Extra $600 Unemployment Benefit Will Delay Recovery
Lawmakers are weighing the contents and timeline of a future COVID-19 response package, with many expecting the Senate debating a bill in July.
While it remains to be seen whether Congress even needs another bill, it is imperative that lawmakers reject any effort to extend the $600 per week supplemental pandemic unemployment assistance.
This program has subsidized welfare over work and threatens our economy’s ability to recover by incentivizing workers to remain on the sidelines.
As a condition of supporting the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, Democrats demanded the creation of a new, additional $600 weekly unemployment benefit through the end of July.
This $600 per week benefit is in addition to existing unemployment insurance, which varies by state, but typically totals 50 percent of previous earnings up to a cap.
The combination of these two provisions means that millions of Americans are receiving more money from being on unemployment than they would from working. In fact, according to the Heritage Foundation, a job would have to pay more than $62,000 a year to exceed the pandemic unemployment insurance payments.
This is a significant disincentive for Americans to rejoin the workforce, and could lead to a shortage of applicants as five out of every six Americans on UI receive more than they otherwise would in their job, according to the Congressional Budget Office.
Because of this disincentive, the CBO predicted that an extension of the $600 supplemental pandemic benefit will reduce economic output and lower employment. In all, the Heritage Foundation estimated that this disincentive to work could increase unemployment by 13.9 million, and reduce GDP by up to $1.49 trillion.
This damage is not hypothetical – businesses across the country are already struggling to bring back workers because of the $600 pandemic unemployment bonus.
When Jamie Black-Lewis, a spa owner in Washington state informed her workers they could go back to work thanks to a PPP loan, her workers responded with “a firestorm of hatred” because they would now earn less than their unemployment payments.
In Detroit, Liz Blondy – a dog day care owner – found that her workers wanted to remain on unemployment rather than return to work because they would earn less.
To be clear, the pandemic has damaged the economy and workers that have lost their jobs permanently do need help.
However, if lawmakers decide more action is needed, extending the $600 pandemic unemployment bonus should not be on the agenda.
Furthermore, Congress has already done its job.
The CARES Act contained a number of policy proposals designed to help Americans through the economic damage of the pandemic. Many of these proposals were narrowly targeted to save jobs like the Paycheck Protection Program (PPP), that distributed loans to small businesses so they could maintain payroll, and tax cuts allowing businesses to access emergency liquidity through the expansion of net operating losses.
Republicans including Senate Majority Leader Mitch McConnell (R-Ky.) have since focused on ensuring the $2 trillion in CARES Act funding is being properly allocated.
In contrast, Democrats want to continue spending trillions of dollars. House Democrats have already passed legislation containing $3 trillion in new spending, which includes an extension of this unemployment through January of 2021.
Instead of trillions of dollars in new spending, lawmakers should focus on policies that help Americans resume commerce and begin working again.
The May jobs report released earlier this month found that the economy is already starting to recover. While economists predicted a loss of 7.5 million jobs, we instead created 2.5 million jobs.
As an off ramp to the $600 pandemic unemployment, lawmakers could phase out the benefit as has been proposed by Ways and Means Ranking Member Kevin Brady (R-Texas) in a “back to work” proposal that gives Americans $1,200 if they return to work before the end of July.
Congress can also work with President Trump on pro-growth policies like tax cuts and deregulation. Trump has repeatedly called for payroll tax cuts, which could be applied to the employee level, giving workers more take-home pay, and the employer level, giving businesses more liquidity as they attempt to reopen.
Even some on the left agree the $600 UI should not be extended.
In an Washington Post op-ed with a number of other economists, former Obama Treasury Secretary Timothy Geithner and Obama Economic Adviser Jason Furman acknowledged that extending the benefit “does not make sense now,” instead arguing it should be phased out. Similarly, Connecticut Governor Ned Lamont (D-Ct.) argued the $600 UI was not needed as it discouraged work.
Moving forward, Congress should be focused on ensuring that workers, businesses, and the economy can recover as quickly as possible. Extending the Left’s $600 supplemental unemployment program will endanger this recovery and discourage Americans from coming back to work.
