Democrats hold fast to the $600 unemployment benefit boost as talks continue. The Washington Post reports on the “messy back and forth” between Republicans and Democrats as they work to reach common ground on coronavirus relief. President Trump said he’d sign an executive order today to extend enhanced unemployment benefits and provide a payroll tax cut but has reversed course after similar pronouncements. Meanwhile, Senate Majority Leader Mitch McConnell announced that the Senate can leave Washington—with the Senate still technically in session— while negotiations continue. The implication? He doesn’t expect a deal in the immediate future.
JP Morgan Chase Institute study: Eliminating the $600 boost to unemployment benefits could hamper the economic recovery. The study found that the expiration of the boost could lead to substantial declines in aggregate demand: a 4.3 percent drop in consumption, according to one study author, Peter Ganong of the University of Chicago. That decline would be “greater than the entire peak-to-trough decline of the Great Recession,” said Ganong.
Last week, 1.2 million new people applied for unemployment benefits. That’s a drop from the 1.4 million new applications in each of the two preceding weeks. Economists had not expected the drop, but through July 18, the US Department of Labor reports that 31.3 million people remain jobless.
Reminder: Jobless benefits are subject to federal income tax. Tax preparers worry that millions of Americans may be unaware of the taxes they may owe next year when filing their tax returns for 2020. If they are collecting unemployment benefits, they must pay federal income taxes on the money received, as well as state income taxes, if applicable. A significant share of Americans may have filed for unemployment benefits for the first time in 2020 and be unaware that the benefits are taxable, or they might not have enough money withheld from their benefits to pay those taxes. In either case, their refunds may be smaller, or they may owe taxes.
Federal Reserve Bank of Cleveland President: The country needs more aid from Congress. Loretta Mester, the bank’s president, asked for more help from Congress, saying in a speech to the Liberal Arts Macroeconomic Conference: “It will take continued fiscal and monetary policy support to limit lasting damage to the economy and achieve a sustainable recovery… It is also clear that more fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of the economic shutdown until the recovery is sustainably in place.”
New Hampshire to Massachusetts: Are you illegally collecting taxes from residents of other states? The New Hampshire Attorney General is reviewing whether the Massachusetts Department of Revenue is violating either state or federal law. Under an emergency order, Massachusetts is collecting income taxes from residents of other states who work for companies based in the Commonwealth, even if they are working from home during the pandemic. But before the pandemic, Massachusetts allowed non-residents to deduct a portion of their taxable income based on the amount of time spent working outside of the state. Said one New Hampshire lawmaker, “Workers who have accepted employment in Massachusetts under one set of tax rules should not be forced to accept such a significant change to their paychecks.”
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