Federal Unemployment Benefit Cuts to Hit in Budget ‘Sequester’
Posted by: Mitchell Hirsch on Feb 26, 2013
Yet another dangerous policy debacle, caused by Congressional stonewalling, is set to unleash large-scale across-the-board federal spending cuts – known as ‘sequestration’-- totaling $1.2 trillion over ten years. Most immediately, $85 billion of these senseless budget cuts for this fiscal year will trigger automatically on March 1. As a result, long-term unemployed workers receiving federal unemployment insurance will see their benefits reduced by 9.4 percent or more for the remainder of the fiscal year (through September 30, 2013), absent Congressional action. Large-scale cuts will also hit job-search assistance, reemployment services, and unemployment insurance administrative funds that are needed for claims and benefit processing.
The exact percentage of the reduction in actual benefit amounts will depend on how quickly states’ systems can implement the benefit cuts. If, for example, the cuts to benefit payments are not begun until April, the reduction to weekly benefits would likely be 11 percent.
In that case, an individual receiving the average weekly benefit of $300 would see their benefit reduced by $33 a week, or $132 a month.
The cuts would affect benefits paid under the federal Emergency Unemployment Compensation (EUC) and Extended Benefits (EB) programs. Federal EUC benefits are available to eligible job-seekers who are still looking for work when their regular state unemployment insurance runs out – after 26 weeks in most states – and the maximum weeks of EUC benefits varies by state from 14 weeks to 47 weeks, based on states’ unemployment rates. The sequester cuts would not affect benefit amounts for regular state unemployment insurance -- only federal EUC and EB benefits. As of February 3rd, Alaska was the only state where Extended Benefits were available -- up to an additional 13 weeks of EB.
Currently, about 2 million people receive federal unemployment benefits. The U.S. Department of Labor estimates that 3.8 million unemployed workers would be affected by the sequester-mandated benefit cuts during the remainder of the 2013, with the average recipient losing $400.
These benefit cuts will not only make life even tougher for many long-term unemployed workers already suffering from the loss of jobs and incomes, but will also take more than $2 billion in consumer spending out of an economy still struggling with weak demand. That’s likely to hurt local businesses and jobs, particularly in communities with high levels of unemployment.
The spending cuts being imposed under the budget sequester extend far beyond the federal unemployment insurance program. Of the $85 billion in cuts mandated through the next six months only a relative handful of federal programs would be shielded. Those would include pay for military service members and beneficiaries of Social Security, Medicaid, Medicare and SNAP (food stamps). Most other federal outlays would be cut, including those for education, children’s vaccinations, research, food safety, transportation safety, law enforcement, nutrition assistance for seniors, environmental protection – even disaster relief funds for victims of Hurricane Sandy.
The non-partisan Congressional Budget Office estimates that the sequester cuts this year alone could result in the loss of 750,000 jobs nationally.
In addition to the benefit cuts, unemployed workers will also be affected by the many millions of dollars to be cut from federal aid to job-search assistance programs outside of the Unemployment Insurance (UI) programs. Another $15 million will also be cut in federal funds for reemployment and assessment services for EUC recipients alone. $27 million will be cut from federal funding that states rely on to help with the costs of administering the federal benefit programs – and another $161 million in cuts to the federal grants for regular state UI processing and administration. These cuts could be crippling for many state UI programs already straining with reduced staffing, overloaded communications and outmoded computer systems. There’s little doubt that, as tough as it is for some UI claimants to get help with claims or job search when they need it, the situation is likely to get even tougher shortly.
Why is this happening, you ask? Why are these deep, automatic, virtually across-the-board spending cuts hitting now? And, is anyone trying to avoid these ill-timed and damaging cuts?
Back in 2011, Congress faced the need to approve a new debt ceiling increase to allow the federal government to meet its obligations and avoid a catastrophic U.S. default. Congressional Republicans objected, insisting they would only agree to the debt ceiling increase in exchange for deep federal spending cuts. From that self-destructive showdown, which pushed the nation to the brink of default, was born the Budget Control Act of 2011.
That Act specified an initial $1 trillion in spending cuts over ten years and temporarily raised the debt ceiling. An additional $1.2 trillion in unspecified deficit reduction in the next decade was targeted in the bill, to be detailed in a hoped-for future agreement among Congressional lawmakers and the administration. Ostensibly designed to be such an odious provision that it would prod lawmakers to reach such an agreement, the budget sequester, mandating $1.2 trillion in automatic, across-the-board spending cuts over ten years, was included as a provision to be triggered in the event of a failure to reach that hoped-for deal by the end of 2012.
The New Year’s ‘fiscal cliff’ deal, which enacted tax rate changes on high incomes and renewed federal unemployment insurance for 2013, also postponed the deadline for the sequester to March 1.
Well, here we are, and thus far there is no deal to avert the sequester cuts.
Because the sequester included cuts to both Pentagon and non-defense domestic spending, it was thought that Republicans would want to avoid the Pentagon cuts as much as Democrats would want to avoid those hitting domestic programs, services and public sector workers. The immediacy and severity of the cuts, it was thought, would be broadly seen as terrible policy from an economic standpoint: Sharp fiscal contraction in a weak economy is known to have more than a one-to-one negative multiplier effect on employment and output, slowing or even reversing growth. The last few years’ experience with harsh spending cuts imposed in parts of Europe (in countries such as Spain, Greece, Ireland, Italy and Portugal) has produced soaring, depression-level rates of unemployment and protracted, deepening economic recessions.
Most in both parties want to avert the sequester, although the most fiscally conservative of Republicans have begun to embrace it as some sort of necessary evil. However, Republicans want to trim $85 billion from the budget only in the form of spending cuts, and Democrats are pushing for an alternative that combines spending cuts and raising tax revenues by combining cuts to subsidies for big oil companies and agribusiness while closing tax loopholes for millionaires, hedge fund managers and large corporations.
The parties are at a stalemate and it is looking very likely that they will be unable to avert the sequester this week. When the sequester cuts begin March 1, the next opportunity to replace the sequester would come either by March 27 – the deadline for a budget resolution to avert a federal government shutdown – or in May when yet another debt ceiling debacle looms.
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