Stimulus Unemployment Extension Likely To Raise Business Taxes

The Economic Recovery and Reinvestment Act provides for the largest single extension of Unemployment Benefits in US history. The provisions which effectively end the Bi-Partisan welfare reform of the mid 90’s, is likely to expand the unemployment insurance rolls by 500,000 - 1,000,000 previously ineligible and low-wage workers. However, little discussion has taken place concerning the impact of the proposed changes beyond the next two years. Although an extension of the benefit period and temporary increase in the benefit amount are considered necessary measures, the CBO, economic think-tanks, a select group of Governors and economists nationwide are deeply concerned over the impact of two unemployment provisions included in the stimulus bill.

The stimulus bill offers a multi-billion dollar carrot out to individual states for use in offsetting unemployment benefits. However, like all federal money, Congress and the Obama Administration have attached strings to the funds.

The first 1/3 of the money offered to the states requires that the accepting state revise their current Unemployment Insurance guidelines to base qualification upon not only employment but also quarterly income. A handful of states such as New York have similar provisions in place and will become eligible for the funds immediately. However, a majority of states including California have avoided such changes in Unemployment Benefits qualifications in the past out of budgetary concerns.

The remaining 2/3 of the ‘Stimulus Carrot’ will become available to any State that adopts two of the following four expanded qualifications for benefits.

A) States must include workers only seeking Part-Time Employment
B) States must include workers who VOLUNTARILY terminate employment due to compelling reasons such as a family illness or domestic abuse.
C) States must include those in "training programs".
D) States must include those who request additional funds for dependents who qualify.

The Obama Administration expects the above qualification changes to provide Unemployment Benefits to an additional 500,000 to 1,000,000 Americans. However, many economists fear that the number of individuals on unemployment may balloon as some states adopt the more liberal qualifications.

The deep concern with this expansion of unemployment benefits is the long-term ramifications of such changes. By design, Federal funding forcing these changes is only sufficient to cover the additional expenses to the states for a period of 18-30 months. With many states such as California already facing shortages within Unemployment Benefit funding, many State Comptrollers expect that this block of federal stimulus money will dry up within months; without providing long term solutions or stimulating anything.

The concerns as outlined by the CBO and most economists are simply: How do states pay for these additional benefits when the stimulus money is gone? The only solutions are that the Federal Government must continue to provide billions per year in additional unemployment funding, State’s must abolish the changes, or States must raise the unemployment tax. The concerns have already prompted the State of Oregon to begin consideration of a raise in their current unemployment insurance premiums assessed on statewide employers. With a average nationwide unemployment tax hovering around 1.75% of payroll on US employers (varies by state), many states will be forced to increase taxes on local employers, in some cases raising the maximums and doubling fees.

The expansion of Unemployment qualifications is not stimulative, rather it only provides a short term fix that will require billions of dollars a year for states to maintain. If the federal government wishes to mandate major expansions of unemployment, then long term funding should first be considered. The way that the unemployment expansion is being implemented is nearly identical to how the federal government has mandated expansions of Medicaid benefits and qualifications in the past; and those unfounded Medicaid benefits have created increased taxes and major shortfalls within state budgets. It looks like business carries on as usual in Washington, with this administration, just like others before it, failing to challenge the lack of fiscal responsibility within our government.