Unemployment Tax Break Bill Muddied by Partisan Conflict

A proposed tax break for people who lost their jobs and collected unemployment during the COVID-19 pandemic got a boost Wednesday — but it also got snared in the Legislature’s recurring party-line conflicts.

While the bill, SB-267, was introduced by Democrats, it passed the Senate Labor and Regulatory Reform Committee on a 3-2 vote Wednesday, and both Democrats on the committee voted against it.

The legislation would waive state income taxes in 2020 and 2021 on the first $10,200 of unemployment compensation that a taxpayer receives in either year.

With the bill’s passage out of the committee, “I really hope it gets scheduled for Tuesday” — May 11, when the Senate will hold its next floor session, said its author, Sen. Tim Carpenter (D-Milwaukee), late Wednesday afternoon.

Passing the bill is urgent, Carpenter said, so that it can be applied immediately to state income tax returns, which are due Monday, May 17.

The reason for the divided committee vote Wednesday was an amendment, authored by Sen. Steve Nass (R-Whitewater), the committee’s chair. The amendment renewed the ongoing clash between GOP lawmakers and Democratic Gov. Tony Evers over who gets to decide how to spend the state’s federal COVID-relief funds.

The Nass amendment directs the governor’s office to use up to $242 million from the state’s share of money from the American Rescue Plan Act (ARPA), enacted in March, to cover lost tax revenues from the unemployment compensation tax break.

The Evers administration has stuck by state law that gives the executive branch sole control over spending federal dollars distributed to the state. Meanwhile, GOP lawmakers have repeatedly passed legislation that would let them overrule Evers’ plans for the state’s $3.2 billion ARPA allotment. Evers has vetoed those attempts.

When Nass added his amendment to the bill giving a tax break on unemployment compensation, Democrats were initially wary because language in ARPA blocks states from cutting taxes and using the federal funds to offset the lost revenues.

But the U.S. Treasury, which hasn’t yet released guidelines for states on ARPA spending, issued a statement in early April declaring an exception to that restriction. It is permissible, according to the statement, for states to use the money to replace revenues lost from “income tax changes that simply conform a state or territory’s tax law with recent changes in federal income tax law.”

The proposed state tax break on unemployment compensation matches a change that ARPA made to the federal income tax law. For that reason, according to an email memo that an attorney with the nonpartisan Legislative Council sent to some lawmakers in April, covering the waived taxes from ARPA would not be a violation.

Despite that memo, Sens. Bob Wirch (D-Somers) and LaTonya Johnson (D-Milwaukee) voted against the amendment, which passed 3-2 in committee; they also voted against the bill after the amendment passed.

In a statement Wednesday, Wirch said the original bill “would have provided much-needed relief to families hard hit by the pandemic,” many of whom have called his office for help after COVID-19 job losses since early in 2020.

But Wirch called the amendment a “ploy by the Republicans” that was “reprehensible.” Because formal Treasury guidelines have not yet been published, ARPA funds “haven’t yet been approved for this use and might not ever be,” Wirch stated. He charged that the amendment was motivated by seeking “a ‘gotcha’ on Democrats and Gov. Evers.”

Asked about Wirch’s characterization, Nass said in a written statement Wednesday evening: “I can only assume Senator Wirch has not read the email from the nonpartisan Legislative Council and the guidance statement from the U.S. Department of the Treasury regarding the ARPA funds and SB 267.  Otherwise, it appears that some Senate Democrats are not willing to help struggling taxpayers if it means angering the governor’s staff.”

Carpenter, meanwhile, said Wednesday that despite the amendment, “I’m happy the bill is moving forward.”

As he has previously, Carpenter spoke well of Nass for holding a public hearing on the legislation in April and advancing it quickly with Wednesday’s vote. He said he appreciated that Nass showed him the amendment before introducing it.

“I’m not calling it a poison pill to kill the bill. But it certainly complicates things a lot,” Carpenter said. “I’m in the minority — deep in the minority. And all I can do is try and work with the majority Republicans.”

While he alluded to more cynical interpretations of the GOP maneuver, he held open the hope for good-faith dialogue.

“My concern is that, if they are introducing the amendment to just delay things and delay things, I wish they wouldn’t do that,” Carpenter said. “But if they’re interested in seriously discussing and taking care of people to federalize the treatment of their unemployment compensation, I think movement is good.”

He contrasted the handling of the proposed unemployment compensation tax break with a bill enacted in February that gave recipients of federal Paycheck Protection Program (PPP) funds an extra break on their state business income taxes. The Republican majority in both the Senate and the Assembly rejected amendments to that bill that Democrats introduced to add an unemployment compensation income tax break.

The PPP tax break — valued at $400 million or more — will be covered by the state’s general revenues.

“And I would hope that unemployment compensation would be the same,” Carpenter said. “But the bottom line is — think of those people that were unemployed and are having a tough time. That’s what I hope people remember, and not getting caught up in partisan politics.”

He said he hoped that his bill was moved quickly so it would get on Tuesday’s Senate floor calendar.

“We can have a discussion about the amendment on the Senate floor,” Carpenter said. “But I really hope it gets scheduled for Tuesday, and we can maybe work something out with the governor’s office and with the Republicans.”

Reprinted with permission of Wisconsin Examiner.