Congress poised to scale back unemployment benefits from 99 weeks

The days when an out-of-work person could collect 99 weeks of unemployment benefits are coming to an end.

Congress and President Obama appear to be heading toward an agreement to reduce the number of weeks someone can collect benefits – perhaps 75 weeks, or a lower number that is phased in through the year. Pretty much gone will be Extended Benefits, which now amount to an extra 13 to 20 weeks of benefits for the unemployed, depending on a state’s unemployment rate.

House and Senate negotiators have agreed to a reduction in the maximum number of weeks of benefits allowed, according to Politico. But the agreement, which would last through the year, would mean that millions of people on Emergency Unemployment Compensation (EUC) will continue to get some form of assistance. If Congress did not act, some 3.4 million unemployed people were in danger of losing their benefits by June 2.

“All the parties have agreed to some reduction,” says Pete Davis of Davis Capital Investment Ideas, who watches Congress for Wall Street and is a former tax economist on Capital Hill. “It’s a tough issue.”

The breakthrough came Monday, when the House Republican leadership said it would agree to extend the temporary payroll-tax cut through the end of the year without the need for “pay-fors.” Now, with the resolution on Tuesday of two other issues – the extension of unemployment benefits and extension of the “doc fix” for Medicare – lawmakers can tell their constituents that the legislation can pass without triggering gridlock.  

“There is good reason to reach agreement on this early in the election year,” says Mr. Davis. "When you shift from 99 weeks to 79 weeks, you get a big lump of people who drop out of the labor force,” he explains. This results in a lower “headline” unemployment rate – an advantage for an incumbent.

Congress still has to approve the agreement, of course.

But even if Congress had completely renewed the current law, keeping extended benefits at 99 weeks, many states would have started to scale them back anyway. To keep the program going, under current law, a state’s unemployment rate for one quarter must rise 10 percent compared with the rate for that same quarter in any of the three previous years.

Congress was also under pressure from many states to reduce the number of weeks the unemployed could collect benefits, says Mr. Davis, because many state unemployment funds are running deficits. States can borrow from the federal government to cover their funds' deficits, but they have to pay the money back. To do that, they are raising the insurance premiums they charge in-state businesses.

“Small business is screaming about having to pay the higher rates,” says Mr. Davis. “One way to alleviate that and help states is to cut down on the benefit payments.” 

The changes come as most states' unemployment rates are dropping. This means that almost every state would no longer qualify for extended benefits unless Congress changes the law.

For example, Saturday will be the last payable week for both Maine and Michigan, which will join 18 other states that no longer pay extended benefits because their unemployment rates have not risen enough. If the three-year look-back is continued after Oct. 13, no state would be offering extended benefits. According to the National Employment Law Project (NELP), 512,463 people are currently receiving extended unemployment benefits.

Although the economy appears to be creating jobs again, these days it takes the average unemployed person about nine months to find another job, says George Wentworth, a senior staff attorney at NELP in New York. More than half of all current claimants will exhaust their state benefits before finding a job, he says. 

“While the economy is moving in the right direction, cutting back on the unemployment benefits would throw millions into financial turmoil,” he says.

The agreement Tuesday came after more pressure from both sides.

Mr. Obama on Tuesday urged Congress to act before benefits expire at the end of the month. He compared the economy with an airplane finally lifting off the ground. “You don’t ease up on the throttle. You keep the throttle on full,” he said during a public appearance at the Eisenhower Executive Office Building in Washington.

It's great for the president to call for a resolution of the unemployment insurance (UI) issue, said Brendan Buck, a press secretary for House Speaker John Boehner, in an e-mail. He added: “There’s a really easy way for the president to get a UI extension done – get on the phone and tell Senate Democrats to get serious.”