Coronavirus recovery — Want to help the economy? Don’t do this

Coronavirus recovery — Want to help the economy? Don’t do this

Nearly 39 million Americans have filed for unemployment, as of May 21, since the beginning of the COVID-19 outbreak, pushing unemployment closer to levels not seen since the Great Depression. So far, Congress has allocated over $239 billion in stimulus checks and unemployment benefits to help.

Congressional Democrats want to go further. The HEROES Act, which the House of Representatives passed last on May 15, would usher in a second, more generous round of COVID-19 relief.

Yet right now, many Americans are making more money staying home than they would by returning to work. In the rush to alleviate the economic strain caused by the pandemic, the government risks creating a permanent unemployment system that will hamstring our economic recovery in the coming months.

With the CARES Act, the government has essentially begun paying people to remain unemployed. Signed into law by President Trump in March, the law authorized $1,200 payments to millions of individuals with annual incomes below $75,000 and married couples with annual incomes below $150,000. CARES also created a $600 a week federal supplement to state unemployment benefits, which will expire on July 31.

Thanks to the CARES supplement, 63 percent of workers nationwide now earn more on unemployment than they would if they returned to work. All told, nearly 93 million workers typically make less each week than the “maximum weekly unemployment benefits” provided by the CARES Act, according to an American Action Forum analysis.

Such generous unemployment benefits could make it harder for states to open their economies. Every state will start to do so in some form by Memorial Day. Their economies could be open in name only, if businesses can’t get workers to rejoin the workforce.

After qualifying for a small business loan, the owner of Hoffman Car Wash in Albany, N.Y., told The Wall Street Journal that he could afford to bring back furloughed workers at their pre-crisis wage of $13 an hour. Those workers are currently making around $23 an hour on unemployment, which could discourage them from returning.

Between the unemployment boost and free health insurance, the HEROES Act would essentially pay people to stay home through early 2021.

In Kentucky, the CARES unemployment benefit disincentivizes 75 percent of workers from seeking employment. Last month, NPR shared the story of a Harlan, Ky., coffee shop owner whose workers requested that she lay them off so they could receive unemployment checks.

The HEROES Act would give many people even more of an incentive to avoid returning to work. The bill would issue a second round of $1,200 stimulus checks and extend the $600 per week unemployment supplement through Jan. 31, 2021.

It would also let people who lost their jobs between March 1 of this year and Jan. 31 of next year stay on their employer-sponsored health plans, with the federal government paying the premiums. Typically, unemployed workers who wish to remain on their old employer-sponsored plans must pay the premiums themselves, under the terms of a federal law called COBRA.

Between the unemployment boost and free health insurance, the HEROES Act would essentially pay people to stay home through early 2021.

Congress doesn’t need to fund such generous benefits packages for so long. At the onset of the coronavirus outbreak, it made sense to pay people to stay home to help “flatten the curve.” But as the economy begins to reopen, there’s no reason for so many workers to remain at home. Congressional Democrats seem determined to give them one.

There are ways to help those who are unemployed without destroying the incentive to work. For example, rather than spending hundreds of billions of dollars on COBRA premiums, the federal government could encourage those who have recently lost their jobs to purchase short-term, limited-duration health plans. Because these plans are not subject to ObamaCare’s many cost-inflating mandates, they’re orders of magnitude cheaper than conventional employer-sponsored plans. Their longstanding purpose has been to protect people between jobs.

Sadly, regulations in nearly half of the states limit the availability of these plans. Eleven states have banned them outright.

Instead of continually renewing the $600 per week unemployment supplement, Congress could begin phasing it out — or follow Georgia’s lead by allowing certain workers to receive a reduced federal benefit once they’ve returned to work.

Congress’s initial wave of stimulus made sense, as a means of forestalling economic collapse. But trillions more in spending risks preventing the economy from starting up again.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.