What could happen if Congress cuts unemployment benefits

Senate Majority Leader Mitch McConnell (R-Ky.) speaks during a press conference following the weekly Senate Republican policy luncheon in the Hart Senate Office Building on June 30, 2020. | Stefani Reynolds/Getty Images

More than 30 million people are receiving unemployment benefits and new applications for jobless aid have started to rise again. But Republicans want to reduce a $600 enhanced unemployment benefit in the next coronavirus relief package, a proposal that could leave families with billions of dollars less to spend to bolster the economy.

White House economic advisers and GOP lawmakers including Senate Majority Leader Mitch McConnell contend the extra payment acts as a disincentive for workers to seek new jobs, because some people are receiving more money in benefits than they would earn working. Democrats and many economists say there are no jobs for those people right now anyway, and the payments are essential for keeping the economy afloat — and ensuring Americans can buy food and pay the rent.

Here’s a look at the potential impact of cutting benefits right now:

The Senate GOP’s latest $1 trillion plan calls for the reduction in increased unemployment benefits from $600 to $200 a week for 60 days, or until states are able to provide a 70 percent wage replacement. Some Republican senators are rolling out their own proposals that would reduce the benefits with varying levels of wage replacement.

Their argument is that payments should be pegged to workers’ former wages as an incentive for them to seek jobs instead of remaining on benefits.

“Should we have generous unemployment insurance in this crisis? Of course,” McConnell said on the Senate floor Wednesday. “But obviously we should not be taxing the essential workers who’ve kept working so the government can pay their neighbors a higher salary to stay home.”

Under the GOP plan, weekly benefits would drop from a national average of $920.68 per week to $520.68 per week, an average overall cut of 55 percent, according to a recent analysis by The Century Foundation, a progressive think tank.

Laid-off workers would lose more than $10 billion per week, under the GOP proposal. And by the end of September, the losses would reach $90 billion, the analysis found.

But White House economists say the checks aren’t stimulating the economy.

“Do not repeat this idiot notion that giving people money is somehow a stimulus to the economy,” said Stephen Moore, a conservative economist and outside adviser to President Donald Trump, in an interview. “I mean, in that case we could just give everybody $100,000 and we’d all be rich right? It’s just so stupid.”

It’s a “meaningful hit to the economy,” if lawmakers reduce or cut off the enhanced benefits, wrote Mark Zandi, chief economist at Moody’s Analytics. He estimates that cutting the benefit to $200 per week as the GOP has proposed would cost nearly 1 million jobs by the end of the year and raise unemployment by 0.6 percentage points.

Other estimates of job losses are higher. Economists caution that a reduction in benefits could spark a drop in demand, setting off a “vicious cycle” that eventually results in the permanent loss of millions of jobs. Slashing the extra $600 week could destroy as many as 5 million jobs, according to an analysis by the left-leaning Economic Policy Institute.

“People will have to make terrible choices between things like medicine and rent, but it also means that they will no longer be buying things that they had been buying, and the workers that produce the goods and services that they will no longer be buying will lose their jobs,” said Heidi Shierholz, EPI policy director and former Labor Department chief economist. “And the vicious cycle is set off. So it’s terrible macroeconomic policy.”

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