Congress gears up for battle over expiring unemployment benefits

The generous expansion to unemployment insurance Congress passed to keep Americans afloat during the COVID-19 crisis is due to run out at the end of the month, potentially leaving millions of people struggling.

Unemployment remained at 11.1 percent in June, worse than it was at the height of the Great Recession in 2009, but Congress is far from agreeing on a path forward.

At the heart of the discussion is a federal policy that adds a flat $600 to every weekly unemployment check through the end of July.

Democrats who champion the policy say it has been a crucial lifeline to the millions of Americans who were furloughed or lost jobs as a result of the pandemic.

“It would be unconscionable for Republicans to allow supercharged unemployment benefits to expire with the unemployment rate above 11 percent and 2.3 million new unemployment claims just this week,” Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) said Thursday.

Republicans, however, argue the $600 benefit has at best outlived its usefulness, or at worst has been hampering the recovery all along.

“We have a real concern about creating an unintended incentive for people to stay on the sidelines in this economy. And that $600 plus-up in unemployment many believe has contributed to that,” Vice President Pence told CNBC on Thursday. 

The Democratic-controlled House passed the HEROES Act in May, which would extend the extra unemployment payment for another six months, along with other measures such as aid to state and local governments.

The GOP-controlled Senate, however, said the $3 trillion legislation overshot the mark, and that it would wait and see how economic conditions unfolded before deciding the scale of its version of the next COVID-19 relief package. The unexpectedly strong June jobs report, which saw a record one month increase of 4.3 million jobs, may convince them less help is necessary.

Negotiations aren’t even set to begin until after the July Fourth recess, leaving four weeks for the two chambers to hammer out and pass an agreement.

The debate over the $600 figure gets at the complexity of a patchwork system of unemployment benefits across all 50 states, but has been heightened by partisan and ideological rhetoric as November’s election draws near. It also highlights the vastly uncertain path that the economy will take in the coming months, a path that is closely linked to efforts to contain the coronavirus.

Congress settled on an extra $600 in unemployment benefits in the CARES Act passed in March because it filled the gap between the average weekly unemployment insurance payout across the country and the average salary, while allowing states to more quickly dole out the aid.

Most unemployment insurance is designed to cover just a fraction of a worker’s salary as an incentive for people to find new work quickly.

But the state-to-state variation in benefits varies widely, ranging from a low of $212 in Mississippi to a high of $557 in Massachusetts. The $600 addition isn’t adjusted for inflation or previous wage level, meaning that some people are earning more on unemployment than they were at work.

That sets up an uncomfortable dynamic, forcing workers to face a potential pay cut when they go back to work.

“Despite mounting evidence of the problems these extra payments are causing, the House passed a bill recently to extend them — not just for a month or two, but for another six months, through January 2021,” Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said at a contentious hearing on unemployment last month.

The nonpartisan Congressional Budget Office (CBO) estimated that if the policy were extended for six months, the overall economy would be better through the end of the year as unemployed people continued to use the money to buy food, pay rent and spend at elevated levels. But the employment situation would be worse, as more people would refrain from taking jobs that effectively lowered their income.

By 2021, CBO estimated, both the economy and unemployment would be worse, as people separated from the labor market took longer to find jobs.

Conservative groups have amplified the message.

“Although the unemployment rate is still high, the significant turnaround shows that Congress should focus on fostering the recovery that’s already underway and resist the temptation to rush toward another massive stimulus package,” said Rachel Greszler, of Heritage Foundation, calling for a strategy of wage replacement instead of a flat $600 addition.

But in the same hearing, Wyden said Congress had little choice for a better policy because of how unemployment is administered through 50 different state unemployment offices. A more precise policy to block recipients from earning more than their previous salaries, he said, would be impossible to implement quickly.

Local unemployment offices contacted by The Hill said they might take as much as six to nine months to set up a wage replacement program.

A Grassley spokesperson on Thursday didn’t offer specific alternatives, but pointed to the strong June jobs report.

“The jobs report underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” the spokesperson said.

“Further coronavirus relief legislation would need to address any ongoing problems in an effective manner and encourage further job growth,” the spokesperson added.

But economists say that the superlative jobs report also points to an extended unemployment crisis.

The Congressional Budget Office on Thursday projected that unemployment would remain above 10 percent by year’s end and wouldn’t fall back below 5 percent until 2025.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, said the economy faced a long road to recovery.

“While we have made it through the initial employment shock from shutting down the economy, the rising levels of permanent job loss and long-term unemployment are troubling and signal a long tail of second order effects,” he said.

“Many businesses are gradually realizing that conditions won’t return to anything close to normal in the near future and are recalibrating their workforce accordingly,” he added.

Left-leaning economists are also warning that a steep shortfall in state and local budgets will lead to a tsunami of new layoffs in the new fiscal year, which for states began this week.

“Without massive additional federal aid, austerity is certainly on the horizon for state and local governments, because state and local tax revenues are plummeting,” wrote Elise Gould and Heidi Shierholz, economists at the Economic Policy Institute.

“This means losses in public sector services, including cuts to school budgets at a time when schools are already struggling with the increased need for creative options for students,” they added.

One idea that Republicans may embrace is leaving some level of expanded unemployment in place, but letting people keep some of the extra benefits if they get a job.

“I think reemployment benefits probably will help fill the bill, and those too have to be targeted to the right people who are having trouble getting a job or competing with the unemployment benefit,” top White House economic adviser Larry Kudlow said on Bloomberg TV on Thursday.

But with negotiations on hold, the final package remains far from certain.

“The shape of any kind of package is still very much up in the air,” he said.