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Senate Republicans’ dramatically smaller unemployment insurance proposal, explained

It could cause massive delays for states trying to navigate the changes.

Senate Majority Leader Mitch McConnell arrives at the Senate Republican policy luncheon in the Hart Senate Office Building on Capitol Hill July 28, 2020, in Washington, DC.
Drew Angerer/Getty Images

Senate Republicans have released their proposal for a new coronavirus stimulus package — and they’re using the bill to focus on a key GOP priority: making cuts to enhanced unemployment insurance.

Changes to unemployment insurance (UI) comprise a core plank of the HEALS Act, which Republicans unveiled on Monday, just days before the July 31 expiration of existing federal unemployment benefits. As part of their proposal, Republicans would reduce the amount of enhanced UI that people receive weekly.

Currently, as designated in the CARES Act, every unemployed person receives an additional $600 per week in addition to their standard UI benefit. Republicans’ plan would pare down this boost to $200 per week through September. Beginning in October, states would be directed to issue unemployment payments equal to 70 percent of a person’s previous wages, up to $500 per week in additional payments above their standard UI amount.

The enhanced UI introduced by the CARES Act was significant: Before its passage, the average UI recipient received $370 per week, an amount replacing roughly 40 percent of their previous wages. The enhanced UI was meant to fill in some of that missing 60 percent, ensuring that amid a devastating public health crisis, the more than 30 million workers who’ve been laid off or furloughed would be able to stay afloat.

Republicans, however, have long opposed the size of the CARES Act’s UI expansion, arguing that it deterred people from returning to work, since some workers received more money with the enhanced UI than they had at their previous jobs. The thinking behind their new plan is that a reduction in enhanced UI would eliminate this disincentive, because the proposed benefits would be less than what many workers had previously earned.

This structure would provide relief “in a way that does not slow down reopening,” Senate Majority Leader Mitch McConnell argued in a floor speech on Monday.

That logic, though, ignores a harsh reality: Since the government still hasn’t been able to get the public health crisis under control, it’s not yet safe for many industries to resume operations and bring workers back. And under the current circumstances, millions of workers don’t have jobs to return to.

“I don’t understand what’s different about the economy now than what was happening in March,” said Michele Evermore, a senior policy analyst at the National Employment Law Project. “Dropping to $200 is unnecessarily cruel.”

Reducing the UI boost against this backdrop will likely have massive consequences for individual workers struggling to cover their living costs, as well as the broader economy. According to an estimate from Mark Zandi, the chief economist at Moody’s Analytics, slashing UI benefits could result in nearly 1 million more job losses by the end of 2020, due to declines in GDP and consumer spending. It could also contribute to what advocacy groups warn is a looming homelessness and hunger crisis.

“An extension of [UI] benefits will ... help me pay rent, provide for my family, and put food on the table,” IT worker Nick Parisi previously told Vox. “Most importantly, it will provide assurance that I may continue to survive during these troubling times.”

The Republican proposal sets up a major fight with Democrats

To Democrats, lowering the weekly federal UI benefit to $200 per week is out of the question. For now, Democrats are keeping their bar set at continuing the $600-per-week unemployment benefit, among a slew of other measures.

On Tuesday, Senate Minority Leader Chuck Schumer took to the Senate floor to rip into Republicans for delaying the release of their bill while failing to secure a consensus in their own caucus — as well as for the bill’s contents.

“Two Republican chairmen have said that probably half of the Republican Senate will vote against their own proposals,” Schumer said. “Worst of all, the Republican plan falls dreadfully short: it is un-unified, unserious, completely unsatisfactory.” Schumer derided the Republican bill as one filled with money for American big business, with little for families or strapped state governments.

It is true that a number of prominent Republicans, including Sens. Ted Cruz (TX) and Mike Braun (IN), have said they won’t support the GOP legislation as written, and Republican leaders have openly admitted many more could follow.

“At the end of the day, [McConnell] has to accept the reality that probably half of our members in the Senate won’t vote for it no matter what’s in it,” Sen. Roy Blunt (R-MO) told Politico’s John Bresnahan and Andrew Desiderio.

