The Economy Contracts, Unemployed Benefits Expire

Taxes

Bad economic news. Gross domestic product, or  GDP, shrunk about 9.5 percent between the first and second quarters of 2020. That translates into a seasonally adjusted annual decline of 32.9 percent. Last week, 1,434,000 people filed new claims for unemployment benefits. The weekly enhanced unemployment benefit of $600, passed in March under the CARES Act, expires today.

Deal-making as a game of Not-It? Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer in Senate floor speeches excoriated each other’s plans for coronavirus relief as unemployment benefits are set to expire. The Washington Post reports that the party leaders may be setting the stage for a rather competitive blame game.

Case in point: GOP Sens. Ron Johnson and Mike Braun tried to pass a bill giving states the option to tie overall unemployment benefits to a two-thirds match to an individual’s previous wages, capped at $500 per week, or a flat $200 weekly boost to benefits. Senate Minority Leader Chuck Schumer blocked that bill, saying it amounts to a “big cut,” and tried to pass the House’s $3 trillion bill that would, among other things, extend the $600 per week federal unemployment benefit through the end of the year. Johnson in turn blocked that bill, which Braun characterized as a “monstrosity.”

Also in the Senate: Another stimulus payment structure? GOP Sens. Bill Cassidy, Steve Daines, Mitt Romney and Marco Rubio introduced a bill yesterday that would provide stimulus payments of $1,000 to adults, their children, and adult dependents. Under the proposal a family of two parents and two children under 17 would receive up to $600 more than they did under the CARES Act.

And tax relief for remote workers? The Wall Street Journal reports (paywall) on a Senate proposal aims to help millions of remote workers who could face larger tax burdens in 2020 because they are working remotely from  states with higher taxes than where they lived or worked before the coronavirus struck. The proposal would allow workers to maintain a “status quo,” or pay income taxes to the same states they did before the pandemic.

And in the House: Two child care bills pass. One provides grant money to child care providers. The second, the Child Care for Economic Recovery Act, contains tax provisions designed to make child care more affordable for families and provide assistance to child-care providers.

How would a second round of COVID-19 rebates affect households? TPC’s Janet Holtzblatt explains that those second round of payments will likely have the same basic structure as the recovery rebates sent this spring. And, assuming that everybody who is eligible for the payments receives them, most taxpayers would receive a substantial reduction in their 2020 taxes if Congress passes a second round of rebates.

New York Governor Andrew Cuomo is not a fan of taxing the wealthy. The Democratic governor is resisting calls to raise taxes on the state’s 100 billionaires to help cover the state’s budget hole, even though both the State Majority Leader and Assembly Speaker support raising taxes on the very wealthy.

Tune in next Thursday to The Prescription. On August 6, TPC holds the next in its series of online conversations on policy responses to the COVID-19 economy. TPC’s guest will be Michael R. Strain (@MichaelRStrain), director of economic policy studies at the American Enterprise Institute. Strain will talk with Mark Mazur, the Robert C. Pozen director of the Urban-Brookings Tax Policy Center, about appropriate fiscal policy responses to the COVID-19 pandemic, interpreting apparently conflicting economic indicators, and the US economy’s short- and long-term prospects. Register here.

For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at dailydeduction@taxpolicycenter.org.

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