institutions. They have limited authority to write rules for, supervise the operations of, or enforce actions against firms outside their jurisdiction. Some banking regulators are responsible for granting licenses, or charters, to financial institutions so they can operate as banks and credit unions. Fintech firms typically are not licensed banks or credit unions; however, banks and credit unions often form partnerships with fintech firms, and banking regulators have legal authority to examine these types of relationships. This third-party partnership supervision allows the regulators to supervise depository institutions’ interactions with new fintech firms. Banks and credit unions also have an important role in the payments system. Banking regulators have used some of their rulemaking authorities to influence technological advances in the payments system as consumers continue to shift toward electronic payment tools, such as debit and credit cards. The consumer protection agencies generally are responsible for protecting consumers from unfair and deceptive business activities while maintaining a fair, competitive marketplace. Similar to banking regulators, consumer protection agencies have rulemaking, supervision, and enforcement authorities to implement and ensure industry compliance with consumer protection and competition laws, but consumer protection agencies have broader jurisdiction than banking regulators. For example, often they can directly regulate fintech companies and use their enforcement authorities to interact with fintech. In addition, they have promulgated rules pertaining to aspects of fintech. Consumer protection agencies generally balance the potential benefits of new technologies that could improve consumer outcomes with the potential risks to consumers posed by new, untested products entering the marketplace. This mandate allows consumer protection agencies to take enforcement actions to protect consumers and create safeguards from enforcement actions to protect companies offering financial services that benefit consumers or the market. Securities regulators generally are concerned with protecting investors, maintaining fair and efficient markets, and facilitating capital formation. These regulators generally have limited concern for safety and soundness of the firms in their jurisdiction, focusing on disclosure requirements and contracts to promote investor protection and efficiency in the marketplace. Similar to the other regulators, they promulgate and enforce rules, but their mandate positions them somewhat differently than banking regulators and consumer protection agencies with respect to fintech. Securities regulators may endeavor to determine whether a new type of fintech product from a company counts as a security and how fintech is changing the way securities are offered. To this end, securities regulators tend to rely on their enforcement authority to ensure that new technologies do not violate securities laws.

Apr 28, 2020

R46332Economic Policy

Fintech: Overview of Innovative Financial Technology and Selected Policy Issues

Advances in technology allow for innovation in the ways businesses and individuals perform financial activities. The development of financial technology—commonly referred to as fintech—is the subject of great interest for the public and policymakers. Fintech innovations could potentially improve the efficiency of the financial system and financial outcomes for businesses and consumers. However, the new technology could pose certain risks, potentially leading to unanticipated financial losses or other harmful outcomes. Policymakers designed many of the financial laws and regulations intended to foster innovation and mitigate risks before the most recent technological changes. This raises questions concerning whether the existing legal and regulatory frameworks, when applied to fintech, effectively protect against harm without unduly hindering beneficial technologies’ development. The underlying, cross-cutting technologies that enable much of fintech are subject to such policy trade-offs. The increased availability and use of the internet and mobile devices could offer greater convenience and access to financial services, but raises questions over how geography-based regulations and disclosure requirements can and should be applied. Rapid growth in the generation, storage, and analysis of data—and the subsequent use of Big Data and alternative data—could allow for more accurate risk assessment, but raises concerns over privacy and whether individuals’ data will be used fairly. Automated decisionmaking (and the related technologies of machine learning and artificial intelligence) could result in faster and more accurate assessments, but could behave in unintended or unanticipated ways that cause market instability or discriminatory outcomes. Increased adoption of cloud computing allows specialized companies to handle technology-related functions for financial institutions, including providing cybersecurity measures, but this may concentrate financial cyber risks at a relatively small number of nonfinancial companies who may not be entirely comfortable with their regulatory obligations as financial institution service providers. Concerns over cyber risks and whether adherence to cybersecurity regulations ensure appropriate safeguards against those risks permeate all fintech developments. Fintech deployment in specific financial industries also raises policy questions. The growth of nonbank, internet lenders could expand access to credit, but industry observers debate the degree to which the existing state-by-state regulatory regime is overly burdensome or provides important consumer protections. As banks have increasingly come to rely on third-party service providers to meet their technological needs, observers have debated the degree to which the regulations applicable to those relationships are unnecessarily onerous or ensure important safeguards and cybersecurity. New consumer point-of-sale systems and real-time-payments systems are being developed and increasingly used, and while these systems are potentially more convenient and efficient, there are concerns about the market power of the companies providing the services and the effects on people with limited access to these systems. Meanwhile, cryptocurrencies allow individuals to make payments entirely outside traditional financial systems, which may increase privacy and efficiency but creates concerns over money laundering and consumer protection. Fintech is providing new avenues to raise capital—including through crowdfunding and initial coin offerings—and changing the way companies trade securities and manage investments and may increase the ability to raise funds but present investor protection challenges. Under statute passed by Congress, insurance is primarily regulated at the state level where agencies are considering the implications to efficiency and risk that fintech poses in that industry, including peer-to-peer insurance and insurance on demand. Finally, firms across industries are using fintech to help them comply with regulations and manage risk, which raises questions about what role finetch should play in these systems. Regulators and policymakers have undertaken a number of initiatives to integrate fintech in existing frameworks more smoothly. They have made efforts to increase communication between fintech firms and regulators to help firms better understand how regulators view a developing technology, and certain regulators have established offices within their organizations to conduct outreach. In another approach, some regulators have announced research collaborations with fintech firms to improve their understanding of new products and technologies. If policymakers determine that particular regulations are unnecessarily burdensome or otherwise ill-suited to a particular technology, they might tailor the regulations, or exempt companies or products that meet certain criteria from such regulations. In some cases, regulators can do so under existing authority, but others might require congressional action.

Apr 28, 2020

R46331Aging Policy

Health Care-Related Expiring Provisions of the 116th Congress, Second Session

This report describes selected health care-related provisions that are scheduled to expire during the second session of the 116th Congress (i.e., during calendar year [CY] 2020). For purposes of this report, expiring provisions are defined as portions of law that are time-limited and will lapse once a statutory deadline is reached, absent further legislative action. The expiring provisions included in this report are those related to Medicare, Medicaid, the State Children’s Health Insurance Program (CHIP), and private health insurance programs and activities. The report also includes health care-related provisions enacted in the Patient Protection and Affordable Care Act (ACA; P.L. 111-148) or extended under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). In addition, this report describes health care-related provisions within the same scope that expired during the first session of the 116th Congress (i.e., during CY2019). Although the Congressional Research Service (CRS) has attempted to be comprehensive, it cannot guarantee that every relevant provision is included here. This report focuses on two types of health care-related provisions within the scope discussed above. The first, and most common, type of provision provides or controls mandatory spending, meaning it provides temporary funding, temporary increases or decreases in funding (e.g., Medicare provider bonus payments), or temporary special protections that may result in changes in funding levels (e.g., Medicare funding provisions that establish a floor). The second type of provision defines the authority of government agencies or other entities to act, usually by authorizing a policy, project, or activity. Such provisions also may temporarily delay the implementation of a regulation, requirement, or deadline or establish a moratorium on a particular activity. Expiring health care provisions that are predominantly associated with discretionary spending activities—such as discretionary authorizations of appropriations and authorities for discretionary user fees—are excluded from this report. Certain types of provisions with expiration dates that otherwise would meet the criteria set forth above are excluded from this report. Some of these provisions are excluded because they are transitional or routine in nature or have been superseded by congressional action that otherwise modifies the intent of the expiring provision. For example, statutorily required Medicare payment rate reductions and payment rate re-basings that are implemented over a specified period are not considered to require legislative attention and are excluded. The report provides tables listing the relevant provisions that are scheduled to expire in 2020 and that expired in 2019. The report then describes each listed provision, including a legislative history. An appendix lists relevant demonstration projects and pilot programs that are scheduled to expire in 2020 or that expired in 2019.

