Trump Executive Action Shows Why Congress Should Federalize More of Unemployment Insurance

President Trump’s August 8th executive action creating a new supplemental weekly unemployment benefit has led to mass confusion. On Saturday, the President said:

“Under this plan, states will be able to offer greater benefits if they so choose, and the federal government will cover 75 percent of the cost. So we’re all set up. It’s $400 per week.”

Governors interpreted this and the text of Saturday’s presidential memorandum to indicate the extra $400 a week would be available only in states that had agreed to pick up 25 percent of the tab.

But then yesterday, after governors balked at the cost of setting up a new program amid major COVID-induced budget shortfalls, National Economic Council Director Larry Kudlow clarified that actually the federal benefit would be $300 a week and states had the option to provide another $100 a week.

What this whole mess shows: Congress should federalize more of the nation’s Unemployment Insurance (UI) program, something the Obama Administration proposed and numerous research and advocacy groups have been urging for years.  

Trump’s unemployment initiative was one of four executive actions that he said would provide economic relief to millions of Americans suffering because of the COVID-19 pandemic and recession.

However, ignoring Congress’ power of the purse meant these measures—billed as a replacement for a $600-a-week benefit that expired in July, a payroll tax deferral, student debt relief, and eviction ban (really a directive for various federal agencies to think about a ban)—will necessarily miss large swaths of the population and economy.

This may be especially true for the supplemental unemployment benefit. Because the US Constitution forbids anyone but Congress from appropriating new money, Trump would pay for this by repurposing $45 billion from the existing Disaster Relief Fund.

Why use disaster aid, which FEMA normally taps when natural disasters like hurricanes strike the US, for unemployment benefits? Because that may be the only way to shoehorn it into existing legal authorities. Even so, the program is on shaky legal ground, and it will likely provide only about 5 weeks of enhanced benefits.

If states do want to participate in the new unemployment program, where should they come up with the money? The administration says they can use unspent Coronavirus Aid, Relief, and Economic Security (CARES) Act funds.

However, while the Treasury Department reports that states and localities had only spent about 25 percent of these funds as of the end of July, states themselves say that 75 percent have already been spent or allocated.

And that extra $100 weekly benefit would be just part of the added cost to the states. Saturday’s presidential memorandum also envisions states setting up new systems to administer this new benefit “in conjunction with” their existing, already overburdened UI systems. Why? Because existing systems can’t legally spend money not appropriated by Congress for unemployment benefits.

Oh, and under the executive action, states have to make sure they only give the supplemental benefit to people already collecting at least $100 a week of UI or some other emergency unemployment program.

Sound complicated? That’s because it is. And needlessly so. States such as California and Kentucky already have said they are unable to implement the program in its current form. West Virginia says it will. Others, like Texas, say they are still thinking about it.

The UI program was created in 1935, when households typically had one (usually male) breadwinner at risk of a temporary layoff from a full-time job. The original program excluded seasonal and agricultural workers, who often were low-income people of color.

Although the program later added many initially excluded worker categories, past federal and state choices and practices have translated into continued disparities in who receives UI benefits in recessions.

The federal government also gives states wide latitude to set tax rates, taxable wage bases, eligibility criteria, and benefits. This leads to vast differences across states in the proportion of jobless workers receiving benefits and the amounts workers receive—not to mention to those who are eligible. For example, as of March, about two-thirds of unemployed Massachusetts residents received unemployment benefits compared to only 7.6 percent of jobless Floridians.

That’s why proposals have long circulated to federalize some or all aspects of UI—either bolstering federal standards while maintaining the existing structure, moving to federal administration of a program carried out by the states, or replacing the joint federal-state UI program with a new program that is solely the responsibility of the federal government.

The relative benefits of these ideas are the subject for another blog. UI does stabilize household incomes and the economy in downturns. But the current stalemate over what to do about expired supplemental benefits is strong evidence that the system is fundamentally broken. Policymakers should work together to redesign it and not spend their time squabbling about patchwork fixes.