Congress is racing to wind down a tax break meant to encourage businesses to keep workers on the payroll during the COVID-19 pandemic
When IRS Commissioner Danny Werfel met privately with senators recently, the chairman of the Senate Finance Committee asked for his assessment of a startling report: A whistleblower estimated that 95% of claims now being made by businesses for a COVID-era tax break were fraudulent.
“He looked at his shoes and he basically said, ‘Yeah,’” recalled the lawmaker who posed that question, Sen. Ron Wyden, D-Ore.
The answer explains why Congress is racing to wind down what is known as the employee retention tax credit. Congress established the program during the coronavirus pandemic as an incentive for businesses to keep workers on the payroll.
Demand for the credit soared as Congress extended the tax break and made it available to more companies. Aggressive marketers dangled the prospect of enormous refunds to business owners if they would just apply. As a result, what was expected to cost the federal government $55 billion has instead ballooned to nearly five times that amount as of July. Meanwhile, new claims are still pouring into the IRS each week, ensuring a growing price tag that lawmakers are anxious to cap.
Lawmakers across the political spectrum who rarely agree on little else — from liberal Sen. Elizabeth Warren, D-Mass., to conservative Sen. Ron Johnson, R-Wis. — agree it’s time to close down the program.
“I don’t have the exact number, but it’s like almost universal fraud in the program. It should be ended,” Johnson said. “I don’t see how anybody could support it.”
Warren added: “The standards were too loose and the oversight was too thin.”
The Joint Committee on Taxation estimates that winding down the program more quickly and increasing penalties for those companies promoting improper claims would generate about $79 billion over 10 years. Lawmakers aim to use the savings to offset the cost of three business tax breaks and a more generous child tax credit for many low-income families.
