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February 5, 2021

Exempting the Unemployed from Surprise Tax Bills

Rep. Cindy Axne on her new bill and the GameStop madness

 

Stop, you're going to have to pay taxes on that unemployment money,
unless Congress does something about it. (Graeme Sloan/Sipa USA via AP
Images)

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
.

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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.

"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.

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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."

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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.

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What Day of Biden's Presidency Is It?

Day 17.

We Can't Do This Without You

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)

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