Forget the jobs bill. Workers need a better safety net for layoffs.
The jobs bill will deepen debt at a time when state unemployment trust funds are going bankrupt. Current jobless benefits are a bad deal. Chile’s plan provides real security.
Congress began 2010 with a bad case of legislative déjà vu. Last year, it approved a $787 billion stimulus package meant to "create or save" millions of jobs. President Obama says the stimulus has saved or created as many as 2 million jobs so far. But even if that highly optimistic figure is true, in the real world, over 3 million jobs have been lost since the stimulus was signed into law – a dismal feat all financed with enormous debt.Skip to next paragraph
Subscribe Today to the Monitor
Now Congress is working on another stimulus package, but they're calling it a jobs bill. In December, the House passed a $174 billion "Jobs for Main Street Bill" that would use federal dollars to fund job-creating infrastructure projects, while extending unemployment benefits. The Senate this week moved ahead on a much-leaner jobs bill. Sound familiar?
Unemployment remains at about 10 percent and state unemployment insurance funds are running out of money. While the Obama administration works to artificially inflate the number of jobs, the unemployed face diminished opportunities and income security. By 2012, 40 state unemployment trust funds are projected to be empty, requiring $90 billion in federal loans to continue operating.
Normally, state unemployment benefits pay jobless workers between 50 and 70 percent of their salaries for up to 26 weeks. But during this recession, Congress has extended those benefits four times. The result is that some workers can now claim benefits for 99 weeks – almost two years.
Now Congress may enact a record fifth extension. What would be wrong with that? Everything. The state-federal unemployment insurance program (UI) is an economic drag on businesses and states. And it's a poor safety net for the unemployed.
UI, a relic of the Great Depression, fails workers when they need it most. UI trust funds depend on a state-levied payroll tax on employers. During boom years, these funds are generally flush. But during recessions, they can get depleted quickly.
The bind is that to replenish their UI fund, states have to raise payroll taxes. That hurts the bottom line for businesses both large and small. Passed on to workers as a lower salary, high payroll taxes discourage businesses from hiring.
During steep recessions, states face a fiscal Catch-22: Reduce benefits or raise taxes. To date, 27 states have depleted their UI funds and are using $29 billion in federal loans they'll have to start repaying in 2011. Other states are slashing benefits. Kentucky House members passed a measure in February to increase employers' contributions (read: a tax hike) and cut benefits from 68 percent to 62 percent of wages.
While federal guidelines recommend that states keep one year's worth of unemployment reserves, many states entered the recession already insolvent. When federal loans are exhausted, the only option left is higher payroll taxes – a move sure to discourage hiring and depress salaries.