One tool for stimulating the economy rapidly is to increase the amount of unemployment benefits paid each week, because such benefits tend to be used immediately for the purchase of goods and services. Recognizing this, Congress has included about $43 billion in unemployment-related provisions in HR 598. This bill, named the American Recovery and Reinvestment Tax Act of 2009, has reported out of the House Ways and Means Committee.
It is our understanding that President Obama has asked Congress for an economic recovery bill that he can sign before the Congressional break in February. It appears that HR 598 is on a fast track and will be considered by the full House of Representatives next week.
HR 598 includes an extension of the Federal Emergency Unemployment Compensation program through the end of December 2009. All regular UI benefit payments and federal extended benefit payments would be increased by $25 per week. Additionally, $7 billion would be made available to the states that agree to expand eligibility for benefits in certain ways.
For a state to receive its share of the $7 billion in incentive payments it must commit to the following:
- Provide for an alternative base period which includes the most recent calendar quarter before the claim was filed. This qualifies individuals who otherwise would not receive benefits because their employment was too recent.
- The state must adopt at least two of the following four provisions: (1) permit the payment of benefits to a person who is seeking only part-time work and whose base period includes part-time work, (2) permit the payment of benefits to a person who terminates for compelling family reasons, including domestic violence if continued employment would jeopardize the safety of the claimant or a member of the claimant’s immediate family, illness or disability in the immediate family, and the need to accompany a spouse to a new location because of a change in the location of the spouse’s employment, (3) provide an additional 26 weeks of UI benefits to a person who is in approved training, and (4) provide for dependents’ allowances of at least $15 per week, per dependent.
In the short-term, these provisions would be stimulative. In the long-term, the permanent easing of disqualifications will result in higher unemployment benefits (as intended). Higher UI tax rates will be the inevitable consequence, unless states were to continue to receive incentive payments beyond the $7 billion provided by this bill, or unless the state laws eventually restore the disqualifications that currently exist. Historically, when a disqualification provision is removed, it tends to stay removed. We expect that the legislation will move at a rapid pace, and within a few short weeks we could see some rather historic changes in unemployment law.