Many state unemployment trust funds are now depleted, implying that drastic steps would be required to balance the books – at the expense of employees.
When the epidemic hit the United States in March 2020, Congress immediately enacted the CARES Act, which altered unemployment insurance significantly. The federal government was able to raise the amount of jobless people’s benefits and prolong the number of weeks they could claim benefits via two major initiatives.
At one point, almost 29 million individuals were receiving unemployment benefits. These new initiatives helped tens of millions of people who had lost their jobs:
- Unemployment payments were given under the Pandemic Unemployment Assistance (PUA) program to “individuals who are self-employed, seeking part-time work, or who otherwise would not qualify for normal unemployment compensation.”
- The Pandemic Emergency Unemployment Compensation (PEUC) program enabled individuals who were qualified to obtain unemployment benefits and extra coverage above and beyond the normal limits. The number of weeks for which a claim may be filed is limited in each state. In addition to state benefits, this program paid $300 each week.
Obviously, this was going to cost a lot of money. Normally, states pay for unemployment benefits with their own money, but owing to the large number of jobless, the federal government had to step in.
They now want their money back.
What are the choices available to states?
Each state will adopt a different strategy to repaying its debt, but it will fall into one of these three groups.
- Using additional government money to pay down the debt and replenish their unemployment fund,
- Employer taxes should be raised.
- Benefits in the future will be reduced.
According to Jared Walczak, states have spent approximately $175 billion since the beginning of the epidemic, which is about three and a half times their average payments for the time period. States must make up a $115 billion deficit before their spending levels are at an acceptable minimum. According to Walczak, the federal government considers 34 state accounts insolvent, meaning their holdings are below the minimum required to survive through a year-long recession.
States increased unemployment taxes on businesses and reduced the duration of unemployment programs during the previous major recession, which occurred less than 15 years ago. This year, same steps are likely to be repeated.
Who will be the most affected?
The jobless and low-paid employees in the United States will be the most hit. Despite the record job openings in the US economy, raising the unemployment levy on businesses will result in fewer jobs being offered. Businesses may face further tax increases next year.
Cuts to unemployment benefits would be another bad consequence for employees. The loss of the additional benefits on Labor Day has already shocked the poor, and assistance is desperately required. Because unemployment is much higher than before the epidemic, additional cutbacks to the safety net would leave hundreds of thousands of Americans in need of assistance.