David Dayen reports on the new president, policy and all things political
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March 5, 2021
Senate Democrats Agree to Defuse the Unemployment Tax Time Bomb
It’s part of a compromise that cuts the federal boost by $100 a week.
Hiring posters up in Schaumburg, Illinois, in February. Unemployed people from 2020 will now get tax relief. (Nam Y. Huh/AP Photo)
The Chief
Some late-breaking news this morning. Per a Democratic aide, a compromise deal has been worked out among Senators on the unemployment provisions of the American Rescue Plan.

Joe Biden’s original blueprint included an extra $400 a week in a federal boost to unemployment, lasting through the end of September. The House bill rolled this back to August, using the savings from cutting a month to add a fix to multiemployer pensions. Why you needed to use "savings" to add a minor provision into a $1.9 trillion bill is one for the ages, but it’s because Congress picked a number and put it in the budget resolution, thereby becoming a cap.

Senate Democrats, particularly Sen. Ron Wyden (D-OR), wanted that extra month retained. Moderates like Sen. Joe Manchin (D-WV) wanted the $400 to roll back to $300, which is where the federal boost is now. And a third Senator, Dick Durbin (D-IL), wanted to exempt the federal boost from taxation, preventing surprise bills for the long-term unemployed. I talked to Rep. Cindy Axne (D-IA), Durbin’s House co-sponsor, about that a few weeks ago.

All of these competing priorities came together in one of those good news/bad news compromises. During the amendment process, Sen. Tom Carper (D-DE) is going to introduce an amendment, and the fact that it’s coming from Carper, a close associate of Joe Biden’s, signals that it’s intended to pass (although it might depend on Republican support).

According to a Democratic aide, the amendment would roll back the federal boost from $400/month to $300/month. It would also extend benefits through September, adding back that month that the House chopped off. And it would make the first $10,200 of unemployment benefits exempt from taxes in the 2020 tax year. If you got the $600 federal boost for the maximum period allowable in 2020, it would add up to $10,200, so that’s where they got that number. All of the federal boost would be tax-free, then.

The amendment also includes a one-year extension of a business tax limitation that was in the Trump tax cuts. It’s quite complex but I believe this prevents some creative accounting to earn tax credits on big losses. (Don’t quote me on that.)

As I said, Carper’s name on this amendment, and the assurance that it was worked out between progressive and moderate Democrats, probably means that it’s passing the Senate. One Democrat voting no could upend that however, depending on what Republicans do.

So all in all, the unemployed will get $100/week less in checks than they would have under the House bill, but another month of extension. The lower rate is financing the extension for longer-term unemployed, which is a bad deal for anyone who gets a job before August but a good deal for longer-term unemployed. Also, everyone unemployed in 2020 will get that tax relief, which does make a lot of sense right now, given how many millions likely didn’t withhold any of the UI benefits. Yes, the standard deduction would have wiped out some of the tax liability, but it still would have affected those expecting refunds. All in all, this is pretty significant tax relief for people unemployed in 2020, and financially about a wash (maybe a slight win) for people who had $10,200 or more in tax liability.

Advocates who worked on the tax relief provision recognize it’s a compromise. "Jobless benefits should be extended automatically until the labor market recovers, the federal top-off should be $600, and all taxes on UI should be forgiven," said Elizabeth Pancotti, policy director at Employ America. "But in a world where Republicans could have scaled back the benefits to $300 (or even lower) only through the end of August, extending them and getting tax relief is a win." As Pancotti notes, that emergency unemployment funds are taxed at all is way off the mark. "Partial tax forgiveness will ensure that millions of American's don't have to mail their relief checks back to the IRS, and can instead put food on the table, refill prescriptions, and pay the rent."

Of course, the big problem here is that we’re in the middle of tax season, and a lot of people have already filed (though many waited to see how this UI tax situation would play out). Those previous filers are now going to have to re-file to get that tax relief back, which is a different kind of tax: a tax on people’s time. This would be a good moment to implement the policy where the IRS does everyone’s taxes and sends them off to people to check them. But alas…
Show Your Cards
Another amendment we’re going to see in the coming days is the Sen. Bernie Sanders (I-VT) provision reinstating the $15 an hour minimum wage. I’m not sure whether the amendment will require 50 or 60 votes, but either way it won’t pass—Manchin and Sen. Kyrsten Sinema (D-AZ) have already announced opposition, and no Republicans are for it. Yet it’s still worth setting a baseline on this.

If your goal was to get $15 an hour into the bill, obviously the only way for that to happen would have been for the presiding officer to not take the Senate parliamentarian’s recommendation that the provision had to be thrown out. An appeal of that ruling would have needed 60 votes to overturn. So you went from a vote on the minimum wage that only required 41 votes to uphold, to one that needs 50 or 60. Of course, at the end of that you’d have to gamble that Manchin and Sinema would still vote to approve the bill even with $15 an hour in it, though torpedoing Joe Biden’s signature legislation over one provision would be quite a move. Anyway nobody forced that discussion, and here we are.

It still has value. Sanders is forcing the Senate to take a position on $15 an hour, a popular policy in the country. We’re going to find out who’s really for it. Only 38 of the 50-member Democratic caucus are co-sponsors of the Raise the Wage Act. The other twelve will now have to take a position. And going forward, as the Biden administration considers negotiating with Republicans on a minimum wage provision that can get 60 Senate votes, having more Democrats at $15 will assist that process. The more that vote yes on the Sanders amendment, the more leverage in negotiations.

I don’t know where those negotiations will end up or even if they’ll get anywhere (though I’m confident, based on discussions with Senate aides, that we will see a floor vote on the minimum wage in both chambers before this summer). But this is the effective start of that negotiation. Everyone will be on the record on $15 an hour after this weekend.

What Day of Biden’s Presidency Is It?
Day 45.
Today I Learned
  • Higher than expected employment gains in February, though the reference week wasn’t the one with the ice storm. (Calculated Risk)
  • We’re up to 2 million vaccine doses being delivered per day, which is excellent. (HuffPost)
  • That would explain the high polling numbers and the opinion that the COVID situation is actually getting better. (The Hill)
  • Tim Wu is joining the administration as a competition policy specialist in the National Economic Council. A lot of healthy debate in this White House. (New York Times)
  • On the flip side, what the hell is this from John Kerry? Using SPACs to finance clean energy? (CNBC)
  • There is a huge surge happening now of child migrants. (Axios)
  • After HuffPost reported on the Betsy DeVos holdover in the Education Department, he got fired. (HuffPost)
  • A poll found two mildly unpopular Biden executive actions out of like 50 and it’s a big to-do. (New York Post)

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