Tax Edge

By Robert Steere, Toolkit Staff Writer

The nation's unemployment rate, now at 10.2 percent, continues to rise, the economy continues to shed jobs, and the total number of jobs lost since the recession began in late 2007 has reached over seven million.

Against this backdrop, Congress has enacted a new extension of Emergency Unemployment Compensation (EUC) benefits. The Senate, on November 4,2009 completed its final vote on the Unemployment Compensation Extension Bill of 2009 (passed by the House as HR 3548) after amending it with its own Worker, Homeownership, and Business Assistance Act of 2009. The legislation was sent back to the House for final enactment after a unanimous, bipartisan 98-0 vote in the Senate. The House vote followed quickly, on November 5, with similar resounding bipartisan support in a 403-12 vote. The President signed the measure on November 6.

At a cost of $2.4 billion, the bill provides up to 14 additional weeks of EUC benefits to all unemployed workers throughout the country who exhaust their other unemployment benefits. In addition to the 14 weeks, it provides up to 6 more weeks of EUC benefits to unemployed workers in high unemployment states. The original legislation passed by the House authorized only 13 additional weeks of benefits, and only in high unemployment states, so this represents a much broader (and more costly) expansion of the EUC program.

This brings the total amount of potential EUC benefits for unemployed workers to 53 weeks--this is in addition to the 26 weeks of basic unemployment insurance (UI) benefits and 13 to 20 weeks of extended UI benefits. This means that in high unemployment states, unemployed workers could be eligible for up to 99 weeks (nearly two years) of unemployment benefits--more than doubling the maximum number of benefit weeks allowed prior to enactment of the first EUC program on June 30, 2008.

When signed into law by President Obama, the measure immediately benefitted several hundred thousand unemployed workers whose unemployment benefits have already been exhausted. By the end of 2009, estimates indicate that as many as one million unemployed workers would have run out of unemployment benefits had this new law not been enacted.

High unemployment states currently include the District of Columbia, Puerto Rico and 27 states: Alabama, Arizona, California, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, North Carolina, New York, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Washington, West Virginia and Wisconsin. More states could soon qualify because of rising unemployment rates.

The legislation also serves as the vehicle for extending the federal unemployment tax (FUTA) surtax through June 30, 2011, which will raise approximately $3 billion. This surtax, representing roughly 25% of FUTA tax collections, is routinely extended on an annual basis to cover the already exploding costs for unemployment benefits under both the original UI program and the EUC program.

While sponsors claim that the surtax offsets the cost of the new EUC benefits, the revenues are really already spoken for to cover existing obligations. Spending for unemployment compensation has more than doubled in 2009 because of rising unemployment and increased benefits, and that doesn't include the extra unemployment benefits authorized during 2009. In July, Congress had to authorize the transfer of an estimated $7.5 billion of general funds into the Unemployment Trust Fund to cover anticipated deficits in the fund for 2009. To suggest that the extension of the surtax covers the cost of new spending programs is preposterous.

Also included in the legislation is Congress' extension of the $8,000 tax credit for first-time homebuyers through April 2010, expanding it to include a $6,500 tax credit for homebuyers who have owned and lived in their current principal residence for five years or more. It also includes a provision to allow businesses with a net operating loss (NOL) in a tax year beginning or ending in either 2008 or 2009 to elect to carry back the NOL for up to five years. This is an extension and expansion of a special rule enacted as part of the 2009 stimulus package that was applicable only to small businesses. It allows businesses to claim refunds from the IRS for prior years' tax payments, which they can then invest in their ongoing business operations. Estimates of the first year cost of this provision total $33 billion, partially offset by increased revenues of $22.5 billion over the following nine years.

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Posted November 6, 2009.