Apr 28, 2020

R46324Appropriations

COVID-19: Child Care and Development Block Grant (CCDBG) Supplemental Appropriations in the CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law (P.L. 116-136). The CARES Act includes $3.5 billion in supplemental appropriations for the Child Care and Development Block Grant (CCDBG). These funds are to be used to “prevent, prepare for, and respond to coronavirus.” The CCDBG Act (42 U.S.C. §§9858 et seq.) is the main federal law supporting child care programs for low-income working families. The CCDBG is administered by the U.S. Department of Health and Human Services (HHS). HHS allocates CCDBG funds to states, territories, and tribes according to a statutory formula. State, territory, and tribal lead agencies submit CCDBG plans to HHS every three years describing how their child care programs will operate. CCDBG funds are used to subsidize the cost of child care for eligible children of low-income working parents. Funds are also used to support activities to improve the quality of child care and for certain other activities. The $3.5 billion in supplemental CCDBG funds are provided in addition to FY2020 annual appropriations of $5.8 billion (P.L. 116-94). The additional $3.5 billion represents a 60% increase in total appropriations to the CCDBG in FY2020. The CARES Act funds may be used under existing CCDBG Act authorities. In addition, the CARES Act includes a number of provisions that clarify allowable uses and, in some cases, waive certain underlying requirements of the CCDBG Act. For instance, the CARES Act specifies that the funds may be used to provide continued payments and assistance to child care providers in cases of decreased enrollment or closures related to coronavirus, and to ensure they are able to remain open or reopen; may be used to continue to pay staff salaries and wages of child care providers (CCDBG lead agencies are encouraged to place conditions on payments to child care providers aimed at ensuring that a portion of the funds they receive go toward costs of salaries and wages); may be used to provide child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to the coronavirus, without regard to typical CCDBG income eligibility requirements (federal law generally limits eligibility to those whose family income does not exceed 85% of state median income, though most states set income limits below this federal threshold); shall be available to eligible child care providers under the CCDBG Act (even if they were not receiving CCDBG funds previously) for the purposes of cleaning and sanitation, and other activities necessary to maintain or resume program operation; are exempt from the minimum spending requirements for quality activities and direct services; may be used for allowable obligations incurred prior to enactment of the CARES Act; may be used for purposes provided in the CARES Act before the lead agency submits any applicable CCDBG plan amendments to HHS (under regulations, lead agencies generally must submit state plan amendments within 60 days of policy change); shall be used to supplement, not supplant, state, territory, and tribal general revenue funds for child care assistance for low-income families; and are to remain available for obligation by HHS through the end of FY2021 and may remain available for obligation by CCDBG lead agencies through the end of FY2022.

Apr 24, 2020

R46325American Law

Fourth COVID-19 Relief Package (P.L. 116-139): In Brief

On April 23, 2020, Congress passed its fourth measure including supplemental appropriations to respond to the COVID-19 pandemic. The Paycheck Protection Program and Health Care Enhancement Act (the act; P.L. 116-139) includes enhancements for the Small Business Administration’s Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), and Emergency EIDL grants, and emergency supplemental appropriations for the Department of Health and Human Services (HHS) and Small Business Administration (SBA). The President signed the bill into law on April 24, 2020. The Congressional Budget Office estimates that the act will result in $321.3 billion in additional direct spending for the PPP, and $162.1 billion in additional discretionary spending, including $50 billion for EIDL and $10 billion for Emergency EIDL grants. This report provides a brief overview of that measure.

Apr 24, 2020

IN11358CRS Insights

Older Children, Adult Dependents, and Eligibility for the 2020 Recovery Rebates

Some policymakers have expressed concern that certain individuals including older children and adult dependents are not eligible for direct payments enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). The statute refers to these payments as 2020 recovery rebates. The Internal Revenue Service (IRS) refers to these payments issued in 2020 as economic impact payments. Receiving a recovery rebate in 2020 will not affect a taxpayer’s 2020 income tax liability or tax refund, and taxpayers will generally not need to repay the rebate. There are three main categories of individuals ineligible for these payments (these categories may not be mutually exclusive): children over 16 years old and adult dependents; certain noncitizens without Social Security numbers (SSNs) or who are nonresident aliens; higher-income taxpayers. This Insight provides an overview of one category of individuals who are ineligible for the 2020 recovery rebates—older children and adult dependents. This information may help inform any potential legislative debate considering another round of direct payments. Some individuals eligible for 2020 recovery rebate payments may not receive them automatically. Individuals who do not normally file an income tax return, including many low-income childless workers, may not receive these payments unless they manually provide information to the IRS through a new web portal. (The IRS has announced that eligible Social Security beneficiaries and recipients of VA and SSI benefits who do not file tax returns will receive the $1,200 payments automatically in 2020.) In addition, certain eligible recipients with past-due child support obligations may receive a smaller payment or no payment at all. These eligible populations are not discussed further in this Insight, as the focus is on ineligible individuals. What is a dependent for tax purposes? An individual is considered a dependent of a taxpayer if the individual fulfills various requirements set forth in Internal Revenue Code (IRC) Section 152 and is considered either the taxpayer’s qualifying child or qualifying relative. As described in Table 1, dependents are reliant on another person for more than half of their financial support (often called the “support test”). Dependents also often have specified familial relationships with the taxpayer and often reside with the taxpayer for a significant period of time. Dependents considered qualifying children are also generally under 19 years old (or under 24 years old if students). Dependents considered qualifying relatives have very low incomes. As a result of these various requirements, dependents are often the taxpayer’s custodial children, but also can include college students, disabled relatives, or a taxpayer’s parents. Some dependents are required to file federal income tax returns if their income exceeds a specified threshold (see Table 2 on the IRS website). Hence, filing a tax return does not necessarily mean an individual is not a dependent. Table 1. Requirements for Dependents: Qualifying Child and Qualifying Relative Qualifying Child Qualifying Relative Relationship: The child is the taxpayer’s son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them. Member of Household or Relationship: The individual must either (a) be a member of the taxpayer’s household for the entire year; or (b) if they don’t live with the taxpayer, be a relative of the taxpayer. Residence: The child must have lived with the taxpayer for more than half the year. Gross Income Test: The individual’s gross income must be less than the personal exemption amount ($4,200 in 2019). Age: The child is either (a) under 19 years old at the end of the year; (b) under 24 years old at the end of the year and a student; or (c) any age if permanently and totally disabled. Age: None Support: The child must not have provided more than half of his or her own support for the year. Support: The taxpayer must provide more than half of the qualifying individual’s support for the year. Joint Return: The child must not be filing a joint return for the year (unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid). Not a qualifying child: The individual cannot be claimed as a qualifying child by any taxpayer. Source: IRS Publication 501 and Internal Revenue Code (IRC) §152. Can dependents receive the 2020 recovery rebates? A person who can be claimed as a dependent on another individual’s tax return is ineligible for the $1,200 direct payment. In addition, taxpayers with dependent children over 16 years old (including adult dependents) are ineligible for the $500 payment per qualifying child. Taxpayers may receive $500 for each child eligible for the child tax credit—generally a dependent child 16 years or younger. Hence, a sister who claims her disabled adult brother as a dependent in order to file as head of household is ineligible for the $500 payment because he is older than 16. Her brother is ineligible for the $1,200 payment because he is her dependent (the sister may still be eligible for the $1,200 payment herself). The Tax Policy Center estimates that in 2019 there were almost 98 million dependents: 69.5 million were eligible for the $500 payments, while 20.4 million were ineligible as a result of the definition of dependent used in the CARES Act. An additional 8.1 million dependents were not be eligible for the $500 payment because they were dependents of higher-income taxpayers who are ineligible for the payment. CRS analysis using Census data and the TRIM3 model (both discussed in detail in Appendix A of this CRS report), indicates that in 2016 the majority of dependents were children 16 years or younger (76%). An estimated 17% of dependents were older children (17-23 years old) and an estimated 8% were adults (including 2% who were seniors). These estimates include both dependents with and without Social Security Numbers (SSNs), and so include individuals who may be ineligible for the recovery rebates because they do not meet the SSN requirement included in the law. These estimates of dependents include dependents of tax filers as well as nonfilers. Are there legislative proposals to modify dependent eligibility for the 2020 recovery rebates? In the House, the All Dependent Children Count Act (H.R. 6420) would expand eligibility for the $500 payments to all qualifying children, effectively raising the age limit from under 17 years old to those under 19 years old (or under 24 if a student or any age if disabled). In the Senate, the legislative text of the All Dependents Count Act would expand eligibility for the $500 payment to all dependents—qualifying children and qualifying relatives. Acknowledgments Conor Boyle, Analyst in Social Policy, and Jameson Carter, Research Assistant, provided analysis using TRIM3 included in this Insight.

