Three Things Worth Remembering About Unemployment Insurance

February 23, 2012 at 1:00 pm

Despite the recent deal to extend emergency federal unemployment insurance (UI), the two parties hold very different views of unemployment insurance, as my blog post this week for US News & World Report notes.  I highlight three points to keep in mind in future UI debates:

  • UI is a safety net, not a hammock. House Budget Committee Chairman Paul Ryan has warned of “a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.”  Research, however, mostly supports the view that UI helps people through tough times rather than turning them into lazy slackers.
  • UI is a cost-effective way to increase demand in a weak economy. The Congressional Budget Office (CBO) recently said that “Slack demand for goods and services . . . is the primary reason for the persistently high levels of unemployment and long-term unemployment observed today.”  CBO also found (see Figure 4 of the study) that UI is the most cost-effective policy for boosting slack demand of the 13 policies that it examined.  Moreover, emergency federal UI programs add little to long-term deficits because they are temporary; policymakers have always let them expire once the unemployment rate has fallen significantly — though not until it is much lower than it is now (see chart).
  • Reforms should help the UI system meet its goals, not undermine it. As the bipartisan, blue-ribbon Norwood Commission stated in the 1990s, “The most important objective of the U.S. system of Unemployment Insurance is the provision of temporary, partial wage replacement as a matter of right to involuntarily unemployed individuals who have demonstrated a prior attachment to the labor force.”  The commission recommended several reforms that would strengthen the UI system while continuing to meet that primary purpose.  But some other recent “reform” proposals — to impose an education requirement on UI recipients and allow states to divert UI funds for other purposes, for example — would weaken the UI system.

Higher Rents for Poorest Housing Recipients a Bad Idea

February 22, 2012 at 4:51 pm

A New York Times editorial today warns that raising rents on the poorest recipients of federal housing assistance, as both a House proposal and the President’s new budget would do, could impose unaffordable burdens on these households, all of whom have incomes below $3,000.

We share that concern and believe that policymakers should reject a rent increase.

The House proposal would require housing agencies and owners to charge families with little or no income $69.45 a month in rent (and more in future years based on inflation), up from the current maximum of $50.  Our analysis finds that this increase in the minimum rent could expose 491,000 households to serious added hardship and even homelessness.

These nearly half-million households include nearly 700,000 minor children, and 40,000 of the households include people who are elderly or disabled.

The President’s budget would raise minimum rents even higher than the House proposal — to $75 — so it would affect even more extremely poor families (about 15,000 more).

As the Times notes, if policymakers raise rents on the poorest housing recipients, they should at least continue to allow local agencies to make the rent increases optional.  Local agencies best know the households that they serve and should retain the flexibility to set the most appropriate policies for them.

Also, while agencies are required to provide hardship exemptions from minimum rents in certain situations, a HUD-sponsored study in 2010 found that these exemptions were very rare.  Policymakers should couple any rent increase with the changes needed to ensure that the hardship exemption accomplishes its intended goal of keeping minimum rents from pushing families out of their homes.

To Reduce Deficits, “Chain Link” Both Benefits and Taxes

February 22, 2012 at 4:31 pm

Policymakers can gradually trim the growth of benefit programs and boost future tax revenues by using the “chained” Consumer Price Index (CPI), rather than the official CPI, to adjust various federal benefits and provisions of the tax code to account for inflation, our new report explains.

Many economists believe that the official CPI overstates inflation and view the chained index as a better measure.  Switching to the chained CPI would be a sound component of a comprehensive package to put the budget on a sustainable course— if policymakers also make these adjustments:

  • Apply the change to both benefit programs and the tax code, and use the proceeds from applying the chained CPI to the tax code entirely for deficit reduction. Using the proceeds to finance a reduction in tax rates should not be acceptable.
  • Give long-time Social Security beneficiaries a modest benefit increase (“bump”). Switching to the chained CPI would lower Social Security benefits (relative to currently scheduled benefits) by amounts that compound each year that the recipient remains on the rolls.  That could lead to hardship among very old people.  Therefore, a modest increase for people who have received benefits for many years should accompany the switch to the chained CPI.  Both the Bowles-Simpson and Rivlin-Domenici deficit-reduction plans include such a bump along with their proposal to adopt the chained CPI.
  • Exempt Supplemental Security Income (SSI) or make other changes to SSI to mitigate the chained CPI’s impact. Applying the chained CPI to SSI, which serves very poor elderly and disabled people and still leaves them well below the poverty line, raises particular problems.  Policymakers should exempt SSI from the switch or soften the impact on SSI beneficiaries.
  • Specify which programs would adopt the chained CPI. The CPI appears in hundreds of places in the U.S. Code and other laws, but only about a dozen such provisions account for the bulk of the potential savings from switching to the chained CPI.  Lawmakers should amend specific statutes to specify the chained CPI, rather than enacting blanket language, and they should focus on areas with significant budgetary effects — essentially annual cost-of-living adjustments in retirement and related benefit programs and annual inflation adjustments in the tax code.

Switching to the chained CPI in mid-decade — after the economy is healthier — would trim deficits over the next ten years by roughly $100 billion to $150 billion, even with the benefit improvements that we recommend.  Savings would grow substantially in subsequent decades.  And adopting the chained CPI (along with a benefit “bump” for long-term beneficiaries) would close nearly one-fifth of Social Security’s shortfall over the next 75 years.

