Hearing on Moving from Unemployment Checks to Paychecks: Implementing Recent Reforms

Comments for the Record

House Ways and Means Committee

Subcommittee on Oversight

Hearing on Moving from Unemployment Checks to Paychecks: Implementing Recent Reforms

Wednesday, April 25, 2012, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Davis and Ranking Member Doggett, thank you for the opportunity to submit comments on these issues. I will leave oversight details to the scheduled witnesses and comment on why benefits should be extended. The ironic fact is that, because the Center for Fiscal Equity does not benefit any particular industry, it is unfunded. Our ability to comment on these and other hearings in the past several months is only possible due to my ability to draw Unemployment Insurance. I have been working very hard, but without pay.

There are those on the conservative side of the intelligentsia who will likely offer the opinion that Unemployment Insurance allows people to avoid going back to paid work and that continuing to extend benefits simply delays the day when they must seriously look for the first available job.

These are answered by advocates for continuing to pay benefits, who defend the freedom the program offers to not seek the first available job, so that workers are more likely to find a job that is a match to their skill sets. Additionally, when more qualified workers can be more selective, less qualified workers are able to take the lesser skilled jobs that others are able to take a pass on because they can survive on benefits. I tend to agree with this analysis.

Most economists will also point out that payment of benefits allows those laid off to continue to spend at least some money, stopping a bad economy from getting much worse – especially when there are no jobs to be had by anyone, skilled or unskilled. This is likely the case with the current economy, at least until recently.

An issue undoubtedly facing this committee is the funding of extended unemployment benefits, as well as the possibility of benefits to the 99ers who do not qualify for extended aid and must now rely on family members, the ability to retire early or other social welfare benefits, such as the Supplemental Nutrition Assistance Program, which serves as the aid of last resort. Sadly, in an effort to give welfare reform teeth, SNAP levels are way below what is required for an individual to eat for a month.

Traditionally, extended benefits were financed without offsets. This is entirely appropriate, because UI is funded by a separate tax and raising this tax generally during an economic downturn would likely make the downturn worse. Cuts to items outside the UI trust fund are thus inappropriate and should not be suggested or required in our opinion. If funding cannot be debt financed, it must come from some kind of revenue increase. It is disappointing that the defenders of the program in Congress have not, to date, made this point and called their bluff.

It is troubling that while many families are still struggling under joblessness, uncertainty as to their job security or prospect for higher incomes and in many cases mortgages that are greater than their homes are worth, many of our largest companies are flush with cash and are quite unwilling to take the risk of “paying forward” the recovery by hiring more staff or giving existing staff substantial wage increases. What is even more troubling is that it is likely that many of these firms have these record cash accumulations as the result of austerity measures. While some firms most likely conducted layoffs in order to simply survive, others did so to maintain or increase profitability through cutbacks, outsourcing or automation – or simply limiting wage increases. Shareholders and executives are often rewarded for these actions, even though such actions on the whole damage potential revenue by limiting the customer base.

Henry Ford increased the wages of his workforce so that they could afford his car and was rewarded with profitability. If more firms were as smart as Mr. Ford, we would be out of this time of austerity.

The Government is not without options in this regard and now is the time to employ one of them. While companies that were struggling to get by, or who have closed, cannot afford to pay an unemployment surtax to fund their employees who require extended unemployment, there are those companies who certainly can. Therefore, in order to fund the next round of extended unemployment benefits, such a surtax should be levied and it should be high enough to cover not only those employees who have been laid off from that firm, they should be high enough to cover all such beneficiaries. Enacting such a levy will provide companies who are sitting on large cash balances with a strong incentive to rehire staff, so Unemployment Insurance really would be the way back to work.

The secondary effects of this are also significant. Newly rehired workers will spend more while those who have not been rehired will at least be able to maintain current spending. In both cases, the economy will be stimulated enough so that many firms that were struggling will have higher sales, as well as those firms which rehired former employees to avoid the higher tax. This virtuous cycle will continue to accelerate until the economy has righted itself.

There are those who would criticize this proposal as penalizing the profitable. They have no leg to stand on when these profits came at the cost of human suffering. Anyone who makes such an argument should be ashamed of themselves and deserve public scorn.

Does that mean reform is impossible? Of course not. The Center for Fiscal Equity proposes a tax reform solution with four major provisions, including a Value Added Tax, personal income surtaxes on the wealthiest families (to ensure period progressivity), employee contributions to Social Security and a VAT-like Net Business Receipts Tax (NBRT).

Of most concern to these proceedings is the NBRT, as it will include credits for an enhanced refundable Child Tax Credit to be paid to both workers and participants in adult education, unemployment insurance and other social welfare programs, all of which will be performed by both government, employers and the private sector (with or without government case management).

The NBRT is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

The NBRT will fund services to families, including Unemployment Insurance, education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.

The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public purposes.

Unemployment Insurance could be run like a severance pay arrangement, but with continued payments and remedial training administered by the former company in lieu of paying the NBRT (or even for a refundable credit). Beneficiaries would continue to receive the Child Tax Credit and insurance, either from their former company, the government or any training provider offering them retraining or basic education that they missed in the past.

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.