Apr 23, 2020

IN11357American Law

COVID-19-Related Loan Assistance for Agricultural Enterprises

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP) and Emergency Economic Injury Disaster Loan (EIDL) grants to provide short-term, economic relief to certain small businesses and nonprofits. For more information on SBA-related emergency relief provisions, see CRS Report R46284, COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. Important note: On April 16, 2020, the SBA reported that it had exhausted all funding provided by the CARES Act for the PPP and Emergency EIDL grant programs and was no longer accepting new applications for these programs. Congress is currently negotiating another round of PPP and Emergency EIDL funding. The Senate-passed Paycheck Protection Program and Health Care Enhancement Act (H.R. 266) would include additional funding for both programs and a provision (Division A. Sec. 101) that would permit agricultural enterprises as defined by Section 18(b) of the Small Business Act (15 U.S.C. §647(b)) with not more than 500 employees to receive emergency EIDL grants and EIDL loans. This Insight will be updated to reflect any legislative changes affecting these programs. PPP Loan Terms and Eligibility PPP loans feature a two-year term at 1% interest, the waiver of the SBA’s up-front loan guarantee and annual servicing fees, relaxed underwriting requirements, deferred payments for six months (interest does accrue), and loan forgiveness of up to 100% of the loan’s principal amount under specified conditions related to the borrower’s retention of employees and wages and the use of the funds for specified purposes, such as payroll and employee benefits. PPP loans can be used for payroll costs; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; employee salaries, commissions, or similar compensations; payments of interest on any mortgage obligation (excluding any prepayment of or payment of principal on a mortgage obligation); rent (including rent under a lease agreement); utilities; interest on any other debt obligations that were incurred before February 15, 2020; and refinancing an SBA EIDL loan made between January 31, 2020, and April 3, 2020. Agricultural enterprises, defined in Section 18(b) of the Small Business Act as “small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries” may apply for a PPP loan if the applicant meets the PPP’s eligibility requirements: any SBA 7(a) loan guarantee program eligible small business; any business, 501(c)(3) nonprofit organization, 501(c)(19) veteran’s organization, or tribal business not currently eligible that has not more than 500 employees; or, if applicable, the SBA’s size standard in number of employees for the industry in which they operate. Sole proprietors, independent contractors, and eligible self-employed individuals are also eligible to receive a covered loan. As of April 16, 2020, the SBA reports that 46,334 PPP loans, totaling $4.37 billion (1.28% of the total amount approved), went to agricultural, forestry, fishing, and hunting businesses. EIDL Loan Terms and Eligibility and Emergency EIDL Grants EIDL loans related to economic damages caused by the COVID-19 pandemic feature a term of up to 30 years with 3.75% interest for small businesses and 2.75% interest for private nonprofit organizations. The loans may be used for fixed debts (rent, etc.), payroll, accounts payable, and some bills that could have been paid had the disaster (in this case, the COVID-19 pandemic) not occurred. The CARES Act authorizes the SBA to provide EIDL to borrowers adversely affected by the COVID-19 pandemic an advance payment of up to $10,000. The advance payment, referred to as an emergency EIDL grant in the CARES Act, does not have to be repaid, even if the applicant is subsequently denied an EIDL. Due to high demand, the SBA limited EIDL advance payments to $1,000 per employee, capped at $10,000. Small businesses, most private nonprofit organizations, small agricultural cooperatives, small aquaculture businesses, and nurseries deriving less than 50% of their annual receipts from the production of nursery or other agricultural products are EIDL eligible. The CARES Act temporarily expands, through December 31, 2020, EIDL eligibility to include startups, cooperatives, and eligible ESOPs (employee stock ownership plans) with fewer than 500 employees, sole proprietors, and independent contractors. Historically, agricultural enterprises, other than small agricultural cooperatives, small aquaculture enterprises, and eligible small nurseries, have not been eligible for EIDL assistance because language was added to Section 18 of the Small Business Act prohibiting the SBA from duplicating “the work or activity of any other department or agency of the Federal Government,” to exclude agricultural enterprises. At one time, the Small Business Act specifically mentioned the Farmers Home Administration as a source of program duplication, but that reference has been removed. Section 18 also specifies that if “loan applications are being refused or loans denied by such other department or agency responsible for such work or activities ... then, for purposes of this section, no duplication shall be deemed to have occurred.” As mentioned, the Senate-passed Paycheck Protection Program and Health Care Enhancement Act would permit agricultural enterprises with not more than 500 employees to receive Emergency EIDL grants and EIDL loans.

Apr 23, 2020

IN11354CRS Insights

Crude Oil Futures Prices Turn Negative

What Happened? On April 20, 2020, the futures contract price for the immediate month (May) of West Texas Intermediate (WTI), the U.S. benchmark crude, went negative (see Figure 1). The May futures contract price fell $55.90 during the day, to close at negative $37.62 per barrel. The futures price is a contract, usually monthly, for delivery of a certain amount of crude oil, on a specified date in the future, and at a particular location (Cushing, OK for WTI). WTI crude oil futures contracts are traded on the New York Mercantile Exchange (NYMEX). According to data from the U.S. Energy Information Administration (EIA), this is the first time in history that WTI prices became negative. However, other commodity prices, including natural gas and propane, have previously traded negatively. The May futures contract for WTI expired on April 21. Trading volumes shifted away from the expiring immediate month to the next month (June) contract. Any contracts remaining at the end of the day for the May futures contract will be those that can make or take delivery at Cushing, OK. As shown on Figure 1, the biggest price decline corresponded with a jump in the contract volume. Traders looking to buy were incentivized by cheaper contracts. However, as prices continued to fall, contracting dropped. One reason this may have occurred is that financial traders—traders that cannot take physical delivery of crude oil—needed to sell before the contract expiration. Prices for other crude oil contract months also declined. The June contract for WTI dropped $4.60 to $20.43 per barrel at the close on April 20 from the previous close on April 17. Additionally, the Brent price, the main international crude oil benchmark price, for May closed at $23.35 per barrel, down $2.29; for June Brent fell to $25.57 per barrel, down $2.51. WTI futures contracts require the contract owner to take physical delivery of the crude oil soon after the futures contract expiry or face large fines, penalties, and fees. In contrast, Brent futures contracts settle financially not physically. Figure 1. Hourly May Contract Volumes and WTI Futures Prices April 20-21, 2020 / Source: NYMEX (New York Mercantile Exchange) via ICE (the Intercontinental Exchange). Notes: After 2:30 PM on April 21, the May futures contract stopped trading, and the June contract became the front month. Trading does not usually occur daily between 5 PM and 6 PM, so that the market can reset for the next day. Why Did It Happen? As a backdrop to the negative futures prices is a large gap between supply and demand for crude oil. The decline in demand for crude oil because of COVID-19 and economic distress is estimated by analysts to be about 30% of global crude oil consumption or about 30 million barrels per day. The transportation sector drives demand for refined petroleum products (e.g., gasoline, diesel, jet fuel), which has dropped significantly. Meanwhile, crude oil supply has been increasing largely because of the failure of OPEC, Russia, and other crude oil producers (known collectively as OPEC+) to reach an agreement to cut production at a meeting on March 6. This triggered production increases by some oil producers, especially Saudi Arabia, which contributed to the precipitous drop in oil prices at the time. Subsequently, after President Trump’s urging, OPEC and non-OPEC members announced, on April 12, an agreement to collectively reduce crude oil production by different amounts over time, starting with 9.7 million barrels per day on May 1, 2020. If successful, this may reduce pressure on oil prices. Otherwise, oversupply could continue, exacerbating petroleum storage and logistical limits, possibly further depressing prices. As available storage becomes more limited, futures prices may continue to fall as owners of crude oil discount their price in order to entice buyers, as was the case with WTI where traders grew concerned over storage availability in Cushing (the designated delivery point for NYMEX crude oil futures contracts), forcing some to sell their futures contracts. Cushing has a working storage capacity close to 76 million barrels, but recent reports indicate that access and availability of the remaining storage is shrinking and that all its capacity has been leased, so it is essentially full according to traders. Despite federal efforts to make capacity available at the Strategic Petroleum Reserve (SPR) and other measures, Cushing storage capacity is a key factor for WTI prices. What Does It Mean? The drop in overall crude oil prices, including the negative prices for the WTI May futures contract, indicates the market is working. According to economic theory, when the spread between supply and demand is as wide as it is now for crude oil, prices should fall significantly. The futures prices are in what industry refers to as contango: current prices are lower than future prices, which indicates a market sentiment that downward pressure on prices will continue until demand and supply come closer together and the storage constraint at Cushing is alleviated. Unless demand increases and consumers use more oil and petroleum products, the burden likely will fall on producers to reduce supply. Efforts by major oil producing nations and even U.S. state agencies to reduce production may provide some relief, but perhaps not immediately given the circumstances. On April 21, the June WTI contract fell by 43% to $11.57 a barrel. Although still in positive territory, the drop, according to some analysts, may be indicative of lower prices to come. If Cushing storage capacity becomes physically full, there will be additional downward pressure on WTI futures contracts unless another event happens to mitigate the situation. In the long-term, it is impossible to predict the ripple effect of these market conditions. Companies with limited capacity to adapt could default on debt obligations, reduce employment levels, or file for bankruptcy protection. Industry consolidation through mergers, acquisitions, and distressed asset transactions is also a possible outcome and may also produce further downward market pressure.

