There is a chance that the economy will slide into recession next year and that Congress won’t do anything to help.
The Federal Reserve has been trying to tame inflation by deliberately slowing down the whole economy. So far the labor market has proved resilient and unemployment remains low, but the central bank’s efforts could eventually result in millions of layoffs.
Normally, when the economy sours and the unemployment rate rises, Congress temporariladds extra weeks of federal unemployment compensation to supplement the standard six months of benefits provided by states. The extra spending shores up people’s finances and also helps prop up the economy as a whole.
But it’s not clear Congress would uphold that tradition if Republicans control the House of Representatives, which polls suggest is a likely outcome of the Nov. 8 midterm elections.
“The Republican narrative is that when government helps people, we make them lazy,” Rep. Don Beyer (D-Va.) told HuffPost.
Beyer has been one of the top proponents of overhauling the state-federal unemployment system so that more workers are covered and states have less leeway to slash benefits. Beyer and like-minded Democrats also favored a system that would automatically augment benefits in bad economic times.
But Democrats did not include changes to the unemployment system when they considered broader changes to the social safety net.
“We lost that battle,” Beyer said. “It’s not in the law right now. So I think [the tradition of extending benefits] is pretty much at risk if, in the worst case, Republicans take back the House.”
The three Republican lawmakers ― Vern Buchanan (Fla.), Jason Smith (Mo.) and Adrian Smith (Neb.) ― vying to be chair of the House Ways and Means Committee in a GOP-controlled House have not laid out an agenda for unemployment insurance, which is one of the programs the committee oversees. Their spokespeople did not respond to requests for comment.
House Republicans have, however, signaled they’ll go all out next year to cut federal spending, suggesting they’d even demand cuts to Social Security and Medicare.
People laid off from payroll jobs through no fault of their own are typically eligible for unemployment benefits, which are provided by state workforce agencies at levels determined by state lawmakers.
Thanks partly to years of cutbacks at the state level, fewer workers are covered. The percentage of workers receiving benefits has fallen to 26% this year from highs of around 40% in the 1950s, according to a new report by The Century Foundation, a progressive think tank. The average weekly benefit is $386. Two dozen states pay benefits amounting to less than the federal poverty level for a two-person household.
“At a time of growing economic uncertainty, one thing is clear: the nation’s system of unemployment benefits is inadequate and inequitable even during good times, let alone being wholly unprepared for another downturn,” TCF’s Andrew Stettner said in a statement.
A recession is not a certainty, though the Federal Reserve has said it expects its actions to push unemployment above 4% next year. The national rate stood at a historically low of 3.5% as of September.
It’s possible that unemployment could rise next year while inflation remains elevated. Since Republicans have blamed price instability on economic relief spending approved by Democrats last year, including extra unemployment benefits, it’s not hard to imagine them opposing new relief spending on benefits next year.
In a scenario with high inflation and high unemployment, plenty of economists would tell lawmakers that more federal spending would make things worse. After all, the Federal Reserve’s entire strategy for fighting inflation hinges on making people poorer.
“From the macroeconomic perspective, the best thing might be to sort of weather it out,” Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, said in an interview.
Republicans supported a massive expansion of the federal government’s role in the unemployment insurance system in 2020 as part of the economic response to the coronavirus pandemic. They had a political incentive to do so, since they wanted to keep a Republican in the White House and economic misfortune often gets blamed on the incumbent president.
Congress provided not only extra weeks of benefits, it also boosted weekly payments by $600 and expanded eligibility rules to include categories of workers, such as the self-employed, who are typically shut out. The expanded benefits were essentially a prototype of how Democrats would permanently reform the system.
But the pandemic unemployment programs and the crush of claims overwhelmed state workforce agencies, whose vulnerabilities were exploited by fraudsters, including international criminal organizations.
House Republicans harped on the billions in fraudulent payments during a September hearing about the administration of the unemployment system ― a likely preview of future attacks on proposals to expand benefits.
“The mistakes made during the pandemic should not be repeated, and taxpayers should never again be cheated out of billions of dollars,” Rep. Rick Allen (R-Ga.) said.