CHN: Congress Passes an Extension of Unemployment Insurance and the Payroll Tax Cut

February 21, 2012

The deadlock over extending Unemployment Insurance (UI) benefits and the payroll tax cut was broken when Republican negotiators dropped their insistence that the $100 billion cost of extending the payroll tax cut would be paid for with spending cuts, leaving only $60 billion in offsets to be identified. Before recessing for the President’s Day week-long break congressional negotiators reached agreement on the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) to extend UI benefits and the payroll tax cut through the end of 2012. The legislation also averts a 27 percent cut in Medicare reimbursement rates for doctors. The House passed the bill 293-132 with 91 Republicans and 41 Democrats voting against the bill. The vote in the Senate was 60-36 with 14 Republicans voting for the bill and 5 Democrats and 1 Independent opposing passage.

The legislation calls for phasing in a reduction in the number of weeks of UI available to unemployed workers. Currently in states with unemployment rates of 9 percent and above a worker can receive a maximum of 99 weeks of UI. By September those workers will receive a maximum of 73 weeks of UI. Workers in states that have from 7 to 9 percent unemployment rates will receive a maximum of 63 weeks of UI. Workers in states whose unemployment is in the 6-7 percent range will see their maximum number of weeks shrink to 54 weeks, and for states with rates under 6 percent the maximum will be 40 weeks. In each category between 19 and 36 weeks of UI are lost.

Some of the onerous provisions in the original House-passed bill are not in the final agreement. The final bill does not require UI recipients to have completed high school or be in a GED program. Nor does it allow states to require drug testing for all UI applicants. The bill does allow states to drug screen and test anyone who lost their job because they failed or refused an employer drug test or is seeking a job that requires a drug test. This provision overturns a decades-long Department of Labor law banning states from screening and testing UI applicants for drugs. Recipients of federal UI benefits are required to participate in reemployment assessments to determine what services and activities they need to return to work and they, like recipients of state UI benefits, must engage in job search. H.R. 3630 also contains a waiver which allows up to 10 states to operate programs that provide subsidies to employers who hire UI beneficiaries and provide them with training. The subsidies would offset the cost of the wage provided which must be greater than the UI benefit. Advocates are concerned that this could set a precedent for diverting UI funds to subsidize low-wage work, undermining the social insurance quality of the program and potentially opening the door to mandatory work requirements for UI recipients.

The payroll tax cut extension means that workers will pay 4.2 percent instead of 6.2 percent of their income under $110,100 in Social Security tax. For the average family this represents an annual savings of about $1,000. Revenue lost to the Social Security Trust Fund is reimbursed through general Treasury funds.

Other provisions in H.R. 3630 include extensions of the Transitional Medical Assistance for low-income families moving into employment through the end of the year and the Temporary Assistance for Needy Families (TANF) program through September 30. No funding is provided for TANF supplemental grants which provide additional funding to poorer states. A provision was added that blocks access to TANF funds on electronic benefit transfer cards at ATMs in liquor stores, strip clubs and casinos.

Conferees struggled to reach agreement on how to find $60 billion to pay for the non-payroll tax provisions in the bill. A leading source of offsets comes from requiring federal workers hired beginning next year to contribute more to their pension benefits. Other sources of funding will come from auctioning broadband spectrum now controlled by television broadcasters for high speed internet, reducing payments to Medicare providers and reducing funding for prevention activities in the Affordable Care Act. Advocates were pleased that a cut in the refundable Child Tax Credit for low-income working families was dropped as an offset.

There is ongoing and growing concern among some members of Congress and advocates that as legislation passes requiring offsets, wealthy individuals and corporations have not been asked to contribute. One outcome of this legislation is that the nearly $100 billion cost of the payroll tax cut will be added to the debt, likely moving up the vote on raising the debt ceiling to the end of this year rather than next year.

Categories: Labor and Employment, Tax Policy, Unemployment Insurance