Why Congress Should Include Both Unemployment Benefits And Stimulus Checks In A New Relief Bill

One of the major skirmishes in the months-long battle over the fate of a new pandemic relief bill is this one: Should a new effort reprise last March’s $1,200 payments or create a new round of extended unemployment benefits? As lawmakers appear to be—finally—closing in a on agreement, it appears they may include both.

That is the right call, because each has advantages and flaws.

Relief Payments

Start with the one-off government payments, called recovery rebate credits, economic impact payments,  economic relief payments, or just stimulus checks.

Whatever the name, the benefit is obvious: Speed. Last spring, the IRS distributed most of those payments in record time, and presumably could build on that existing infrastructure to quickly push out a new round of assistance. But the timing is more challenging this time, since the IRS also is scrambling to prepare for the coming tax season. Still, it likely could begin to get cash into people’s pockets (or their bank accounts) in January.

And the amount of these payments isn’t trivial. Under the CARES Act, each eligible adult got  $1,200 (up to $2,400 per household) and each eligible child $500. That’s $3,400 for a family of two adults and two children. Payments in the new version are likely to be lower, but that money still can be a life saver.

However, it would be a one-time payment. And, depending on how Congress establishes eligibility, some aid may go to those who don’t really need it. The CARES Act gave full payments to individuals making up to $75,000 ($150,000 for married couples) and then phased them out. But it appears that the real economic victims of the pandemic are the lowest-wage workers who make well-below that threshold. Congress would do well to maximize the payment amounts but limit them to those making, say, $60,000.      

Enhanced unemployment benefits

What about increasing weekly federal unemployment benefits and extending benefits beyond the usual period of state assistance (usually 26 weeks, though it varies by state)?

The advantages: The federal assistance would be better targeted to those who most need it—those who lost their jobs in the pandemic or whose work hours were cut (state laws vary but generally allow partial benefits). Unlike the relief payment, this assistance would continue for several months. For example, the latest version of the bipartisan Senate compromise bill would extend weekly benefits for 16 additional weeks and boost the weekly federal benefit by $300.

The first round of extra unemployment benefits appears to have provided a powerful boost to consumption. A study by JP Morgan Chase found that while overall spending by employed people this spring fell by 10 percent, spending by those receiving jobless benefits rose by 10 percent.

But while this support is much better targeted than the one-time payments, it is built on a flimsy chassis of 51 sometimes flawed and highly variable state distribution systems (including the District of Columbia). The National Employment Law Center reports that in 2009, only about 40 percent of unemployed workers ever claimed benefits.  

Last spring, we learned that many furloughed workers had to wait weeks—and even months—for their jobless claims to be approved. Some states make filing for benefits relatively smooth. Others, not by accident, make it very difficult. Still others are stymied by outdated technology.

A disincentive to work?

Having to process large numbers of unemployment claims in a short time magnified the flaws in these state systems last spring. And with the current explosion of COVID-19 cases, it could happen again.       

After Congress passed the CARES Act, some also criticized enhanced unemployment benefits for discouraging work. That law added a weekly federal benefit of $600 and combined with state benefits, some low-wage workers received more on unemployment than they were paid on the job.

But there is little evidence that those added benefits discouraged work. One study, by the Federal Reserve Bank of San Francisco, found that the payments created “no disincentive” to work. And there is little reason to believe that the second tranche, which likely would be much smaller, would discourage work either.

Smart policy

What to do? Public health experts agree that the pandemic will be especially aggressive through the winter. It will be at least summer before enough people have been vaccinated that commerce can return to something resembling pre-pandemic normal.

That means much of the economy will remain shuttered for months. People who can’t work from home, or whose firms have closed, or who had to give up jobs to care for children who can’t go to in-person school face months more of financial hardship.

Add it all up, and the best answer seems to be where the negotiators are headed: a relatively quick jolt of relief through a one-time payment plus enhanced unemployment benefits to keep jobless workers going for several more months. It looks like the compromise bill may be missing one key element: aid to state and local governments. But pairing another relief payment with more jobless benefits is smart policy.