Apr 22, 2020

IN11349Appropriations

The CARES Act and Required Minimum Distributions (RMDs): Options for Certain Individuals

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) includes a provision that suspends Required Minimum Distributions (RMDs) from certain retirement accounts for 2020. Some individuals may have already taken this distribution prior to the enactment of the CARES Act; this Insight discusses an option that might be available to them. Required Minimum Distributions RMDs are annual withdrawals that individuals with certain retirement accounts may be required to make under specified conditions, such as after (1) reaching a certain age or (2) inheriting a retirement account. The RMD assures that tax-deferred retirement accounts established to provide income during retirement are not used as permanent tax shelters or as vehicles for transmitting wealth to beneficiaries. Failure to take the RMD results in a tax penalty equal to 50% of the amount that should have been distributed. RMD rules apply to defined contribution (DC) accounts (such as 401(k), 403(b), and 457(b) accounts) and traditional Individual Retirement Accounts (IRAs). RMDs do not apply to Roth IRAs, but do apply to Designated Roth Accounts. Calculating the RMD The RMD for a year is calculated by dividing (1) the account balance at the end of the immediately preceding calendar year by (2) the distribution period provided in the applicable Internal Revenue Service (IRS) Life Expectancy Table. Individuals must take their first RMD by April 1 of the year following the year in which they turn age 72 (age 70½ for those who turned 70½ before January 1, 2020; the Setting Every Community Up for Retirement Enhancement Act of 2019 [SECURE Act, enacted as part of the Further Consolidated Appropriations Act, 2020, P.L. 116-94] increased the age after which RMDs must begin). Participants in employer-sponsored plans (other than individuals who own 5% or more of the company sponsoring the plan) who are still working past the age of 72 may delay distributions until April 1 following the year that they retire (if the plan allows) (see Table 1). Table 1. Account Types and RMD Beginning Dates for Account Owners Account Type Account Owner Turns 70½ before January 1, 2020 Account Owner Turns 70½ on or after January1, 2020 Defined contribution (DC) accounts, Traditional IRAs, Designated Roth Accounts Take first RMD by April 1 of the year following the year in which account owner turns 70½ a Take first RMD by April 1 of the year following the year in which account owner turns 72 a Roth IRAs No RMDs No RMDs Source: CRS analysis. Notes: The SECURE Act (enacted as part of the Further Consolidated Appropriations Act, 2020, P.L. 116-94) increased the age after which RMDs must begin. Certain beneficiaries with inherited accounts (including those who have inherited a Roth IRA) may have to take RMDs, see CRS In Focus IF11328, Inherited or “Stretch” Individual Retirement Accounts (IRAs) and the SECURE Act. Participants (other than individuals who own 5% or more of the company sponsoring the plan) in employer-sponsored plans who are still working past the age of 72 can delay distributions until April 1 following the year that they stop working (if the plan allows). Certain beneficiaries with inherited accounts must take RMDs. Other beneficiaries have either 5 years or 10 years to deplete an inherited account but are not required to take distributions each year. See CRS In Focus IF11328, Inherited or “Stretch” Individual Retirement Accounts (IRAs) and the SECURE Act. RMDs and Rollovers In general, RMDs cannot be rolled over to another retirement plan, which means that they are not eligible rollover distributions. An eligible rollover distribution is a distribution that can be transferred from one eligible retirement plan to another. In a 60-day rollover, an individual receives a distribution and then transfers part or all of the distribution to another retirement plan within 60 days. Rollovers do not count toward contribution limits. RMDs are subject to 10% tax withholding rules; eligible rollover distributions are subject to 20% withholding rates. Suspension of 2020 RMDs Section 2203 of the CARES Act suspended RMDs for 2020. A special rule applied the RMD suspension to individuals taking their first RMD from January 1, 2020, to April 1, 2020. Rollover Option for Certain Individuals Who Have Already Taken Their 2020 “RMDs” The CARES Act was enacted March 27, 2020, after some individuals may have already taken their 2020 RMDs. These distributions are no longer considered RMDs and may be eligible rollover distributions that could be rolled over to a plan that accepts rollover contributions. Section 2203 specified that distributions that otherwise would have been RMDs are not subject to eligible rollover distribution tax withholding rates, but they remain subject to 10% withholding rules. Note that beneficiaries with inherited accounts cannot roll over distributions. Individuals who received distributions earlier in the year may have missed the 60-day rollover deadline. On April 6, 2020, IRS Notice 2020-23 extended until July 15 the due date for any tax deadline that falls from April 1 to May 15. Under this guidance, withdrawals taken from February 1, 2020, to May 15, 2020, must be rolled over by July 15, 2020. Withdrawals that occurred prior to February 1, 2020, may not be eligible to be rolled over because the 60-day rollover deadline was prior to April 1, 2020. Although an individual can request a waiver of the 60-day rollover requirement from IRS, a $10,000 user fee must accompany every request. The CARES Act did not contain a provision for these individuals to recontribute distributions already received in 2020. IRAs are also subject to a “one rollover per year rule.” This rule applies to 60-day rollovers. Individuals are only allowed to roll over amounts from one IRA to another IRA once in a 12-month period (though the rule does not apply to conversions from traditional to Roth IRAs). If individuals already did one such rollover in the past 12 months, then they could not roll over the received “RMD” to an IRA. For more information on the other retirement provisions contained in the CARES Act, see CRS In Focus IF11482, Retirement and Pension Provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Apr 21, 2020

R46319African Affairs

Novel Coronavirus 2019 (COVID-19): Q&A on Global Implications and Responses

On December 31, 2019, Chinese authorities informed the World Health Organization (WHO) about a cluster of pneumonia cases in Wuhan City, Hubei Province. Illnesses have since been linked to a disease caused by a previously unidentified strain of coronavirus, widely known as COVID-19. The disease quickly became a pandemic, and has spread to over 150 countries, including the United States. WHO declared the outbreak a Public Health Emergency of International Concern on January 30, 2020, raised its global risk assessment to "Very High" on February 28, and labeled the outbreak a "pandemic" on March 11. In using the term pandemic, WHO Director-General Tedros Adhanom Ghebreyesus cited COVID-19's "alarming levels of spread and severity" and governments' "alarming levels of inaction." As of April 15, 2020, almost 2 million confirmed COVID-19 cases, and more than 120,000 confirmed deaths, of which over half of all cases and nearly 70% of all deaths were identified in Europe. Congress has demonstrated strong interest in ending the pandemic domestically and globally, having introduced 50 pieces of legislation on the matter (see the Appendix). Individual countries are carrying out not only domesitic but also international efforts to control the COVID-19 pandemic, with the WHO issuing guidance, coordinating some international research and related findings, and coordinating health aid in low-resource settings. Countries are following (to varying degrees) WHO policy guidance on COVID-19 response and are leveraging information shared by WHO to refine national COVID-19 plans. The United Nations (U.N.) Office for the Coordination of Humanitarian Affairs (UNOCHA) is requesting $2.01 billion to support COVID-19 efforts by several U.N. entities. International financial institutions (IFIs), including the International Monetary Fund (IMF), the World Bank, and the regional development banks, are mobilizing their financial resources to support countries grappling with the COVID-19 pandemic. The IMF has announced it is ready to tap its total lending capacity, about $1 trillion, to support governments responding to COVID-19. The World Bank can mobilize about $150 billion over the next 15 months, and the regional development banks are also preparing new programs and redirecting existing programs to help countries respond to the economic ramifications of COVID-19. On January 29, 2020, President Donald Trump announced the formation of the President’s Coronavirus Task Force, led by the Department of Health and Human Services (HHS) and coordinated by the White House National Security Council (NSC). On February 27, the President appointed Vice President Michael Pence as the Administration’s COVID-19 task force leader, and the Vice President subsequently appointed the President's Emergency Plan for AIDS Relief (PEPFAR) Ambassador Deborah Birx as the “White House Coronavirus Response Coordinator.” On March 6, 2020, the President signed into law the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020, P.L. 116-123, which provides $8.3 billion for domestic and international COVID-19 response. The Act includes $300 million to continue the U.S. Centers for Disease Control and Prevention’s (CDC) global health security programs and a total of $1.25 billion for the U.S. Agency for International Development (USAID)- and Department of State-administered aid. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136, which contains emergency funding for U.S. international COVID-19 responses, including $258 million to USAID through the International Disaster Assistance (IDA) account and $350 million to the State Department through the Migration and Refugee Assistance (MRA) account. The Families First Coronavirus Response Act (P.L. 116-127), signed into law on March 18, 2020, also provides $82 million for the Defense Health Program to waive all TRICARE cost-sharing requirements related to COVID-19; the CARES Act also includes $10.5 billion in emergency funding for DOD. The pandemic presents major consequences for foreign aid, global health, diplomatic relations, the global economy, and global security. Regarding foreign aid, Congress may wish to consider how the pandemic might reshape pre-existing U.S. aid priorities—and how it may affect the ability of US personnel to implement and oversee programs in the field. The pandemic is also raising questions about deportation and sanction policies, particularly regarding Latin America and the Caribbean and Iran. In the 116th Congress, Members have introduced legislation to respond to the COVID-19 pandemic in particular and to address global pandemic preparedness in general. This report focuses on global implications of and responses to the COVID-19 pandemic, and is organized into four broad parts that answer common questions regarding: (1) the disease and its global prevalence, (2) country and regional responses, (3) global economic and trade implications, and (4) issues that Congress might consider. For information on domestic COVID-19 cases and related responses, see CRS Insight IN11253, Domestic Public Health Response to COVID-19: Current Status and Resources Guide, by Kavya Sekar and Ada S. Cornell.

