Senate Democratic leadership plan would extend, but modify, $600 UI bonuses

Today, key Democratic leaders in the US Senate unveiled their plan for extending the $600 unemployment benefit bonuses currently scheduled to expire at the end of this month. Senate Democratic Leader Chuck Schumer (D-NY) and Senator Ron Wyden (D-OR), the lead Democrat on the Senate Finance Committee with jurisdiction over unemployment benefits, call their plan “bold, new legislation.” But on closer inspection, the plan mostly mixed policies Wyden first proposed in May with similar adjustments to other policies House Democrats passed later that month. 

With the $600 bonuses expiring in a few weeks, most
will focus on the proposal to extend, but in some states modify, those bonuses.
On that score the latest plan appears almost identical to Wyden’s earlier
proposal:

 After July 31, 2020, the Federal Pandemic Unemployment Compensation (FPUC) benefit amount will remain at $600 for all weeks until a state’s three-month average total unemployment rate falls below 11%. Once the unemployment rate falls below 11%, the benefit amount reduces by $100 for each percentage point decrease in a state’s unemployment rate.

Specifically:

· While a state’s unemployment rate is at least 10% and below 11%, the FPUC benefit is $500. 

· While a state’s unemployment rate is at least 9% and below 10%, the FPUC benefit is $400.

· While a state’s unemployment rate is at least 8% and below 9%, the FPUC benefit is $300. 

· While a state’s unemployment rate is at least 7% and below 8%, the FPUC benefit is $200. 

· While a state’s unemployment rate is at least 6% and below 7%, the FPUC benefit is $100.

Opponents of extending bonuses may argue this position at least reflects Senate Democrats’ backing away from House Democrats’ position of continuing to pay $600 bonuses to all unemployment benefit recipients. But the reality is, not by much. The most recent unemployment rate data suggest that, if the Senate proposal were enacted today, bonuses would continue in every state, with bonuses of $500 or $600 paid in more than half the states, including nearly all large states:

Proposed Bonus State Unemployment
Rate*
States Where Payable**
$600 11.0 and above 16
– CA, DE, HI, IL, LA, MA, MI, NV, NH, NJ, NY, OH, PA, RI, WA, WV
$500 10.0-10.9 11
– AK, FL, IN, KY, MS, NC, OK, OR, TN, TX, VT
$400 9.0-9.9 5
– AZ, CO, NM, SC, WI
$300 8.0-8.9 9
– AL, AR, DC, GA, IA, KS, MO, MT, PR
$200 7.0-7.9 9
– ID, ME, MD, MN, SD, UT, USVI, VA, WY
$100 6.0-6.9 3
– CT, NE, ND

*Reflects the three-month, seasonally adjusted average total unemployment rate (TUR) for each state, most recently reported on June 28, 2020 here: https://oui.doleta.gov/unemploy/trigger/2020/trig_062820.html

**Includes DC, Puerto Rico, and the US
Virgin Islands.

This means that under the Senate plan, millions would continue to collect more from unemployment than by working, a key Republican objection to continuing such a policy.

The proposal also would make bonuses payable indefinitely, depending on state unemployment rates. With the Congressional Budget Office (CBO) projecting national unemployment averaging over 9 percent in CY 2021, this policy would likely continue large bonuses across most of the country through all of next year, and likely beyond. In fact, if the economy follows CBO’s unemployment forecast and the recovery after the Great Recession, bonuses could be payable in 2024 or even 2025 in some states. That’s half a decade after the pandemic inspiring the bonuses first struck.  

There are distinct long-term downsides of this policy as well. Tying unprecedentedly large federal bonuses to state unemployment rates means bonuses are almost certain to become part of the standard federal response to recessions, alongside the longstanding policy of extending the duration of unemployment benefit checks. That would perpetuate the effect CBO recently found of more bonuses leading to less employment. Beyond the staggering cost of paying for such bonuses, we know more and longer unemployment leads to higher payroll taxes on jobs, and thus less job creation when the country needs it most. Prior research also suggests that this causes serious long-term harm to the very people we want to help — in that the long-term unemployed experience lower future wages, more substance abuse, and even higher death rates.

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