As red states drop unemployment expansions, Democrats try to make them permanent

Democrats in Washington may be in denial that expanded federal unemployment benefits are keeping workers on the sidelines of the U.S. economy. But in now 21 red states where labor shortages have become increasingly common, leaders are moving to end extraordinary federal pandemic benefits that pay some workers more than they would earn by returning to work. However, that state discretion may be short-lived if federal legislation to permanently expand unemployment benefits is mandated on all states, as President Biden and senior policymakers are already proposing.

The number of states opting out of federal pandemic benefits has grown rapidly. Starting with Montana on May 4, the list as of now includes Alabama, Alaska, Arizona, Arkansas, Georgia, Idaho, Indiana, Iowa, Mississippi, Missouri, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wyoming. Over the coming weeks, those states will reject federal funds that presently support $300-per-week bonuses otherwise payable into September to some 16 million current unemployment benefit recipients across the country. Those bonuses have the effect of raising total benefits above wages for nearly 40 percent of all recipients.

Federal funds also currently extend unemployment checks to over 18 months per person and support a first-time federal program for the self-employed, independent contractors, and others who previously worked too little to qualify for state unemployment insurance (UI) checks. That program, called Pandemic Unemployment Assistance, is now the nation’s largest unemployment program with an apparent caseload of almost 6.6 million — or over three times the number of unemployment claimants prior to the pandemic. It is also associated with billions of dollars in losses to fraud, with “up to 30 percent of claims” being fraudulent, according to one expert. 

The states opting out of today’s temporary federal benefits have several common traits. They all have Republican governors. They have far lower unemployment than the rest of the country, with an average unemployment rate in March 2021 of 4.7 percent, or well below the average rate for the remaining 29 states of 6.0 percent. And they would all be forced to increase benefit payouts significantly under a recent proposal by Sen. Ron Wyden (D-OR), the chairman of the Senate Finance Committee. His legislation would permanently extend pandemic-style benefits, as well as require all states to set minimum earnings to claim state benefits at as little as $1,500 in the past year; increase check sizes by creating a minimum 75 percent “replacement rate” relative to prior wages (and 100 percent during “emergency periods”); add a new $25 “dependent allowance” to weekly checks; and extend durations by paying a minimum of 26 weeks of checks per recipient. 

A review of recent state eligibility terms finds this proposal would require 18 of the 21 opt-out states to expand eligibility by reducing their current required earnings to the new lower $1,500 level; increase check sizes in all 21 states by increasing minimum replacement rates; force 18 of the 21 states to further expand benefits by creating a dependent allowance; and mandate that 19 of the 21 states expand the minimum weeks of benefits they pay to 26 weeks per recipient. Each of the 21 states would be forced to expand benefits in at least three ways; 13 states would have to expand benefits all four ways. For these “opt-out” states especially, Wyden’s proposed “UI Modernization Act” might as well be called the “UI Expansion Act,” as its policies would mandate significant permanent benefit expansions — as well as undisclosed tax hikes to cover the cost.   

Biden recently expressed support for just this sort of “permanent reform” in outlining his latest trillion-dollar spending proposal, the American Families Plan. In that plan he called for policies that would “automatically adjust the length and amount of UI benefits” in all states as Washington sees fit. Such permanent federal benefit mandates would be especially ironic coming as now over two-fifths of all states are rejecting today’s temporary federal benefit expansions.  

In effect, that sort of Washington-knows-best legislation would create a permanent Hotel California of federally mandated benefit expansions and tax hikes: states could try to check out any time they like, but they could never leave.

Matt Weidinger is the Rowe fellow in poverty studies with the American Enterprise Institute.