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replace state or local funds now used for job training or other such purposes with diverted UI funds and then shift the withdrawn funds to other uses, including tax cuts.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.

A Look at the New Unemployment Insurance Deal

February 17, 2012 at 4:19 pm

Congress voted today to continue federal emergency unemployment insurance (UI).  The legislation gives unemployed workers a far better deal than UI legislation that the House passed last December.  It also rejects extreme proposals in the House bill (see here and here) that would have changed the essential character of the UI system, which policymakers created in 1935 to provide financial assistance to workers who have lost their jobs through no fault of their own.

The agreement provides fewer weeks of UI benefits to the long-term unemployed than they received between late 2009 and the end of 2011, but more weeks than they would have received under either of the alternatives:  the maximum of 59 weeks available in the House proposal, or the maximum of 26 weeks or fewer in most states if federal benefits expired completely.

The first table below, from our new analysis, shows how the legislation will change the temporary federal emergency UI program (known as Emergency Unemployment Compensation or EUC), including the state unemployment rates needed to trigger different tiers of benefits.  The second table shows how many weeks will be available in states over the course of the year, depending upon the state’s unemployment rate and whether it qualifies for benefits under the permanent, federal-state Extended Benefits (EB) program.

Changes to the Emergency Unemployment Compensation Program During 2012

Total UI Weeks Available Under Conference Agreement

Protecting Low-Income Families from Regressive Tax Increases

February 17, 2012 at 4:07 pm

A smart proposal in Maryland would expand the state’s Earned Income Tax Credit (EITC) to help offset the impact on low-income families of several proposed tax increases.

The proposed increases, in the state’s gas tax, water and sewer fees, and electricity rates, would help maintain roads, bridges, and public transportation and protect the environment.  But they would disproportionately affect low-income families (for reasons I explain in my testimony) at a time when the weak economy has left them especially vulnerable to a loss of income.

Fortunately, Maryland can offset the impact of these taxes on low-income working families with a modest expansion of the state’s EITC.  In so doing, Maryland can pay for critical services like transportation without taxing these families into, or deeper into, poverty.

This idea isn’t new.  In the past few years, Connecticut created an EITC and Indiana and Kansas expanded theirs at least in part to offset the impact of regressive tax increases.  Other states considering such tax increases should take a similar approach.

Obama Proposal Could Lead to Bigger Domestic Cuts, Smaller Defense Cuts

February 17, 2012 at 3:43 pm

A provision of the President’s budget would likely lead to even bigger cuts in domestic discretionary programs than the Budget Control Act’s (BCA) spending caps call for, with the savings going to lessen the required cuts in defense spending.

Our new analysis explains why, but here’s the story in brief:

Under current law, separate caps limit total defense discretionary funding and total nondefense discretionary funding for each year from 2013 through 2021.  The President’s budget would replace those caps with a single overall cap on discretionary appropriations starting in 2014, throwing defense and nondefense funding into the same pot.  (Essentially, the President is proposing to return to the BCA’s original cap structure, before the failure of the Supercommittee triggered a reconfiguration of the caps.)

The proposal wouldn’t change the overall amount of discretionary funding that Congress could approve in any year.  But in the current political environment, where advocates of the Pentagon are emphatic, defense contractors employ well-connected lobbyists and make substantial campaign contributions (and, in many cases, are strategically located in key congressional districts), and budgetary savings in defense often are attacked as jeopardizing national security, it would likely lead Congress to cut domestic and international discretionary programs further in order to help protect the military budget.

For 2013, the year before the proposal would take effect, the President’s budget breaches the existing defense cap by about $5 billion, while providing nearly $5 billion less for nondefense programs than the current cap allows.  (This funding shift is possible because the budget would change the caps to cover “security” and “nonsecurity” funding, which include somewhat different programs than the “defense” and “nondefense” categories.)  This modest reallocation may be just a foretaste of much larger reallocations to come in future years, especially on Capitol Hill, if policymakers remove the firewall between defense and nondefense funding.