Apr 17, 2020

IF11510National Defense

Defense Primer: Department of Defense Civilian Employees

Apr 17, 2020

R46316Appropriations

Health Care Provisions in the Families First Coronavirus Response Act, P.L. 116-127

The global pandemic of Coronavirus Disease 2019 (COVID-19) is affecting communities around the world and throughout the United States, with case counts growing daily. Containment and mitigation efforts by federal, state, and local governments have been undertaken to “flatten the curve”—that is, to slow widespread transmission that could overwhelm the nation’s health care system. The Families First Coronavirus Response Act (FFCRA, P.L. 116-127) was enacted on March 18, 2020. It is the second of three comprehensive laws enacted in March specifically to support the response to the pandemic. The FFCRA, among other things, increases appropriations to the Department of Defense, the Indian Health Service, the Department of Health and Human Services Public Health and Social Services Emergency Fund, and the Veterans Health Administration for testing and ancillary services associated with the SARS-Co V-2 virus, that virus that causes COVID-19 disease. Beginning on the date of enactment through any portion of the COVID-19 public health emergency (declared pursuant to Section 319 of the Public Health Service Act), the FFCRA provides payment for or requires coverage of testing for the COVID-19 virus, and items and services associated with such testing, such as supplies and office visits, without any cost sharing, for individuals who are covered under Medicare, including Medicare Advantage, traditional Medicaid, CHIP, TRICARE, Veterans healthcare, the Federal Employees Health Benefits (FEHB) Program, most types of private health insurance plans, the Indian Health Service, and individuals who are uninsured (as defined under FFCRA). It prohibits private health insurance plans and Medicare Advantage plans from employing utilization management tools, such as prior authorization, for the COVID-19 test, or the visit to furnish it. In addition, FFCRA provides for an increase to all states, the District of Columbia, and territories in the share of Medicaid expenditures financed by the federal government, subject to specific requirements. It provides additional Medicaid funding to territories. FFCRA modifies requirements related to waiving certain Medicare telehealth restrictions during the emergency. Finally, FFCRA waives liability, with a narrow exception, for manufacturers, distributors, or providers of specified respiratory protective devices used for COVID-19 response.

Apr 17, 2020

IF11509Education Policy

CARES Act Elementary and Secondary Education Provisions

Apr 16, 2020

IN11341CRS Insights

SBA’s Paycheck Protection Program (PPP) Loans and Self-Employed Individuals

To provide short-term, economic relief to certain small businesses and nonprofits, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP). On April 14, 2020, SBA issued an Interim Final Rule (IFR) detailing how the PPP will be applied in the case of self-employed individuals (e.g., sole proprietors and partnerships, with and without employees, and independent contractors). The IFR supplements SBA’s previously issued PPP rules and guidance that have been coordinated with the Department of the Treasury. This Insight describes PPP-related statutes, regulations, and guidance that apply to self-employed individuals. Eligibility In addition to the general PPP eligibility criteria, self-employed individuals can apply for a PPP loan if (1) they were in operation on February 15, 2020; (2) they had self-employment income (e.g., an independent contractor or a sole proprietor); (3) their principal place of residence is in the United States; and (4) they have filed or will file a 2019 Form 1040 Schedule C. SBA is to issue additional guidance for those individuals with self-employment income who (1) were not in operation in 2019 but were in operation on February 15, 2020, and (2) will file a Form 1040 Schedule C for 2020. Partners may not file separate PPP loan applications for themselves. Instead, the self-employment income of “general active partners” may be reported as a payroll cost, up to $100,000 annualized per person on a PPP loan application filed by or on behalf of the partnership. The April 14 IFR does not define a “general active partner,” but this term could be intended to distinguish between those who actively participate in the day-to-day management and business activities compared to a limited partner, who does not. Further, the April 14 IFR does not define “self-employment income” of general active partners with precise references to lines on partnership tax forms. Some tax practitioners have commented that partners should include the amount listed on line 14 (“Self-employment earnings”) of their Schedule K-1, Form 1065 for the purposes of “payroll costs.” Further guidance might be needed. As per regulations, independent contractors are not included in the PPP loans of other businesses (e.g., their clients or the business that provides them with work). Independent contractors must file their own PPP application. Additionally, self-employed individuals with more than one eligible business must roll all of their expenses into a single PPP loan application. Loan Amount Calculation Step 1 in the PPP loan calculation depends on whether or not the self-employed individual has employees. For self-employed individuals with no employees, take the 2019 IRS Form 1040 Schedule C line 31 net profit amount (even if the individual has not yet filed a 2019 return, they must fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. For self-employed individuals with employees, compute 2019 payroll costs by adding 2019 IRS Form 1040 Schedule C line 31 net profit amount (up to $100,000 annualized), plus certain forms of employee compensation detailed in the April 14 IFR (pp. 7-8). After Step 1, the remaining steps are the same for all self-employed individuals: Step 2: Divide the amount from Step 1 by 12 to determine the average monthly amount. Step 3: Multiply the average monthly amount from Step 2 by 2.5. This amount cannot exceed $10 million. Step 4: If applicable, add the outstanding amount of any SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020, to be refinanced, less the amount of any advance under an EIDL COVID-19 loan (because the advance does not have to be repaid). Use of PPP Loan Proceeds PPP loan amounts can be used for “owner compensation replacement,” calculated based on the 2019 net profit and the other allowable uses listed in the CARES Act (e.g., employee payroll costs, and certain business expenses). The April 14 IFR (p. 10) limits self-employed individuals to using their PPP loans only for types of allowable uses for which the borrower made expenditures in 2019. This includes up to $100,000 of annualized pay per employee and for the self-employed business owner for eight weeks (a maximum of $15,385 per individual). Owner compensation replacement for self-employed individuals is based on the amount they paid themselves in 2019. Under earlier regulations still in force, if the borrower wants the maximum amount of loan forgiveness available, then no more than 25% of the loan amount can be used for non-“payroll costs.” PPP Loan Forgiveness Up to eight weeks’ worth of eligible expenses, including principal and accrued interest, can be forgiven. By regulation, payments on interest and principal are deferred for the first six months of the loan, though. Thus, PPP borrowers might not have to make any payments before applying for forgiveness. For self-employed individuals with no employees, the April 14 IFR (pp. 12-13) limits forgivable expenses of owner compensation replacement to eight weeks of their 2019 average net profit calculation (described in Step 1, above, under “Loan Amount Calculation”), or a maximum of $15,385. The April 14 IFR (pp. 13-14) contains more information on the documents that the borrower must provide to substantiate their application for forgiveness. For self-employed individuals with employees, the two-part formulas specified in the CARES Act determine whether the amount of forgiveness will be reduced. Broadly speaking, these formulas reduce the amount to be forgiven if the business does not maintain employment or salaries at certain levels. Specifically, if the business (1) does not maintain at least the same number of full-time equivalent employees during defined time periods; or (2) decreases salaries and wages by more than 25% for any employee that makes less than $100,000 annualized in 2019 during the eight-week period after the loan’s origination date, then the forgiven amount is reduced. For any amounts not forgiven, the terms of the loan are 1% interest rate for a term of two years. There is ambiguous and potentially contradictory language in the April 14 IFR (for example, see p. 12) as to whether forgiveness for self-employed individuals is limited solely based on owner compensation replacement or whether it can include nonpayroll costs. This could potentially be a drafting error, as it would imply that self-employed individuals could not claim forgiveness for expenses related to employee compensation, rent, utilities, etc. As of the publication date of this Insight, SBA has not provided detailed guidance on how the PPP forgiveness process will work. According to the CARES Act, borrowers must apply to their lender for forgiveness and provide documentation substantiating their actual expenses during the eight-week period after disbursement of their PPP loan. They must also certify that they used the loan proceeds only for eligible purposes. The SBA Administrator may issue further regulations on documentation requirements. The CARES Act requires lenders to issue a decision no later than 60 days after receiving an application for loan forgiveness. The SBA Administrator is required to remit to the lender an amount equal to the forgiveness, plus any interest accrued through the date of payment not later than 90 days after the date on which the forgiveness amount is determined. Under the CARES Act, forgiven loan amounts are not to be included in the borrower’s taxable gross income. Otherwise, this type of “cancellation of indebtedness income” would be subject to income tax.

