The Senate version of the Unemployment Compensation Extension Act of 2009 extends federal unemployment insurance by 14 weeks. An additional six weeks of benefits are available in states with unemployment rates of 8.5 percent or higher. Depending on state residency, a worker can currently obtain unemployment benefits for a maximum of 79 weeks. The legislation continues a 30-year-old federal unemployment tax for two additional years in order to pay for the extension.
The Unemployment Compensation Extension Act includes two tax provisions unrelated to unemployment benefits. The bill extends an $8,000 tax credit for first-time homebuyers until April of 2010. This tax credit was originally included in the economic stimulus package and was set to expire at the end of November of 2009. The new provision makes families earning up to $225,000 eligible for the credit for purchases of homes worth up to $800,000 and creates a smaller credit for homeowners who have lived in their house for five years or more and are buying a new one. The legislation also makes larger businesses eligible for expanded “carryback loss” authority. This tax measure allows businesses to offset past profits with current losses in order to reduce tax liability.
The Middle-Class Position:
Middle Class Supports. While economists see signs of economic recovery, 15.1 million unemployed Americans still cannot find work. The unemployment rate continues to rise and now stands at 9.8%. Recent extensions of the duration of unemployment benefits have been necessary but insufficient: 400,000 unemployed workers exhausted their benefits at the end of September, a number that will increase to a devastating 1.3 million by the end of the year. Middle-class Americans thrown out of work cannot be allowed to lose their unemployment lifeline at a time when there are six workers for every available job.
The Unemployment Compensation Extension Act would ease the financial pain associated with long-term unemployment. Unemployment benefits provide direct assistance to the current and aspiring middle-class Americans likely to be hardest hit during the economic downturn, people who want to work but have lost their means of support through no fault of their own. With extended benefits, many families can stay in their homes, keep the lights on, and put food on the table. Unlike the House version of the legislation, the bill would protect all workers from running out of benefits while providing additional protection to the most vulnerable in the worst-hit states- places like Michigan.
In addition to the benefit to individual households, unemployment insurance provides significant economic stimulus. The unemployed tend to spend all of their benefits and quickly, providing an important economic jolt. Allowing unemployment benefits to expire for hundreds of thousands of families would undermine the successes of the American Recovery and Reinvestment Act and slow the nation’s economic recovery.
In contrast, extending the tax credit for first-time homebuyers and, particularly, expanding the credit to wealthier households and to current homeowners would do little to stimulate additional economic activity. The credit, included in the American Recovery and Reinvestment Act, has primarily benefited households which would have purchased a home even without the tax benefit. This means that the credit is poorly targeted and an inefficient use of government funds at a time of increasing concern about budget deficits. It also continues the federal government’s subsidization of homeownership, which helped cause the housing crisis. The carryback loss provision is a also a poorly targeted provision, receiving a “C” in the nonpartisan Tax Policy Center’s analysis of the stimulative effect of tax measures. Aid to state and local governments, along with legislation that targets aid to those suffering most from the economic downturn, would be a much more efficient use of federal funds.
From the Experts:
“[This] bill represents a breakthrough – not just for unemployed workers across the nation who are suffering from record long-term unemployment, but also for the nation’s still-struggling economy. These benefits will provide a critical boost to those communities hit hardest by the recession.” –Christine L. Owens, Executive Director, National Employment Law Project (October 1, 2009)
"We strongly urge immediate action to extend the vital unemployment insurance provisions contained in the American Recovery and Reinvestment Act, as well as an extension of additional emergency unemployment compensation benefits to help the long-term unemployed weather this economic storm.” –Bipartisan Letter from 22 Governors to Congressional Leaders (September 15, 2009)
Beyond this Bill:
It is well-known that the unemployment rate “lags” in a recession. This means that when economic growth returns, most households – and particularly the unemployed – still experience little or no relief in the short term. Though this is accepted as a rule of thumb, policymakers have done very little beyond ad hoc extensions of unemployment benefits to account for it. Though the American Recovery and Reinvestment Act includes important benefits for the unemployed, such as increased unemployment benefits and a subsidy for health insurance, these provisions will expire over the next several months even as unemployment is expected to continue lagging behind economic growth. Moreover, the longer bouts of unemployment during the current recession mean that many households will continue to be at risk of running out of unemployment insurance which, according to the San Francisco Federal Reserve, “will further offset the intended roles of [unemployment insurance] payments as an automatic stabilizer and means of low-income support.” Even with extended unemployment benefits, long-term unemployment can lead to a loss of the skills and knowledge necessary to function in today’s complex economy. At the very least, the more generous benefits provided in the American Recovery and Reinvestment Act should be automatically extended until the unemployment rate has significantly declined. But policymakers must also reconsider how the social safety net can be adapted to the needs of workers during – and between – future recessions.
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