This failure to get his own conference in line means McConnell will have little leverage as his party negotiates with both Schumer and House Speaker Nancy Pelosi on the final text of the bill. Pelosi released the Democrats’ proposal for the next round of pandemic stimulus, the HEROES Act, in mid-May.

Now comes the hard work of finding consensus between two vastly different proposals. Negotiations between congressional Democrats and White House officials started Monday night, but Pelosi indicated the two sides have a long way to go before they can reach consensus.

“We hope that we would be able to reach an agreement,” Pelosi told reporters after leaving the Monday meeting. “We clearly do not have shared values. Having said that, we just want to see if we can find some common ground to go forward. But we’re not at that place yet.”

The HEROES Act was largely meant to extend federal aid to state and local governments who are suffering revenue losses related to the Covid-19 pandemic. The bill would also extend the $600-per-week expanded benefits through January 31, 2021, and put in a so-called “soft cutoff” to ensure some individuals could get benefits through March 2021 without further legislation being passed. Democrats also aimed to allocate $925 million to help states cover their portion of unemployment benefits and to speed up the processing of individual claims.

“States have warned us the Republican plan is virtually unworkable to boot,” Schumer said. “We called state unemployment offices yesterday to ask them what would happen if the Republicans passed this new scheme. One state office simply said, ‘Chaos, chaos.’”

The economic fallout from reducing UI could be massive

The fallout from reducing UI could be huge for both individuals and the broader economy.

Nearly 32 million people are relying on unemployment benefits, per the most recent report from the Labor Department. Were the weekly UI amount to go down, many individuals would face steep challenges when it comes to covering basic living costs including rent, mortgage, and food payments.

According to the Household Pulse Survey, a weekly survey conducted by the US Census Bureau, “11 percent of the population right now is food-insecure, you’re going to see that increase. 26 percent are housing-insecure, you’re going to see that increase,” University of Kansas economic professor Donna Ginther told Vox.

There could also be significant reductions in consumer spending as a result of such UI changes, leading to even more job losses in other industries. According to an estimate from the Economic Policy Institute, the existing weekly $600 benefit is helping support roughly 5 million jobs. As Zandi noted, a million more jobs could be lost by the end of the year, if UI gets cut and consumer spending dips.

Republicans’ focus on getting people back to work also disregards the current economic reality: As many as 11.9 million workers have no chance of returning to their prior jobs in the near term, an EPI analysis notes.

“If they cut back the benefits, there will be millions and millions of [UI recipients] who will not be able to get a job afterward ... because the jobs aren’t available, and/or because it’s not safe for them and they have care responsibilities,” says Heidi Shierholz, the policy director at EPI.

States that are already overwhelmed will have a tough time implementing these changes

Even if Congress is able to reach a compromise and pass a bipartisan bill, there may be additional delays that hurt individuals and families depending on unemployment insurance to pay the bills.

Many state unemployment insurance systems run on outdated and complicated software. Earlier this spring, it took some states months to program the $600 federal benefit into their systems. Changing the amount of the benefit, or changing the benefits to match 70 percent of workers’ preexisting wages up to a specific limit (as Senate Republicans are proposing), could create new delays in getting money into the hands of those who need it.

Dropping the benefit to 70 percent of a person’s preexisting wages could take particularly long, Evermore said, as each recipient could receive a different amount. The Senate GOP bill attempts to address this issue by giving states two months to program the updated benefits into their computer systems but would also grant states the opportunity to obtain a waiver, giving them an extra two months if they need more time.

“They’re going to spend four months programming in a benefit that expires in a month?” Evermore said. “I think it’s not a serious proposal. Even if at this point they reauthorize the $600, it would take states two to four weeks to get it up and running again.”

This could put even more strain on people who have depended on the enhanced unemployment insurance, and Evermore fears it could force some people back to high-risk work while coronavirus cases are still surging across the country, particularly those predisposed to negative Covid-19 outcomes. For instance, in July, the nonpartisan Congressional Budget Office estimated around 47 percent of UI recipients were people of color. If the benefit is delayed and reduced significantly, it could disproportionately impact Black and brown communities — groups that are more likely than other communities both to become infected with the coronavirus and to die from it.

“This [benefit] is going to low-income people; people with the lowest incomes were the most impacted by Covid,” Evermore said. “Those are going to be the people most impacted by the loss of $600.”