With news of a federal government deal on unemployment benefits in the offing, Democrat Louisiana Gov. John Bel Edwards went to the liberal playbook to pull out a classic tactic to cover up for his mistakes.
Congressional House Democrats and Senate Republicans with GOP Pres. Donald Trump have agreed in principle to slather on more taxpayer largesse soon after the extra $600 a week in unemployment benefits expire at the end of this week. Currently, that means in Louisiana someone who asserts he is looking for work – which by the numbers includes people who weren’t until the bonus became law – can make as much as $847 a week for idleness, which is 92 percent of the state’s median household income for 2018.
The current approach theoretically, as well as anecdotally, has a tremendous moral hazard problem of essentially creating a universal basic income at a relatively high level. This creates a disincentive to work that has caused employers to shut down permanently as well as spawned resentment among those still working.
While one recent work claims that such disincentives are basically zero, that study covered only a portion of employers and the workforce, and acknowledges that it can’t control for collusion between employers and employees to arrange work (or its absence) to draw the largest possible combination of benefits and salary nor whether employers properly report and states demand genuine compliance with rules to have laid off employers return to work, both of which would underestimate the disincentive effect. The counterintuitive result also doesn’t address or apply to how expanded and extended benefits affect the woodwork effect of drawing in discouraged workers likely many of whom had exhausted existing benefits or never intended to work otherwise.
Insofar as a state economy goes, even as pumping in tax dollars creates a stimulative economic effect that also reaps some lesser tax revenues, the depressive effect likely has a net negative impact. But of greater importance, this more quickly drains the unemployment insurance fund kept with the federal government.
The proposal looks like it will settle for the next couple of months at $200 extra per week, then go to 70 percent of previous pay. Keep in mind that the $600 represented an average of 134 percent previous pay, and the typical range of states prior to this was between 30 and 50 percent. To get states up to snuff in calculating that, $2 billion will be thrown their way although they can petition to continue the blanket $200 past September instead.
So, while a lower number would reduce both the overstaying and woodwork incentives, these still would be out there in reduced fashion, fostering an artificially higher draw on Louisiana’s fund that officials recently calculated would run out by the end of September. That target date now seems optimistic, and the drawdown will go quicker and deeper than anticipated.
By law, in response to a declining fund balance, already Louisiana should have dropped maximum benefits from $247 to $221 in order to slow fund depletion. To slow it further, the amount upon which the tax is levied would rise from $7,000 to $8,500, creating a stealth tax increase on employers. But this first requires a meeting of the Revenue Estimating Conference, which must do this no earlier than Sep. 5 but take action no later than Sep. 30. At that time, it can declare the existing balance below the cutoff to drop the maximum benefit and set that for next year as well.
However, another consequence looms upon that declaration. Statute also requires when the balance falls below $100 million the imposition of a “solvency” tax of up to 30 percent more, in six months until a sufficient positive balance exists.
Edwards, in partnership with the Legislature, could have avoided this. The initial round of $1.8 billion Louisiana receive in emergency money from the federal government has as a permitted use shoring up unemployment benefit funds. But he made no attempt to utilize the largesse thins manner, instead sending the Legislature a budget that spent it all on current operations that pushed off the day of reckoning.
With that reckoning about to become more intensified – and payback without interest on hundreds of millions of dollars to expire just a couple of days after 2022 fall elections where Edwards may try to extend his political shelf life by challenging Republican Sen. John Kennedy, making this a perfect campaign issue with which to club Edwards over the head – Edwards reached into the playbook. He sent to the state’s congressional delegation – all save one Republicans – a plea to have the federal government bail Louisiana out from its own profligacy.
We’ve seen this ad naseum from the left: create a problem through big government, then ask for even more big government to solve allegedly for it. Edwards failed to advocate for right-sizing government – which in terms of state effort grew by $600 million from budgeted fiscal year 2020 – while issuing orders too draconian for the science involved regarding suppression of the Wuhan coronavirus pandemic that overly depressed the economy while boosting unemployment payouts. Now to make up for his erroneous policies, he wants taxpayers across the country and in the state (both in federal tax payments/deficit spending and in payroll taxes paid) to fork over their money.
No doubt other Democrats who head up state governments will ask the same, and perhaps even a Republican here and there will join in. Congress should ignore Edwards and them. They didn’t pare or eliminate spending wastefully on items such as (in Louisiana’s case) Medicaid expansion that paid for people who already had health care insurance or who didn’t qualify, the Earned Income Tax Credit that discouraged more productive work, or paying people to make movies. They should pay the policy and ballot box prices and not evade responsibility for their mistakes, forcing them to let fiscal wisdom prevail through deflating government as the proper response.