New Senate plan would make pandemic unemployment benefits permanent

BY MATT WEIDINGER

The Washington Post reports President Joe Biden’s next trillion-dollar spending plan “is expected to devote hundreds of billions of dollars to new programs,” including “$225 billion for child-care funding; $225 billion for paid family and medical leave; $200 billion for universal prekindergarten instruction; hundreds of billions in education funding, including tuition-free community colleges across the country; and other sums for nutritional assistance.” That would extend and expand prior “temporary” pandemic benefit increases.

The pandemic benefit extensions may not end there. For example, Sen. Ron Wyden (D-OR), the Chairman of the Senate Finance Committee, suggested in March 2020 that special pandemic unemployment benefits were required “while the consumer economy is shuttered.” Yet even though the economy has reopened, he recently called for making permanent many of those temporary pandemic expansions. The draft “Unemployment Insurance Modernization Act” Wyden and Sen. Michael Bennet (D-CO) proposed last week details what that might mean.

Their plan:

• Dramatically expands eligibility for unemployment insurance (UI) benefits, including by requiring states to cover individuals earning as little as $1,500 in the past year, which is far less than most states require today;
• Requires UI benefits to match at least 75 percent of prior wages (or nearly double current levels), and 100 percent during “emergency periods” — a proxy for current $300-per-week federal bonuses;
• Mandates that states pay benefits even to those who quit work, including due to reasons like “unpredictable hours” or “irregular work schedules;”
• Permanently extends the fraud-riddled Pandemic Unemployment Assistance program as a new $250-per-week federal “jobseeker allowance” payable to nonworkers over age 19, including those who did not previously work, and with benefit costs borne by other taxpayers;
• Requires all states to pay at least 26 weeks of state UI benefits, forcing especially red states to increase benefits — and state payroll taxes on jobs to cover the higher costs;
• Makes permanently available up to 65 weeks of federal extended benefits, depending on state and national unemployment rates — thus providing up to 91 weeks of all unemployment benefits per recipient, a far higher base to which Congress could add additional “emergency” benefits in the future;
• Creates a new federal $25-per-week “dependent allowance” payable even to “dependents” not living in the same household; and
• Spends open-ended federal general revenues on the new federal benefits, while a summary suggests the senators are also “considering” policies that would increase state and federal payroll taxes — which fall primarily on workers.

The potential extent of the tax hikes the Senators may be “considering” is displayed in a new policy proposal by Arindrajit Dube of the Hamilton Project at the Brookings Institution. Like the Wyden/Bennet plan, Dube’s proposal would significantly expand eligibility for — and the amount and duration of — unemployment benefits, including when state or national unemployment rates are elevated. He also would make UI entirely federally financed and administered.

Dube finds that under his proposal “during expansionary periods, UI outlays would increase by around $89 billion, reaching $119 billion a year instead of the current $30 billion annual outlay.” He also assesses how his plan would affect benefit payments during and after “severe downturns” like from 2008 through 2012. Dube estimates that under his plan “average outlays would increase by $170 billion/year” relative to actual outlays in those years. That suggests Dube’s proposal, which shares a number of common features with the Senate plan, could increase benefits by as much as $1.3 trillion in a decade that includes a severe downturn — effectively tripling spending.

Almost all of the unprecedented cost of the federal unemployment benefit response to the pandemic to date has been added to the deficit, meaning future federal taxpayers will already bear that enormous cost. Making pandemic benefit expansions permanent and otherwise increasing benefits will only result in even higher future taxes. Whether those are higher income or payroll taxes, or a combination of the two, someone will pay them all the same. As policymakers continue to roll out proposals to convert temporary pandemic benefits into permanent benefit expansions, that inconvenient fact is worth “considering” just as closely as the significant benefit increases they are far more eager to spotlight.