An Elegant Economic Stimulus Package
Wouldn’t it be great if, instead of spending 156 billion dollars giving every American some money to help spend us out of our difficulties, we could target that money to those most in need, be they individuals or communities? We can, and the mechanism exists, and has existed since the Great Depression. It is called unemployment insurance.
Unemployment insurance was created to help stimulate communities by offsetting the loss of wages through benefits targeted at workers whose wage losses rippled through communities. When job losses hit communities, it is not merely the worker who suffers. Every business that depends upon those workers for their very existence also suffers. The grocery store, the feed store, the barber, the restaurants, and bars – every business suffers. Unemployment insurance was created as a tool of economic stabilization. Workers are the backbone of the economy and when the economy suffers, providing benefits to the unemployed, who spend those dollars locally offsets the effects of job losses.
One great virtue of the unemployment insurance program is its counter-cyclical funding. Employers pay a tax based upon a tax rate determined by the employer’s “experience” with unemployment. The more former workers have to make use of unemployment insurance, the higher the tax rate upon the employer. It works just like auto insurance – the safer the driver, the lower the rate; the less an employer lays off workers, the lower the employer tax rate.
The tax rate is also based upon the ability of the state to pay benefits. This is called “trust fund adequacy.” As the fund is drawn down, the taxes on all employers rise. But the rise in taxes does not occur until the recession is over. When a state enters a recession, tax rates are at their lowest levels. In this way, employers do not get hit when times are hard. This taxing mechanism is counter-cyclical in nature.
Each state has mechanisms in place to rapidly respond when layoffs occur. Most states now file claims electronically or by telephone; there are no long lines as in the past. Benefits are paid rapidly and the impact is felt immediately – where most needed.
Benefits do not totally offset wage losses and thus the benefits are far more likely to be spent locally on necessities.
We have an efficient, time-proven mechanism in place, but the Bush Administration, not liking anything smacking of a safety net, elects to give us all money, which most of us do not need and are more likely to use a mad money – but then, like Cheney, W much prefers the shotgun to targeting the real problem. An like Cheney, W’s package hits the wrong target.
Unemployment insurance was created to help stimulate communities by offsetting the loss of wages through benefits targeted at workers whose wage losses rippled through communities. When job losses hit communities, it is not merely the worker who suffers. Every business that depends upon those workers for their very existence also suffers. The grocery store, the feed store, the barber, the restaurants, and bars – every business suffers. Unemployment insurance was created as a tool of economic stabilization. Workers are the backbone of the economy and when the economy suffers, providing benefits to the unemployed, who spend those dollars locally offsets the effects of job losses.
One great virtue of the unemployment insurance program is its counter-cyclical funding. Employers pay a tax based upon a tax rate determined by the employer’s “experience” with unemployment. The more former workers have to make use of unemployment insurance, the higher the tax rate upon the employer. It works just like auto insurance – the safer the driver, the lower the rate; the less an employer lays off workers, the lower the employer tax rate.
The tax rate is also based upon the ability of the state to pay benefits. This is called “trust fund adequacy.” As the fund is drawn down, the taxes on all employers rise. But the rise in taxes does not occur until the recession is over. When a state enters a recession, tax rates are at their lowest levels. In this way, employers do not get hit when times are hard. This taxing mechanism is counter-cyclical in nature.
Each state has mechanisms in place to rapidly respond when layoffs occur. Most states now file claims electronically or by telephone; there are no long lines as in the past. Benefits are paid rapidly and the impact is felt immediately – where most needed.
Benefits do not totally offset wage losses and thus the benefits are far more likely to be spent locally on necessities.
We have an efficient, time-proven mechanism in place, but the Bush Administration, not liking anything smacking of a safety net, elects to give us all money, which most of us do not need and are more likely to use a mad money – but then, like Cheney, W much prefers the shotgun to targeting the real problem. An like Cheney, W’s package hits the wrong target.
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