Apr 16, 2020

R46313Energy Policy

U.S. Forest Carbon Data: In Brief

Forests are a significant part of the global carbon cycle, because they contain the largest store of terrestrial (land-based) carbon and continuously transfer carbon between the terrestrial biosphere and the atmosphere. Consequently, forest carbon optimization and management strategies are often included in climate mitigation policy proposals. The forest carbon cycle starts with the sequestration and accumulation of atmospheric carbon due to tree growth. The accumulated carbon is stored in five different pools in the forest ecosystem: aboveground biomass (e.g., leaves, trunks, limbs), belowground biomass (e.g., roots), deadwood, litter (e.g., fallen leaves, stems), and soils. As trees or parts of trees die, the carbon cycles through those different pools, from the living biomass pools to the deadwood, litter, and soil pools. The length of time carbon stays in each pool varies considerably, ranging from months (litter) to millennia (soil). The cycle continues as carbon flows out of the forest ecosystem and returns to the atmosphere through several processes, including respiration, combustion, and decomposition. Carbon also leaves the forest ecosystem through timber harvests, by which it enters the product pool. This carbon is stored in harvested wood products (HWPs) while the products are in use but eventually will return to the atmosphere upon the wood products’ disposal and eventual decomposition, which could take several decades or more. In total, there are seven pools of forest carbon: five in the forest ecosystem and two in the product pool (HWPs in use and HWPs in disposal sites). Carbon is always moving through the pools of forested ecosystems (known as carbon flux). The size of the various pools and the rate at which carbon moves through them vary considerably over time. The amount of carbon sequestered in a forest relative to the amount of carbon that forest releases into the atmosphere is constantly changing with tree growth, death, and decomposition. If the total amount of carbon released into the atmosphere by a given forest over a given period is greater than the amount of carbon sequestered in that forest, the forest is a net source of carbon emissions. If the forest sequesters more carbon than it releases into the atmosphere, the forest is a net sink of carbon. These forest carbon dynamics are driven in large part by different anthropogenic and ecological disturbances. Anthropogenic disturbances are planned activities, such as timber harvests, whereas ecological disturbances are unplanned, such as weather events (e.g., hurricanes, droughts), insect and disease infestations, and wildfires. Generally, disturbances result in tree mortality, causing the transfer of carbon from the living pools to the deadwood, litter, soil, and product pools, and/or eventually to the atmosphere. If a disturbed site regenerates as forest, the carbon releases caused by the disturbance generally are offset over time. If, however, the site changes to a different land use (e.g., agriculture), the carbon releases may not be offset. The U.S. Environmental Protection Agency (EPA) measures forest carbon annually using data collected by the Forest Inventory and Analysis Program in the U.S. Forest Service. According to EPA, U.S. forest carbon stocks contained 58.7 billion metric tons (BMT) of carbon in 2019 across the seven pools, the majority of which was stored in soil (54%). The aboveground biomass pool stored the next-largest portion of forest carbon stocks (26%). The pools’ relative size varies considerably across U.S. forests, however. EPA estimates that, for the forest carbon flux, U.S. forests were a net sink of carbon, having sequestered 221 million metric tons (MMT) of carbon in 2018—an offset of approximately 12% of the gross annual greenhouse gas emissions from the United States for the year. The net sink reflects carbon accumulation on existing forestland and carbon accumulation associated with land converted to forestland within the past 20 years. Within the carbon pools, most of the annual flux is associated with aboveground biomass (58%). In general, the annual net flux of carbon into U.S. forests is small relative to the amount of carbon they store (e.g., 221 MMT of carbon is 0.3% of the 58.7 BMT of total carbon stored in U.S. forests in 2019). SUPPRESS SUMMARY

Apr 15, 2020

IN11333Appropriations

COVID-19 and the Indian Health Service

The Indian Health Service (IHS) within the Department of Health and Human Services (HHS) is the lead federal agency charged with improving the health of American Indians and Alaska Natives. In FY2019, IHS provided health care to approximately 2.6 million eligible American Indians/Alaska Natives. Its total FY2020 annual appropriation was $6.2 billion. IHS has seen nearly 1,000 positive tests as of early April for coronavirus. This Insight discusses the coronavirus and IHS. IHS Is a Three-Tiered System with Resource Constraints IHS provides health care to eligible American Indians/Alaska Natives. It does this either directly or through facilities and programs operated by Indian tribes (ITs) or tribal organizations (TOs) through self-determination contracts and self-governance compacts authorized in the Indian Self-Determination and Education Assistance Act (ISDEAA, P.L. 93-638). IHS also provides services to urban Indians through grants or contracts to Urban Indian Organizations (UIOs). The system is referred to as the I/T/U system, and services available vary across the system and by facility. UIOs offer outpatient services, while the IHS and the ITs may provide both outpatient and inpatient care, with IHS operating half of the system’s 46 hospitals. IHS does not offer a standard benefit package, nor is it required to cover certain services that its beneficiaries may receive at facilities outside of IHS. When services are not available at an IHS facility, facilities may authorize payment through the Purchased Referred Care Program (PRC). Generally, PRC requires prior approval except in cases of emergency. PRC funds are limited, as such, not all PRC claims are authorized. UIOs do not have access to PRC funds. To be authorized, claims must meet medical priority levels, individuals must not be eligible for another source of coverage (e.g., Medicaid or private health insurance), and individuals must live in certain geographic areas. IHS has stated that treatment of COVID-19 is considered to be medical priority one (i.e., an emergent or urgent care service). IHS and COVID-19 As noted, IHS facilities have reported cases of COVID-19; the ability to test for coronavirus and to treat active cases varies throughout its system. For example, some tribes have reported shortages of tests, the materials needed to administer testing, and the personal protective equipment needed by health providers. Tribes are also concerned about workforce shortages and their ability to isolate patients if positive cases present to their facility. Provider vacancies have been a long-standing IHS challenge, which may be exacerbated if providers are exposed or sickened by coronavirus. In addition, some IHS personnel are members of the Commissioned Corps who have been deployed outside of the IHS system to respond to the disaster, which could increase existing shortages. IHS, like other types of health facilities, have been restricting nonemergency visits to lessen virus transmission and to reserve capacity for the most needed cases. However, in doing so, facilities have reported lost revenue, which may challenge their ability to maintain services throughout the emergency and beyond. Tribes, like other providers, may receive additional flexibilities as a result of the March 13, 2020, presidential declaration of a disaster, and I/T/Us may also be able to receive reimbursements for telehealth visits provided to IHS-Medicare enrolled beneficiaries who may receive services in their homes. The ability to use telehealth may be limited in some areas because of limited internet connectivity. COVID-19 Response Funding Available to I/T/U System Funding to augment the I/T/U system has been included in the three laws enacted in response to COVID-19. Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, required that not less than $40 million of the amount provided to the Centers for Disease Control and Prevention (CDC) for public health activities (e.g., surveillance) be allocated to ITs/TOs/UIOs—this funding was not available to IHS-operated facilities. Though tribes reported a number of delays with accessing these funds, CDC reported awarding—$80 million, or $40 million more than what was required to be provided—to supplement grants that CDC awards for tribal public health activities (Tribal Public Health Capacity Building and Quality Improvement Grants). In addition, though IHS was not eligible for these initial funds, HHS transferred an additional $70 million from the amount that was appropriated to the Public Health and Social Services Emergency Fund (PHSSEF) to IHS to support direct services at IHS facilities and acquire PPE. The second coronavirus related package—the Families First Coronavirus Response Act—included funds to IHS to also be distributed to ITs/TOs/and UIOs for COVID-19 testing and related health services and specified that eligible Indians would be able to receive these services without cost-sharing regardless of whether the service was authorized under PRC. It provided $64 million for this purpose to be allocated at the discretion of the IHS director. IHS noted that IT/TOs and UIOs may use funds to pay for COVID-19 testing and treatment. The third coronavirus related package—the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included funding for IHS and set asides in a number of health programs for IT/TOs and UIOs. The act also provides support to the Bureau of Indian Affairs and tribal governments; that support is not discussed in this Insight. For the I/T/U system, the law included the following: $1.032 billion for IHS to prevent, prepare for, and respond to coronavirus. It requires that not less than $450 million be transferred to ITs/TOs under ISDEAA and reserved some of this funding for electronic health records and the catastrophic health emergency fund (which pays for high-cost cases), and permits up to $125 million to be transferred to the Indian Health Facilities account, if needed. A transfer of not less than $15 million from the funds provided to the Substance Abuse and Mental Health Services Administration to support behavioral health treatment at ITs/TOs or UIOs or organizations that provide behavioral health services to tribes. A transfer of not less than $15 million from the PHSSEF that was transferred to the Health Resources and Services Administration to support telehealth for ITs/TOs or UIOs or health service providers to tribes. A transfer of not less than $125 million from CDC for public health activities (e.g., surveillance, laboratory capacity, and infection control) undertaken by ITs/TOs/UIOs or health service providers to tribes.