Several recent deficit-reduction packages have called for adopting the chained CPI, including the Bowles-Simpson plan, the Domenici-Rivlin recommendations, and the Senate’s “Gang of Six.”  We haven’t endorsed all elements of those packages and, in fact, we’ve criticized them vigorously where we disagreed.  But the chained CPI is one element that we can support.

More on the Unemployment Insurance Deal

February 21, 2012 at 5:37 pm

We’ve stated briefly how Friday’s agreement to extend federal emergency unemployment insurance will affect the number of weeks of benefits available.  That agreement also made other changes to the UI system, as this excerpt from our analysis explains:

  • Drug testing — The conference agreement allows states to conduct drug tests on applicants for UI if they were terminated from their most recent job because of a drug-related offense.  It also allows states to conduct drug tests on UI recipients applying for occupations that typically require new employees to pass a drug test.  Both of these instances are consistent with existing law.
  • State demonstration projects — The House bill weakened the basic federal protection of the UI system — that states use the money paid into their UI trust funds solely to provide benefits to unemployed workers — by allowing up to ten states per year for the next three years to use those funds for broadly defined “demonstration projects” designed to “expedite the reemployment” of UI recipients and “improve the effectiveness” of state UI systems.  Among other things, this broad language would have allowed states to replace state or local funds now used for job training or other such purposes with diverted UI funds and then shift the withdrawn funds to other uses, including tax cuts.  The net result could have been a reduction in unemployment benefits with little or no offsetting increase in employment services.The conference agreement instead allows only ten states in total to participate in such demonstration projects over the next three years, and specifies that the demonstration projects be voluntary programs that connect unemployed workers with employers willing to offer them a temporary, suitable job at a market wage with all the normal labor market protections.  These programs would offer workers the opportunity to learn new skills while maintaining their eligibility for UI benefits.

    It would have been better to avoid any provision that weakened one of the foundations of the UI system.  The demonstration programs authorized by the conference agreement were probably a necessary compromise to achieve agreement on the overall bill, but policymakers should draw a line at further erosion of that foundation.

  • Federal job search requirements — The conference agreement introduces a federal requirement that all UI recipients must be “able to work, available to work, and actively seeking work.” Expecting UI recipients to look for work is eminently reasonable, which is why the vast majority of state programs already have such requirements. . . .

The conference agreement also provides over $1 billion of additional funding for states to provide services for the unemployed.

Nearly half a billion dollars will be appropriated to states for reemployment services and reemployment and eligibility assessments.  As proposed in both the President’s American Jobs Act and the December House bill, these services will not only help the long-term unemployed who are receiving UI to get back to work more quickly, but will also help states to prevent UI overpayments and ensure that UI recipients receive the benefits they have earned.

The agreement also provides nearly half a billion dollars to temporarily finance state short-term compensation programs, also known as “work-share,” which give employers an alternative to laying off workers.  And it provides $30 million in grants to states that offer self-employment assistance programs to support long-term unemployed individuals who establish businesses.

In Case You Missed It…

February 17, 2012 at 4:44 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, unemployment insurance (UI), state budgets and taxes, and health policy.

  • On the federal budget and taxes, we released Robert Greenstein’s statement on the President’s 2013 budget and highlighted our report explaining why one provision in it could lead to bigger cuts in domestic programs and smaller ones in defense programs than those already scheduled.

    Greenstein also showed that Senator Pat Toomey’s tax plan would raise taxes on people making under $200,000, despite his claim to the contrary.

    We updated our analysis of Governor Mitt Romney’s budget proposals, showing that they would require massive cuts in nondefense programs.

    Richard Kogan explained why discussions of deficit reduction need to take into account the steps that policymakers have already taken in this area.

  • On the economy, Chad Stone noted that, while harsh fiscal austerity in the United Kingdom stunted growth, stimulus measures in the United States helped stabilize the economy.
  • On UI, Chad Stone warned that failure to extend the federal emergency UI program would hurt jobless workers and the economy.

    Hannah Shaw explained that negotiations over continuing the program were the wrong venue for major UI reforms and showed why the resulting agreement was a good deal for the unemployed.

  • On state budgets and taxes, Phil Oliff noted that some governors’ proposals to raise education funding would still leave funding levels well below pre-recession levels, while Michael Leachman pointed out that scheduled cuts in federal education funding will add to schools’ troubles.

    Leachman also listed six reasons why requiring a supermajority vote to raise taxes is a bad idea, and Oliff praised a Maryland proposal to expand the Earned Income Tax Credit to help offset the impact of regressive tax increases.

    Erica Williams cited a new Kansas proposal as evidence that cutting taxes at all costs threatens to weaken a state’s economy.

    Michael Mazerov pointed out the benefits of broadening state sales taxes to cover more services.

  • On health policy, Paul Van de Water discounted arguments for repealing the Affordable Care Act’s excise tax on medical devices like surgical gloves and wheelchairs.

In other news this week, we released a statement on the impact of the President’s 2013 budget on the deficit and a report on the President’s proposal to eliminate separate funding caps for defense and nondefense programs.  We also released reports on state supermajority requirements for tax increases, why Congress should not repeal the excise tax on medical devices, estimating the revenue impact of taxing services, and the agreement to extend federal emergency UI.