December 4, 2001 | News Releases on Welfare and Welfare Spending

Unemployed Need Jobs, Not a Bigger Handout, Analyst Says

WASHINGTON, Dec. 4, 2001-Federal lawmakers hoping to ease the recession's impact on unemployed workers have three plans to pick from: one proposed by the White House, one passed by the House of Representatives in October, and one proposed by Sen. Max Baucus, D-Mont. But which one would stimulate economic activity?

None of the above, says a new Heritage Foundation paper.

All three plans would make it easier for states to pay unemployment insurance (UI) to those who have lost jobs. But such spending "merely redistributes income from workers and investors to the unemployed," writes Research Fellow Mark Wilson, a former Labor Department economist. "It does nothing to spark the real catalysts for economic growth-improved incentives to work, save and invest."

If lawmakers must go with one of the three available plans, they're better off with either the House plan or the president's plan, he says.

The House plan would distribute the excess balance in the federal UI trust fund to the states, which they could use for UI benefits or for job-search or job-placement services. According to Wilson, its main benefit is that it leaves states free to set up the UI program best suited for their workers without interference from Washington.

The president's plan would create a new temporary UI program, increase funding for states to extend UI benefits, and encourage the unemployed to use existing job-placement and training programs. Its biggest plus, Wilson says, is that it would give governors the grants they need to address the unique needs that layoffs have created in their states. The Baucus plan gets the lowest marks from the Heritage analyst. "Its primary flaw is that it creates this overly broad, extended UI benefit program, even though several studies show that increasing UI benefits actually keeps people from finding work sooner," he says. "Worse, it would extend the program to states with low and falling unemployment rates. Congress should focus instead on policies that increase the number of jobs in all states."

Wilson lists a number of steps lawmakers can take, from speeding up the personal income tax rate reductions signed into law earlier this year to extending refundable tax credits to all unemployed workers to help pay health insurance premiums. They also can repeal a little-known surcharge on federal payroll taxes, which would allow workers to keep more of their earnings-more than $1 billion between 2002 and 2006 for California workers alone. "Americans prefer paychecks to UI checks, and the best 'jobs program' for unemployed workers is to lower taxes on labor and capital," Wilson says.

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