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First100-020521
Stop, you're going to have to pay taxes on that unemployment money, unless Congress does something about it.
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The Chief
Early this morning, the Senate passed the budget resolution that will allow its coronavirus relief package to be written through a majority-vote process, and it had to blow through a mostly symbolic “vote-a-rama” to do it. These votes on amendments instruct the committees writing the reconciliation bill, though they are largely non-binding. One of the votes ensured that no direct payments go to “upper income” Americans, though it didn’t define “upper income.”
See, we’re having a discussion about “targeting” relief. Democrats are reportedly seeking to “target” checks to a smaller population of recipients. Larry Summers is bloviating about the non-targeted aspects of the bill being unnecessary. Only certain lucky duckies based on certain completely imprecise characteristics get to be the ones tapped for relief, you see.
Yet under current law, some of the most vulnerable people in the country are directly targeted for an expense they probably don’t know anything about. I wrote about this in December, that unemployment benefits are taxed at the federal level and in 34 states. So anyone who received the generous $600/week benefit last spring or has been on unemployment for an extended period and didn’t withhold taxes from it—something almost nobody does—will be liable for a large payment during the upcoming filing season, which they might not see coming. The most liability would be for the four million-plus long-term unemployed, which accounts for nearly 40 percent of all unemployed persons, according to the latest jobs report.
Some members of Congress are trying to fix this, by targeting relief right at those who need it. Sen. Dick Durbin (D-IL) and Rep. Cindy Axne (D-IA) have released a bill that would exempt the first $10,200 of unemployment benefits in 2020 from taxation. This would relieve the burden of a surprise bill from people, as the standard deduction ($12,400 for individuals and $24,800 for couples) would likely take care of any additional tax liability.
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“We have so many Americans that were on unemployment insurance last year,” Rep. Axne told me in an interview, noting that 40 million Americans received some level of benefits. More than 18 million are still getting benefits, and Axne wants to avoid a surprise bill for this population. “I can’t imagine the feeling that must give, to get a bill and not be able to pay for it.”
Congress did this in the 2009 stimulus package, exempting $2,400 in unemployment benefits from taxation. The federal boost—just $25 a week!—was far lower in 2009 than the $600/week earlier this year and the $300/week currently.
Congress has also already tried to fix tax issues for this population. Because many long-term unemployed would have missed out on the Earned Income Tax Credit, which is tied to work, in the last coronavirus relief bill Congress created a “look-back” provision that allows people to use their 2019 earnings to calculate their EITC relief, as well as for the Child Tax Credit. This will allow the normal situation where low-income people get a large refund during tax season. People have come to rely on that refund, using it to pay off debt or make deferred purchases.
There’s one problem with the EITC patch, however; people have to know about it. And they have to find their 2019 tax return and use that to qualify for the credit. There could be utilization issues here, and combined with the tax time bomb from unemployment benefits, a lot of people could face a tax payment when they expected a refund. Others who had some income early in 2020 but lost that job and went on unemployment could also see a big surprise.
“We do need to make sure we’re keeping money in people’s pockets,” Axne said. “How can we expect this burden on their finances when they’re already in peril?”
Back in December, when Donald Trump delayed signing the COVID relief package until after extended unemployment expired, people were deprived and in some cases are still being deprived of their benefits, as designed-to-fail unemployment systems don’t spin back up quickly to reflect the new law. A Century Foundation report found that beneficiaries lost $17 billion just in January because of the delay. Similarly, tax filing begins next week, making it more urgent to exempt unemployment from taxes. “This is why it’s so important to get it into the COVID bill,” Axne said. “We run that risk if we can’t get it into a bill and apply it to 2020 taxes.”
We know exactly who people will blame for this as well; whoever’s in the White House, even though unemployment benefits have always been taxable. This would be an anti-stimulus at the worst possible time, and it’s easily avoided. And the relief would be that thing that’s in vogue right now: targeted. “This is a common-sense, pragmatic solution to what we’re facing right now,” Axne said. “Don’t kick someone when they’re down.”
Also Stonks
Because Rep. Axne also serves on the House Financial Services Committee, I had to ask her about the GameStop madness and over-speculation in financial markets, and she opened her response with a surprising story. “I think about my nephew, 18, a senior in high school, up until 4 in the morning figuring out how to get into the GameStop thing,” she said. “These are the people we have to protect, people around the country thinking they need a quick fix.”
But Axne went on to say that the recent ramp-up of retail investing reveals something about America in an age of inequality. “Why do Americans think the only way they can get ahead is to go into the markets?” Axne asked. “It points to a bigger issue of equity in this country. People are tired of sitting on the sidelines while Wall Street gets richer and richer.”
I made some similar points in a piece this week, looking at the various “sophisticated” speculation in the market. I know financial regulators met yesterday, but I fear they’re too focused on GameStop and Robinhood and not on all this useless speculative nonsense and over-financialization that has our economy in a doom loop. I was pleased that Rep. Axne is pointed in the right direction; let’s hope the Biden administration gets there too.
What Day of Biden’s Presidency Is It?
Day 17.
Today I Learned
- Johnson & Johnson has applied for an emergency use authorization for its COVID vaccine. How about a meeting today to approve it? (NBC News)
- Ro Khanna sends a letter calling for moving to a one-shot sequence to get more people some level of coverage. J&J is only a one-shot vaccine. (Ro Khanna’s office)
- Biden withdraws support for “offensive operations” in Yemen. (The Intercept)
- Nearly ninety percent of small businesses, according to a Federal Reserve survey, have seen revenues remain below pre-pandemic levels. (Wall Street Journal)
- The Biden team is getting a lot of pressure to cancel student debt under executive authority. (Politico)
- Julie Su gets the top deputy slot in the Department of Labor, and Sanders aide Josh Orton is a senior adviser. That’s a good agency! (Bloomberg)
- Speaking of which, Biden keeps firing Trump’s anti-union labor officials. (HuffPost)
- Ezra Klein on the broken Senate. (New York Times)