Apr 14, 2020

IN11334CRS Insights

Mortgage Provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act

The COVID-19 pandemic has had wide-ranging impacts. With many households experiencing income disruptions, some may have difficulty making their mortgage or rent payments on their homes. An inability of tenants to pay rent can, in turn, impact the ability of landlords to remain current on any mortgage on the rental property. On March 27, 2020, the President signed the CARES Act (P.L. 116-136) into law. Among many other provisions, it includes some intended to provide temporary relief for certain affected mortgage borrowers: Section 4022 provides for forbearance and a foreclosure moratorium for federally backed single-family mortgages. Section 4023 provides for forbearance for federally backed multifamily mortgages. The CARES Act also includes a temporary moratorium on eviction filings for tenants in certain properties (Section 4024), discussed in CRS Insight IN11320, CARES Act Eviction Moratorium. Forbearance generally refers to a period during which a borrower is allowed to make reduced mortgage payments or suspend payments altogether. Forbearance is not debt forgiveness; the borrower generally must repay the missed mortgage payments after the forbearance period ends. The forbearance provisions in the CARES Act apply to federally backed mortgages. Several federal agencies insure or guarantee single-family and/or multifamily mortgages, including the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA) and the Section 184 and Section 184A programs for Native Americans and Native Hawaiians, respectively; the Department of Veterans Affairs (VA); and the U.S. Department of Agriculture (USDA) (which also directly originates some mortgages). Additionally, the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac purchase eligible single-family and multifamily mortgages and guarantee securities backed by those mortgages. The CARES Act provisions cover all of these, including FHA-insured reverse mortgages. Prior to the passage of the CARES Act, Fannie Mae and Freddie Mac, HUD, USDA, and VA each released guidance requiring or encouraging temporary foreclosure suspensions for the mortgages they back and reminding mortgage servicers of existing options to assist troubled borrowers, including forbearance. While in many cases this guidance was similar to the provisions included in the CARES Act, the law codifies the requirements and applies them consistently across federally backed mortgages. Single-Family Mortgage Forbearance and Foreclosure Moratorium The CARES Act provides for mortgage forbearance and a temporary foreclosure suspension for federally backed mortgages on one-to-four unit properties. Federally backed mortgages represent a majority of outstanding single-family mortgages. These provisions are not limited to owner-occupied properties; other properties secured by federally backed single-family mortgages, including rental properties, are also eligible. Forbearance Section 4022 allows borrowers with federally backed mortgages to request forbearance from their mortgage servicer (the entity that collects payments and manages the mortgage on behalf of the lender/investor) due to a financial hardship caused directly or indirectly by COVID-19. The borrower must attest to such hardship, but no additional documentation is required. Servicers must grant forbearance for up to180 days, and must extend the forbearance up to an additional 180 days at the borrower’s request. Either period can be shortened at the borrower’s request. The servicer may not charge fees, penalties, or interest beyond what would have accrued if the borrower had made payments as scheduled. Foreclosure Suspension Section 4022 also suspends foreclosures on federally backed mortgages for a period of 60 days beginning on March 18, 2020. The suspension applies to the initiation and completion of both judicial and non-judicial foreclosures, but does not apply to vacant or abandoned homes. Multifamily Mortgage Forbearance A multifamily mortgage borrower typically owns a property with multiple tenants who pay rent (e.g., an apartment building). Multifamily mortgage borrowers depend primarily on the rent to make the payments on their mortgage. During a period of economic stress, some tenants may not be able to make their payments, which jeopardizes the multifamily mortgage borrower’s ability to make his or her payment. If the multifamily mortgage is not kept current, foreclosure could occur, which could ultimately lead to eviction for renters. Providing forbearance for multifamily mortgage borrowers can help keep tenants in their homes by keeping the building from being foreclosed. Section 4023 allows multifamily borrowers with federally backed multifamily mortgage loans to request a forbearance from their lender for a period up to 30 days, which can be extended for two more 30-day periods. To qualify for this option, the borrower must have been current on their mortgage as of February 1, 2020, and must contact the loan servicer to access the forbearance. Also, a borrower who enters into a forbearance is prohibited from evicting a tenant for the duration of the forbearance. Policy Considerations The CARES Act mortgage provisions potentially raise a number of policy considerations. Borrowers may not know if their mortgage is federally backed, particularly if it was sold to Fannie Mae or Freddie Mac. Fannie and Freddie each maintain websites where borrowers can look up whether that entity backs their mortgage. Borrowers can also check their mortgage documents for references to federal guarantees or contact their servicers or a HUD-approved housing counseling agency for assistance. Borrowers must contact their servicer to request forbearance, which may raise questions about the capacity of servicers to handle large volumes of requests. Further, because mortgage servicers are often required to advance payments to securities holders even if borrowers do not make payments on time, there are concerns about the impact of a large volume of forbearances on servicer liquidity. Some federal housing agencies have taken steps to address potential liquidity issues. Another consideration is what happens after the forbearance period. The act does not address how repayment should occur. In general, options following a forbearance may include repaying the missed amounts in a lump sum; a repayment plan through which the borrower repays the missed payment amounts over time; or, in certain circumstances, a mortgage modification. Servicers are to negotiate repayment terms with borrowers, subject to existing requirements or any additional guidance provided by the entity that backs the mortgage.

Apr 14, 2020

IN11336CRS Insights

Bank Exposure to COVID-19 Risks: Mortgages and Consumer Loans

The COVID-19 (coronavirus) pandemic has caused financial hardship across the country. If COVID-19 causes borrowers to miss payments, it could have negative consequences for banks. This Insight examines the exposure banks have to household repayments, such as mortgages, credit cards, auto loans, and other consumer debt. The main business of a bank is to make loans and buy securities using funding it raises by taking deposits. A bank earns money largely through borrowers making payment on those loans and securities issuers making payment on securities, along with charging fees for certain services. In addition to accepting deposits, a bank also raises funding by issuing debt (such as bonds) and capital (such as stock). Unlike deposits and debt that place specific payment obligations on a bank, payments on capital can generally be reduced, delayed, or cancelled and the value of capital can be written down. Thus, if incoming payments unexpectedly stop, capital allows a bank to withstand losses to a point. However, if a bank exhausts its capital reserves, it could face financial distress and potentially fail. Mortgages and Consumer Loans A significant portion of a typical bank’s assets consists of loans to households, which households use to purchase houses, cars, and other consumer goods. Some loans are secured by a home, such as mortgages and home equity lines of credit (hereinafter home loans). Other types are used to make consumer purchases and can be secured, such as auto loans, or unsecured, such as credit cards (hereinafter consumer loans). Home loans and consumer loans can be pooled into groups (securitized) and sold to investors or other banks. Many banks own a significant amount of mortgage-backed securities (MBS) that are backed by the federal government through government-sponsored enterprises, such as Fannie Mae or Freddie Mac. Arguably, banks are also exposed to losses on these securities. However, due to the government backing, these securities are not be covered in this Insight. For more information on government-backed mortgages, see CRS Insight IN11316, COVID-19: Support for Mortgage Lenders and Servicers, by Andrew P. Scott and Darryl E. Getter. Noncurrent Rates When households stop making payments on their loans, it can cause banks to become distressed and potentially fail. For example, during and after the 2007-2009 financial crisis, the noncurrent rates (the percentage of loans for which payment is at least 30 days past due) on household loans greatly increased, see Figure 1: Home loan noncurrent rates increased from 0.9% in 2006 to 7.8% in 2012. The noncurrent rate at the end of 2019 was 1.8%. Consumer loan noncurrent rates increased from 1.0% in 2006 to 2.2% in 2009. The noncurrent rate at the end of 2019 was 1.0%. Subsequent to the dramatic rise in noncurrent rates, bank failures rose from zero in 2006 to a peak of 157 in 2010. Between 2008 and 2014, there were 507 bank failures. Figure 1. Household Debt Noncurrent Rates and Bank Failures, 1991-2019 / Source: FDIC Quarterly Banking Profile: Fourth Quarter 2019 and FDIC Bank Failures In Brief. Note: All rate and failure numbers are year-end. Banks failed for numerous reasons and defaults on household debt were not solely responsible for the post-crisis failures. For example, the high number of failures in the early 1990s were largely the result of the savings and loan crisis, which occurred for a number of reasons, including high and volatile interest rates and adverse regional economic conditions in the 1980s. Nevertheless, the correlation is illustrative of the stress placed on banks by missed household payments. Exposure Statistics The U.S. banks hold about $18.6 trillion in assets, with more than $2.5 trillion in home loans and more than $1.8 trillion in consumer loans, equaling 13.6% and 9.9% of total assets, respectively (see Figure 2). Meanwhile, banks held more than $1.7 trillion in Tier 1 capital, an important regulatory capital measure, giving a Tier 1-to-total asset ratio of 9.3%. This level of capitalization indicates that banks are well above regulatory minimum requirements. (This ratio is not precisely the same as the Tier 1 leverage ratio, one of the official regulatory ratios banks must report to regulators, because banks are allowed to make certain accounting adjustments. In general, the difference between the two numbers are relatively small). Compared to recent history, these represent a relatively low exposure to home loans and a typical exposure to consumer loans, but a relatively high capitalization level. These conditions suggest the banking industry is comparatively well positioned to withstand losses on household debt. Figure 2. Home Loans, Consumer Loans, and Tier 1 Capital as % of Total Assets / Source: FDIC Quarterly Banking Profile: Fourth Quarter 2019. Although it is informative to examine the industry as a whole, the numbers are skewed to a small number of extremely large banks. Figure 3 groups banks based on asset size. In general, smaller banks are more exposed to home loans than large banks, but less exposed to consumer loans, and smaller banks are better capitalized. As of December 31, 2019, the combined home and consumer exposure result in an exposure to household debt that is generally similar across size groups, roughly 20% to 25%. Figure 3. Household Debt and Capital, Grouped by Asset Size / Source: CRS calculations based on Federal Financial Institution Examination Council bank call report data for December 31, 2019. Banks differ across business models as well. Whereas some choose not to concentrate in any one asset type, other banks choose to specialize to serve a particular market or credit need. For example, whereas a typical bank might have 20% to 25% of assets as household debt, another may have twice that exposure or more. As Figure 4 shows, 340 banks have concentrations of between 40% and 50% and 383 banks have over 50%. These banks are on average smaller banks. The 40% to 50% group holds less capital than average, although they still have a high ratio compared to large banks displayed in Figure 3. The over 50% group holds a high level of capital, but some have exposures well above the 50% threshold, as evidenced by the average concentration of 62.5%. If the household debt noncurrent rate rises sharply, these could be the first banks to become distressed. Figure 4. Assets, Household Exposures, and Capital, Grouped by Concentration / Source: CRS calculations based on Federal Financial Institution Examination Council bank call report data for December 31, 2019.

