- About 32 million people on unemployment could see up to 75% of their income vanish by the end of July if Congress does not renew or replace its $US600 weekly boost to unemployment payments.
- “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public health uncertainty,” one economist told Business Insider of the ramped-up payouts.
- The Evercore ISI economist Ernie Tedeschi estimated that even if benefits were scaled back to $US200 to $US400 a week, it would still reduce consumer spending and cost the economy 600,000 to 1.1 million jobs this year.
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About 32 million Americans are collecting ramped-up unemployment benefits amid a recession sparked by the coronavirus pandemic. But the federal lifeline is set to expire in five days without Congress implementing a replacement – and the GOP isn’t expected to address it in their introductory coronavirus relief bill.
That prospect, economists say, could cause millions of jobless Americans to fall into financial calamity. Ernie Tedeschi, the head of fiscal analysis at Evercore ISI, estimated that people on unemployment could see their incomes plummet by 50% to 75% depending on their state.
For example, a worker receiving an unemployment check in California – a state that’s now grappling with a surge in COVID-19 infections and renewed lockdowns – usually gets about $US345, the base weekly payment. But that amount comes out to $US945 with the enhanced payment, nearly replacing the worker’s average wage in a week. The expiration of the benefit would result in an income drop of 63% for that hypothetical unemployed person.
State unemployment benefits typically cover anywhere from 30% to 50% of a worker’s previous wages. But in March, Congress and President Donald Trump stepped in with a $US600 federal boost to unemployment checks to keep people afloat during a wave of massive job losses.
However, it appears extremely unlikely that Congress will pass a bill addressing it before the last enhanced unemployment payments are distributed to millions of people in all 50 states.
“All of those tough choices that you didn’t have to make before because you got unemployment insurance, now you have to make them,” Tedeschi told Business Insider. “Like, ‘Do I pay rent? Do I cut down on groceries? Do I skip a medical appointment?’ That’s going to cut really deep into family budgets.”
The boosted weekly payments have “kept individual families whole,” Tedeschi said. “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public-health uncertainty.”
He added that low-income workers were able to continue paying bills and buying essentials like groceries, helping maintain their spending levels and ultimately shoring up the economy.
Combined with the $US1,200 relief checks, many economists credit the beefed-up unemployment payments with helping prompt quicker rebounds in consumer spending, particularly among low-income households. That trend is illustrated below in a Deutsche Bank graph shared by the Yahoo Finance reporter Myles Udland.
Excellent chart from Deutsche Bank showing how the CARES Act has helped consumers in the lowest income quartile. Letting these benefits expire would be a huge policy failure. pic.twitter.com/hayLTzmhj3
— Myles Udland (@MylesUdland) July 7, 2020
Experts say the unemployment rate, which stood at 11.1% as of mid-June, will remain high for much of the year. Democrats and Republicans, however, remain deeply divided on the amount of federal unemployment benefits that should be kept in place.
Democrats are seeking to extend the $US600 federal supplement through January 2021. But Republicans are pushing to scrap the $US600 weekly boost, arguing that the beefed-up payments disincentivize job seeking.
They aren’t expected to propose a replacement in their initial coronavirus relief bill, though the Trump administration supports maintaining them somewhere below the $US600 level.
Senate Majority Leader Mitch McConnell outlined GOP priorities on Tuesday such as a second round of direct payments, liability protections for businesses, and additional small business loans without mentioning enhanced unemployment benefits.
Tedeschi said if Democrats and Republicans struck a bargain on a $US300 boost, for example, it would still cause significant belt-tightening among many families already strapped for cash.
“That’s still a quarter to a third of their benefits that would disappear overnight and not be there anymore,” he said. “That’s going to force some very hard choices by families.”
Tedeschi says scaling back benefits at this stage would set back the recovery. Compared to extending the $US600 boost, he estimated that shrinking benefits to an extra $US200 a week would cost the economy 1.1 million jobs this year and that a federal supplement of $US400 a week would lead to 600,000 fewer jobs.
“That is not an economic catastrophe,” he said. “That is a self-inflicted wound at a time when economic uncertainty is higher, not lower.”
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