The Massachusetts House unanimously approved a wide-ranging tax relief, paid emergency sick leave and unemployment system funding bill Thursday that would soften jobless aid insurance premium hikes set to hit businesses in the coming weeks.
Both laid-off workers and employers stand to gain access to tax breaks under the bill (H 89), which is built on a Gov. Charlie Baker proposal aimed at stabilizing the state’s unemployment system and also includes provisions such as creation of a paid sick leave program for employees who are affected by COVID-19 and tax breaks on any forgiven Paycheck Protection Program loans from 2020.
The bill would freeze a rate schedule, thereby imposing smaller increases in unemployment taxes businesses pay in 2021 and 2022. It would also authorize $7 billion of borrowing to keep the depleted unemployment fund solvent and pay back federal loans, plus impose a separate surcharge on businesses to cover federal interest.
House Speaker Ron Mariano told reporters after the bill’s passage that “the thrust of the bill is always about getting people back to work.”
“We’re trying to help small businesses get back on their feet,” Mariano said. “The more money we can keep in and under the control of the small business owners, the better off we’re all going to be. It allows them to hire more people with the freeze in the rate, the forgiveness of the PPP stuff allows them to retain capital. All of this goes into the hiring back of employees.”
The House voted 155-0 in favor of the bill. Four lawmakers — Republican Reps. F. Jay Barrows of Mansfield, Angelo D’Emilia of Bridgewater, and Donald Wong of Saugus as well as independent Rep. Susannah Whipps of Athol — voted present.
Senate leaders expect to take the bill up next week and have already indicated their support.
Who funds the state’s unemployment system
The state’s unemployment system is funded by contributions from businesses, which can scale up depending on how often an employer’s workers seek the aid.
COVID-19 and the widespread changes to public life it wrought created a tidal wave of joblessness, spiking at a 17.7 percent statewide unemployment rate last June. The demand wiped out the unemployment insurance trust fund, which cratered from a balance of $1.6 billion in February 2020 to $2.2 billion in the red by year’s end.
In its most recent monthly report, the state Department of Unemployment Assistance projected the trust fund will post year-end deficits of $4.7 billion in 2021, nearly $5 billion in 2022, $4 billion in 2023, and $2.9 billion in 2024.
That dire outlook is set to trigger a shift in the tax rate schedule that, without action, would push the average per-employee cost on businesses from $544 in 2020 to $866 in 2021, a nearly 60 percent jump.
The legislation would freeze the rate schedule in 2021 and 2022, settling the average per-employee cost at $635 in 2021 and $665 in 2022, according to the Associated Industries of Massachusetts.
It would also authorize the state to bond up to $7 billion to keep benefits flowing and pay back the more than $2.2 billion the state has borrowed from the federal government for unemployment so far.
Interest rates on municipal bonds are lower than the 2.27 percent rate that will be due on the federal loans, and supporters say the step will allow Massachusetts to save money in the long run.
“While unemployment has been coming down, certainly compared to where it was back in June of last year, we still definitely have some challenges ahead of us, and bonding that money is going to give us some flexibility of not putting it all on businesses immediately,” said House Ways and Means Committee Chair Rep. Aaron Michlewitz.
Businesses would also face a new surcharge, in the form of an excise tax on employee wages, through December 2022 to help repay interest due in September on the federal loans. Rep. Josh Cutler, co-chair of the Labor and Workforce Development Committee, told the News Service the surcharge would result in an average cost of $57 per employee in 2021 and $66 per employee in 2022.
“Even with this additional employer surcharge, businesses in Massachusetts will save money as a result of our action today,” Cutler, a Duxbury Democrat, said on the House floor.
Other areas the bill touches on
The bill also includes several other major sections.
It would create a tax credit available to those who received unemployment benefits and have household incomes below 200 percent of the federal poverty level, and waive penalties for any missed tax payments on those benefits last year. The total tax credit is worth $30 million for the 2020 tax year and $20 million for 2021.
Businesses would also be exempt from needing to pay state taxes on forgiven federal Paycheck Protection Program loans, a step that Republican lawmakers have highlighted in recent weeks as important relief.
“When a lot of the businesses were requesting PPP loans, they were in the midst of surviving. They weren’t thinking about next year,” Michlewitz, a North End Democrat, told reporters. “They weren’t thinking about what tax decision they’d have to make in the future. They were thinking about how they’d stay open in the midst of an economic shutdown. In order to protect these small businesses and allow them to get back to where they were, short-term and long-term, the loan forgiveness here and tax forgiveness here is an appropriate step to be taking.”
A year into the pandemic, the House included language creating an emergency COVID-19 paid sick leave program in the bill making benefits available to employees who contract COVID-19, need to quarantine, or must care for a family member affected by the illness.
Full-time workers could access 40 hours of paid time off, while leave for part-time workers would vary based on their schedules. Employers with fewer than 500 workers can access federal tax credits to help cover the costs.
Before approving the bill, the House rejected a proposed amendment from Rep. Erika Uyterhoeven of Somerville that would have offered two weeks of COVID-19 leave to affected employees.
Members also voted 152-4 to shoot down another Uyterhoeven amendment aimed at what she described as preventing “double-dip” tax breaks for businesses that received PPP loans.
Baker first filed a version of the bill including only the UI changes in December, then re-filed his proposal in January with the start of the new session. Major business groups such as AIM and the National Federation of Independent Businesses supported that measure.
“By passing this legislation, we will have the ability to use a much less expensive financing mechanism to borrow money and pay back the fund,” Baker said about the bill Wednesday.
The Republican governor has not taken a public stance on sections that Democratic leaders added into the package, such as the COVID-19 emergency paid sick leave or the tax credits for unemployed workers.
The House vote came after Senate Republicans delayed action on a revamped climate bill, saying that passage of the relief bill to prevent PPP loans from being taxed should “take place immediately” before other matters.
“Absent action by the legislature, these businesses will be forced to pay substantial amounts in additional taxes through tax returns now due on March 15, rather than putting these dollars to work in their struggle to survive and continue to employ the thousands of Massachusetts residents the Payroll Protection Program was designed to protect,” Sens. Bruce Tarr of Gloucester, Ryan Fattman of Sutton, and Patrick O’Connor of Weymouth wrote. “Failure to act in a timely way will cause incalculable hardships for employers and employees in Massachusetts.”
