Senators Have Better Solution Than House JOBS Act

My initial comments on the proposed JOBS Act focused mainly on what it could mean for long-term jobless workers.

No more cash income from unemployment insurance benefits. Probably fewer job opportunities than they’ve got now since none of the alternative uses of the federal funds has as much bang-for-the-buck job creation power as UI benefits themselves.

But that doesn’t mean the federal government should just let states work out their current UI trust fund problems as best they can.

As I noted earlier, a majority of states have received loans from the federal UI trust fund so they could keep paying benefits even though their own trust funds wouldn’t cover them.

As things stand now, they have to pay back these loans, with interest — and do so while our economy is still flagging. At the same time, they have to rebuild their trust funds because, even in the best of times, eligible workers lose their jobs through no fault of their own.

Both the debts and the depleted trust funds mean states need to increase the taxes on employers for future UI benefits.

This is something many ought ultimately to do. Low tax rates and/or wage bases, e.g., the maximum amount subject to taxation, played a big part in the shortfalls that triggered the federal loans.

But that’s no reason for Congress to let states use funds that were appropriated for long-term unemployment benefits to pay off their loans or rebuild their trust funds.

And certainly no reason to let indebted states off the hook for meeting established funding goals for their reserves if they pay off only the interest within one year of the time it’s due. This long-term threat to trust fund solvency is also in the JOBS Act.

There are better solutions. In fact, Congress has two pending right now.

As part of his Fiscal Year 2012 budget, President Obama proposed giving states another two years before they have to start paying interest on their UI loans.

His proposal would also raise the federal UI taxable wage base — now and for the last 28 years just $7,000.

In 2014, it would increase to $15,000 — about the same amount, in real dollars, as it was when last increased. Going forward, the base would be indexed to a formula based on wage growth, thus obviating the need for recurrent fixes.

At the same time, the federal tax rate would be lowered. So employers would initially wind up paying about the same as they would otherwise.

The so-called FUTA wage base sets a floor for state wage bases. Though only a few states still have wage bases so low, many have failed to raise them to reflect higher per worker benefit costs due to wage growth over the years.

Under the proposed changes, 32 states and the District of Columbia would have to raise their wage bases. The initial increase for the District would be $6,000 per employee.

Senators Richard Durbin (D-IL), Jack Reed (D-RI) and Sherrod Brown (D-OH) have introduced a bill — the Unemployment Insurance Solvency Act — that includes the same basic features as the President’s proposal.

It’s also got two nice incentives to help states achieve and maintain trust fund solvency.

One would reward states that maintain sufficient reserves to pay benefits during a severe recession — increased interest on their deposits in the federal trust fund and a lower FUTA tax on employers.

The other seems to me the more important because it would also potentially deter states from solving their UI problems at the expense of jobless workers.

Specifically, states could have up to 60% of their outstanding loans forgiven if they developed an acceptable voluntary solvency plan. As part of the deal, they’d have to assure the U.S. Department of Labor that they wouldn’t  change their UI laws to cut benefits or raise the bar for eligibility.

Three states have already cut benefits. A fourth — Florida — is about to make more drastic cuts. At least three other states also have trimming legislation in the works. The carrot of a large reduction in loan repayment obligations might retard this trend.

According to a summary by the National Employment Law Project, the relief in the Durbin-Reed-Brown bill is designed so as not to increase the federal deficit.

Taken as a whole, the bill seems to me an altogether sensible solution to a complex problem.

A whole lot better than letting states divert funds meant to help long-term jobless workers and their families meet basic needs to other uses that would create fewer — or no — new jobs.

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