Congress Should Reject ‘Automatic Stimulus’ Plans

W ith economists anticipating a recession in 2023, Congress may soon revisit its regular practice of expanding unemployment benefits to aid growing numbers of laid-off workers and stimulate a sagging economy.

In recent decades, these additional federal benefits — normally paid after unemployed workers exhaust six months of state unemployment checks — have been tailored to suit current economic conditions. For example, Congress offered modest additional benefits after a relatively mild 2001 recession, while record expansions accompanied the Great Recession and the pandemic. In each case, benefit expansions were authorized, and sometimes extended, on a temporary basis — and then expired as conditions improved.

But for some liberal lawmakers in Washington that’s not enough because, when it comes to federal benefits, it’s never enough.

Congressional Democrats have a plan to replace temporary expansions with permanent, automatic benefit increases, marking a major departure from decades of federal policy in two important ways: First, instead of depending on Congress to act, their plan would automatically pay expanded benefits during future downturns. Second, the conditions for when those benefits would be paid are so loose that they can be expected to result in far greater future benefit payments, at enormous new costs to taxpayers and ultimately workers.

In a new AEI report on automatic stimulus, I review the downsides of that plan, and why Congress should reject it. I compare actual benefits paid under temporary benefit expansions during the past two recessions with what would have been paid under this plan, had it been in effect. In each case, the answer is straightforward: Under the automatic stimulus, far more benefits would have been paid at far greater cost to taxpayers.

During and after the Great Recession, for example — when extended federal benefits were temporarily paid across a record five and a half years nationwide — the automatic stimulus would have added almost two more years of benefits in all states, regardless of significant declines in their unemployment rates. In many states, benefit checks would have flowed for even longer. For example, in California, federal unemployment checks would have been available for over nine years — almost four years longer than contemporary lawmakers thought appropriate. In Washington, D.C., federal benefits would have almost never shut off, being paid in all but three months between 2007 and 2020.

The same goes for benefits during the pandemic. Instead of ending in September 2021, as even President Biden argued made sense, federal extended benefits would have remained available in all states until January 2022 — despite growing labor shortages that caused dozens of red states to stop paying federal benefits altogether in mid 2021. In many blue states — where pandemic lockdowns, along with high taxes and regulation, contributed to elevated unemployment — federal checks would have kept flowing well into 2022. In California, for example, federal extended benefit checks would have remained available in July 2022, even as the state’s unemployment rate reached a record low and job openings significantly outnumbered the unemployed.

Even today, the plan would mandate unemployment-bonus payments — one of the most costly and controversial pandemic policies — in all states, again regardless of their unemployment rate. That’s because it ties those weekly bonuses to the federal government’s declaration of a public-health emergency, which remains in effect even though President Biden declared in September that the pandemic is over. As a result, the unemployment checks paid to 1.3 million current recipients (and probably far more, since more people would choose to claim checks with these significantly enlarged benefits) would match their paychecks from returning to work, discouraging re-employment.

Unsurprisingly, the authors of this plan are silent on its cost, not to mention how high taxes would need to be raised to pay for it.

There’s also no guarantee that — if the automatic stimulus was enacted now — future lawmakers wouldn’t layer more temporary benefit increases on top to show voters that they are “doing something” to help the unemployed. But we can be sure that permanent benefit expansions would require unprecedented increases in payroll taxes, which economists agree cut workers’ paychecks. As Americans have witnessed from record pandemic spending increases triggering 40-year-high inflation, there is no free lunch, and workers ultimately bear the cost of such largesse.

If another recession comes, Congress should reject permanent automatic-stimulus plans and instead design temporary benefit expansions that better meet the needs of current workers — and then come to an end.