Senate Republicans on Thursday unveiled a $1 trillion economic relief package in response to the coronavirus pandemic, which has forced Americans to stay close to home to slow the spread of the disease, threatening to drag the U.S. economy into a recession that rivals the 2008 financial crisis.
The bill would send checks of up to $1,200 to taxpayers who earn less than $99,000 a year, provide loans for small businesses and large tax cuts for big corporations.
It would also waive the 10-percent early withdrawal penalty for Americans who take out up to $100,000 from qualified retirement accounts for coronavirus-related purposes.
Individuals who are eligible for this exemption include people who have: been diagnosed with COVID-19, the disease caused by the novel coronavirus; whose spouse or dependent has been diagnosed with COVID-19; who experience “adverse financial consequences” as a result of being quarantined, furloughed, laid off or having work hours reduced; been unable to work due to lack of child care due to COVID-19; or lost their business because of COVID-19.
Republicans also proposed temporarily eliminating the contribution limit for taxpayers who withdraw money from their retirement accounts, allowing them to re-contribute the funds they took out to an eligible retirement plan over the next three years.
Typically, early withdrawal from an Individual Retirement Account or 401(k) prior to age 59.5 is subject to a 10 percent additional tax penalty. There are certain existing exceptions to the fee, like using the funds to pay your medical insurance premium after being laid off.
According to a Federal Reserve report released last year, about 54 percent of non-retired adults have some kind of defined-contribution plan, such as a 401(k) or 403(b), while 33 percent have an individual retirement account. It represents a huge sum of money, estimated to be worth close to $17 trillion.
“Not everybody has a retirement plan, but a limited period of allowing free-and-clear withdrawals would encourage parents, brothers, uncles and so forth to act as a financial backstop to younger and less-fortunate family,” the Wall Street Journal editorial board wrote in a Thursday op-ed. “That’s a much healthier dynamic than simply telling Americans to sit tight, crank up 'Ride of the Valkyries,' and wait for the government helicopters dropping $100 bills.”
Senate Majority Leader Mitch McConnell said negotiations with Democrats over the bill will begin on Friday morning and vowed they will continue until a deal is reached.
"These are urgent discussions and they need to happen at the member level, starting now," McConnell said. "This legislation is a significant next step. And the Senate is not going anywhere until we take action."