Economist: 'It’s pretty shameful' that more coronavirus stimulus hasn't happened yet
The global economy may face the worst recession since World War II due to the coronavirus pandemic.
The US unemployment rate was 13.3% in May, slightly better than April, but far worse than the high in the Great Recession. Since the pandemic began, more than 44 million Americans have applied for unemployment insurance, including the 1.54 million Americans who applied for the week through June 6.
While Congress had already passed the CARES law, which provided much-needed economic stimulus to unemployed Americans, some experts said more was justified before aid expired in late July.
Read more: How to apply for unemployment insurance
"States can't actually solve this on their own - the federal government can. So it should step in and provide a lot of help to the governments of the states." Heidi Shierholz, director of politics at the Economic Policy Institute (EPI) and former chief economist at the Ministry of Labor, told Yahoo Money. "You could do it very, very easily. And it is being discussed. It should happen. It's pretty shameful that it isn't."
The May job report showed an unexpected increase in payrolls outside of agriculture (David Foster / Yahoo Finance).
"People will still get their benefits"
For the unemployed, they can not only receive regular unemployment insurance benefits through their state, but also an additional $ 600 a week from the federal government. However, these payments expire on July 31.
As soon as this happens, it is the responsibility of the states to provide their citizens with economic relief if the federal government does not submit any new legislation.
The benefits are financed by unemployment insurance taxes, which are stored in a trust fund. This fund is built up during economic expansion and then used during recessions, Shierholz explained. Even if the trust fund dries up, people can get their benefits, she said.
People wearing face masks walk past a leasing sign outside a shop in the midst of the coronavirus pandemic on May 14, 2020 in Arlington, Virginia. (Photo by OLIVIER DOULIERY / AFP via Getty Images)
"When these state trust funds are used up, the federal government should only provide direct aid to the state. But if they don't, the states will borrow from the federal government, ”she said. "So people will continue to get their benefits, but it indicates that the government should intervene and give the states more relief."
"This is re-authorized over our bodies"
Brookings Institution's economist Gary Burtless said he wasn't sure what Congress would do when the supplement to regular unemployment insurance benefits ended, but he had some ideas.
"Republican senators and the president don't seem inclined to prolong this generous increase," he told Yahoo Money. "You can either expire the supplement on July 31 or agree to a reduced supplement - for example, $ 200 or $ 300 a week, provided the unemployment rate remains very high."
However, it is "not necessary" to adopt another comprehensive stimulus package, since Congress often extends or extends unemployment benefits in separate bills.
"However, GOP senators or the President cannot allow unemployment benefits to be extended on their own, and they may insist on a larger package that contains components that many of the GOP support," said Burtless, "for example, exemptions from civil liability for employers who endanger the health of their employees by not offering a COVID-safe job, lowering the capital gains tax or taking other measures that are favorable for the employer / investor community. "
With the latest employment report showing that the unemployment rate fell in May, Republicans have indicated that the next stimulus package will be different in key ways. They want financial incentives for people to return to work because some see the incentive to unemployment as a deterrent.
Read More: What To Do Before You Lose Your Job?
"It expires on July 31st and I promise you that this will be approved across our bodies again," said Sen. Lindsey Graham (R-SC).
Although some have more to do with unemployment than their regular jobs, Shierholz suggests not to cut the $ 600 weekly check, which she called "targeted money injected into the economy." Instead, those returning to work should be able to retain some of the UI benefits so that they don't see a big drop in their earnings.
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"The thing that will worsen the recession and weaken the recovery is when people have to cut spending when their incomes decrease," she said.
Shierholz added that long-term unemployment benefits are unsustainable for those who receive less than their income from unemployment. It's also bad for macroeconomics because people are starting to curtail their spending.
"If I cut my expenses, it means that I am not asking for the things I would have spent this money on," she said. “And then the people who make these things, who offer these goods and services, lose their jobs. So this is the vicious circle you are getting into. So if the Federal Government brings me enough benefits so that I don't have to cut spending, then you won't have that wave effect that will bring the entire macroeconomy to a standstill. ”
It won't be long before leaving everything to the states. Many countries are already seeing a massive drop in tax revenue, even with balanced budgetary requirements.
And, according to a recent Bloomberg analysis, almost a third of unemployment benefits have not yet been paid.
A man wearing a face mask walks past a "Now Hiring" sign outside a corona virus pandemic store on May 14, 2020 in Arlington, Virginia. (Photo by OLIVIER DOULIERY / AFP via Getty Images)
Americans across the country are in limbo while waiting for checks to arrive while still paying other bills such as rent or car insurance. And reaching their state employment office over the phone was a nightmare for many - a man told Yahoo Finance earlier that he had made over 1,000 calls.
Without government aid, Shierholz said, states may not have to cut unemployment benefits, but they must cut them elsewhere.
"They will lay off workers and cut other important services," she said. "It's just not the time we want that to happen."
Adriana is a reporter and political and health policy editor at Yahoo Finance. Follow her on Twitter @adrianambells.
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