Apr 14, 2020

IN11329CRS Insights

CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Assessment of Alternatives (Part 2)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) includes numerous provisions to assist employers and employees during the COVID-19 economic downturn. This Insight compares (1) the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP); (2) the Employee Retention Tax Credit (ERTC); and (3) Unemployment Insurance (UI). Firms that receive a PPP loan cannot also claim the ERTC. Additionally, when employees are retained due to a firm’s receiving a PPP loan or claiming an ERTC, employees are generally ineligible for UI during the period of retention. This Insight highlights factors employers might consider in choosing which program offers them the best support. The optimal choice from the firm’s perspective may not necessarily be what is optimal from their employees’ perspective. In addition to PPP or ERTC, employers may take advantage of the temporary federal financing of the Short-Time Compensation (STC) benefit. STC allows businesses and employees to keep their employment relationship (with reduced hours and prorated UC) while allowing workers to qualify for the additional $600 Federal Pandemic Unemployment Compensation (FPUC) weekly payment. Not all states have STC and it has historically been little used (approximately 10,000 individuals were receiving STC benefits in January 2020). A companion product to this Insight, CRS Insight IN11324, CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Overview, coordinated by Molly F. Sherlock, compares the PPP, ERTC, and UI. This comparison is summarized in Table 1. Table 1. Eligibility for and Benefits Provided by CARES Act Employers and Employees Supports Provisions Eligibility Benefits Paycheck Protection Program Businesses that meet the SBA’s regular size standards, as well as businesses and nonprofits with 500 or fewer employees (with some exceptions). Loan amount of 2.5 times monthly payroll, up to $10 million. Payroll costs capped at $100,000 on an annualized basis for each employee. Loan for expenses up to eight weeks can be forgiven if borrower meets certain payroll and employee retention criteria. Employee Retention Tax Credit All firms adversely affected by COVID-19 (adversely affected firms are those that are required to suspend operations or who have gross receipts 50% less than prior year gross receipts in the quarter). Firms with 100 or fewer employees can claim the credit for all workers; those with more, only for workers not working/providing services. 50% credit for up to $10,000 of wages paid per employee, beginning March 12 through the end of 2020. Unemployment Insurance Recently unemployed individuals, including those who were self-employed, independent contractors, or gig economy workers. Additional $600 weekly Federal Pandemic Unemployment Compensation (FPUC) benefit supplements most UI payments through July 2020; 13 weeks of additional coverage for regular Unemployment Compensation (UC, typically 26 weeks); Up to 39 weeks of Pandemic Unemployment Assistance (PUA) for certain individuals affected by COVID-19 and not eligible for regular UC. Short-Time Compensation (STC) benefits temporarily are partially or fully federally financed. Source: CRS Insight IN11324, CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Overview, coordinated by Molly F. Sherlock. Comparative Benefits Employers may choose to take a PPP loan, claim an ERTC, or lay off employees. As discussed below, this decision may vary depending on the firm’s number of employees. Small Businesses (100 or Fewer Employees) For many employers with 100 or fewer employees, a forgivable PPP loan may be the most attractive option. These loans can cover payroll and some non-payroll expenses, and can potentially be forgiven. A potential disadvantage of the PPP is that to receive full loan forgiveness, any decreases in full-time employment levels and compensation amounts made between February 15, 2020, and April 26, 2020, must be restored (in full for employment and within 75% of original compensation) by June 30, 2020. Another PPP loan limitation is its short term (covering eight weeks of eligible expenses); employees might be laid off or see a cut in compensation after the loan is exhausted. Whereas these businesses may prefer a PPP loan, lower-wage and median-wage employees may be better off under expanded UI benefits. The additional $600 per week FPUC payment alone is worth $15 per hour for a 40-hour week. Some who become unemployed, however, could lose access to employer-sponsored benefits (e.g., health insurance coverage, retirement account contributions). Workers would likely be even better off under STC, as it allows attachment to the workforce and would preserve benefits, while providing employees up to $600 in FPUC. Higher-wage workers would tend to be better off under PPP, keeping their job and current level (or at least close) of compensation. In many cases, the ERTC would appear less beneficial to employers than a PPP loan or laying off employees, as it provides the employer with up to a 50% wage subsidy subject to a cap. The credit is limited to $5,000 per employee. Additionally, not all businesses will necessarily qualify for the ERTC because this tax credit can only be claimed by businesses required to suspend operations or that have experienced a 50% reduction in gross receipts. The ERTC might be attractive from an employer’s perspective for some highly compensated employees (because the PPP loan payroll costs are capped at $100,000 on an annualized basis for each employee). However, since credit-eligible wages are limited to $10,000 per employee, the credit would only offset retention costs for highly compensated employees over a short period of time. For low-wage employees with longer periods of unemployment (more than the eight weeks a PPP loan would cover), the ERTC could also be attractive. Self-employed individuals (sole proprietors and partnerships) and independent contractors are eligible for the PPP and UI under the expanded UI program, even if they have no employees (because their net income from the business qualifies as compensation) but generally not for the ERTC. However, self-employed individuals that operate as a Subchapter S corporation (a corporation that elects to be taxed as a pass-through business) may be eligible for the ETRC for earnings paid to themselves as employees. Subchapter S owner-employees generally attempt to minimize amounts paid as wages. PPP would be more attractive to these individuals under the same circumstances as other small firms, but self-employed individuals who have low incomes and smaller relative overhead would be more likely to choose UI benefits, especially during the period when the $600 FPUC weekly benefit is available. Larger Small Businesses (More than 100 and Fewer than 500 Employees) For employers who had more than 100 employees in 2019, the ERTC can only be claimed for wages paid to employees who are on the payroll but not working. Thus, the relative benefits among these three options appear similar to the case for employers with 100 or fewer employees, except that the ERTC would be less attractive. Large Businesses (More than 500 Employees) PPP loans are generally not available for employers with more than 500 employees (unless they meet the special rules for the accommodation and food services industry). Thus, for these employers, two options are available: the ERTC or layoffs. As was the case above, lower- to median-compensated employees may be better off if laid off and receiving UI than if they are retained, at least in the short term. In contrast, more highly compensated laid-off employees may be less well off because UI benefits will not fully compensate for their lost wages. For highly paid employees, employers who find it valuable to retain and subsidize employees with no work to do (perhaps envisioning only a brief interruption and a costly rehiring process), and who have had to suspend operations or experienced at least a 50% decline in gross receipts, might choose to retain some employees and get the 50% tax credit for wages paid to these individuals (even though the maximum credit amount is $5,000 per employee). Highly compensated individuals who are owner-employees of Subchapter S firms with no employees or limited wages paid to others could find the ERTC preferable to UI. Unemployed Workers Workers may face reduced hours or become involuntarily unemployed (temporarily or permanently laid off, or placed on furlough). Some workers who are involuntarily unemployed because of COVID-19 may be eligible to receive UC, and others may be eligible for PUA based upon its temporary COVID-19 requirements (Section 2102(a)(3)(A)(ii)(I)(ii)) of the CARES Act). Workers affected by COVID-19 may seek to use workplace leave (either paid or unpaid). Despite the temporary expansion of UI, workers and employers may find opting for leave (even if unpaid) or reduced hours preferable to a complete separation from employment. Workers in job-protected leave or in partial employment status may be able to keep health care and other workplace benefits. Additionally, the continued employment and attachment to an employer may improve the individual’s long-term employment prospects in an uncertain economy, and it also provides a skilled labor force for the employer if the economy improves. In general, workers cannot quit a job in an attempt to receive UI benefits. According to recent guidance from the U.S. Department of Labor (DOL), quitting a job without good cause in order to obtain UI benefits, including the $600 weekly FPUC benefit as well as the PUA benefit, is fraud. Additionally, it should be noted that regular, state-funded UI programs already disqualify individuals who refuse suitable work without good cause, among other eligibility requirements for UI benefits.

Apr 13, 2020