The House Democrats’ $3 trillion stimulus bill is, thankfully, not going anywhere, but if Congress is going to move forward with any additional stimulus plan, not a penny should be approved without first fixing the loopholes which make not working pay so well.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) extended economic relief in several ways to American workers to bridge the unemployment gap until they could get back to work. An unfortunate unintended consequence of this bill was to create disincentives to work because of overly generous unemployment benefits.
Speaker Nancy Pelosi’s latest Heroes Act does not fix this problem but compounds the damage.
This issue is not hypothetical. It’s creating a challenge for some already-struggling small business owners that are trying to reopen but need to be able to bring back their workforce.
Washington state spa-owner Jamie Black-Lewis was overjoyed to use the two Paycheck Protection Program (PPP) loans she received to pay her 35 employees and herself. The loans will be forgiven if she uses most of the money to retain or rehire workers. The massage therapists, hairstylists, and aestheticians on her payroll were earning anywhere from $13.50 per hour (minimum wage) up to $60 an hour until she was forced to close her two spa locations.
Instead of being jubilant to receive a paycheck, some of her employees were upset that they would potentially lose their unemployment benefits, which were greater than their wages. In Washington, this is the case for full-time workers who earn up to $30 per hour ($61,200 per year).
Unemployment insurance (UI) is meant to help workers endure the economic hardship of a job loss, but not to entirely replace their income (it typically replaces half of pre-unemployment income). Otherwise, the benefits create a disincentive to work.
The CARES Act increased UI benefits for all workers by $600 each week and extended the length of time unemployed workers can receive benefits from 26 to 39 weeks. Such generous benefits boost total income for low wage workers beyond the income they are likely to earn if they resume work. The Heroes Act would extend the increased UI benefits until January 31, 2021.
Expanding unemployment may have been well-intentioned, but it is working against the PPP’s goal of saving jobs.
Amid a record 30 million workers filing unemployment claims, Americans want some kind of economic relief to cushion them from the sudden loss of income. Public support for the recent tranche of stimulus aid is surprisingly high. Nearly nine-in-ten U.S. adults (88 percent) support the $2.2 trillion CARES Act and more than three-quarters (77 percent) think additional economic assistance is necessary.
Economic stimulus aid should be guided by three principles: being targeted, temporary, and flexible. The first round of stimulus checks was not particularly targeted as they went to most low-and-middle-class families, but at least they were a one-time payment.
The Heroes Act proposes another round of $1,200 stimulus checks ($2,400 for joint filers) for households earning up to $75,000 a year for single filers ($150,000 for joint filers) modeled after those in the CARES ACT. However, this proposal goes farther by rewarding people with more money for each child: a full $1,200 tax credit for independents instead of the $500 per dependent.
This plan does not go as far as some leftist members of Congress would like. They have advocated for universal basic income plans such as the bill to give every “person” in America $2,000 loaded onto debit cards that are reloaded with $1,000 each month until one year after the pandemic ends. (“Persons” includes dependent children and illegal immigrants.)
Nonetheless, combined with the expended UI benefits, these extended benefits will create even more disincentives to work.
The federal government does not have an unlimited supply of cash to dole out especially on policies that work against employment. Congressional Budget Office projections estimate that the recent stimulus packages will more than quadruple the 2020 federal deficit as a percentage of gross domestic product. Imagine how dire our fiscal future would be if these costly proposals were passed.
Aside from these proposals being unaffordable, paying people significant sums of money would only lead to more dependency. People are not inspired to look for meaningful work, volunteer, or sharpen their skills when they receive cash with no strings attached as universal basic income advocates suggest. According to the Bureau of Labor Statistics survey, during the last recession, unemployed people spent more time watching television and sleeping.
Reopening society depends on businesses being able to reopen with the staffing they need to operate.
As the Washington spa owner knows too well there is real harm when workers have an incentive to remain at home rather than return to their jobs.
Americans are optimistic that jobs will return as the economy reopens, but if the jobs come back, will there be workers willing to take them? The answer to that lies in Congress’s hands.