Washington Insider-- Monday

Prolonged Battle Over Unemployment Benefits

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Hurdle For EPA Nominee Is Getting Higher

Earlier this week, Sen. Joni Ernst, R-Iowa, said she would not back the nomination of Doug Benevento to be deputy EPA administrator until EPA until EPA says how it will handle the 52 retroactive small refinery exemptions (SREs) that it has received for prior compliance years going back to 2011.

Now Sen. Ted Cruz, R-Texas, said he will not let Benevento's nomination move forward until EPA provides relief for refiners on Renewable Identification Numbers (RINs).

"The price of RINs has more than quadrupled since the beginning of the year, and now sits around $0.50,” Cruz said in a statement. “These sky-high prices coupled with the energy and economic crises caused by the coronavirus pandemic have wreaked havoc on America's small refineries and blue-collar workers.”

Until EPA Administrator Andrew Wheeler “delivers on his promise to take actions that help bring stability to the price of RINs, I will not allow this nomination to move forward,” Cruz concluded.

Trump to Meet With Mexican President This Week

President Donald Trump plans to meet with his Mexican counterpart Andres Manuel Lopez Obrador Wednesday at the White House. The two will celebrate the U.S.-Mexico-Canada Agreement (USMCA) taking effect.

Trump said in a statement he would discuss “trade, health, and other issues central to our regional prosperity and security” with Lopez Obrador on July 8. The Canadian government has not confirmed whether Prime Minister Justin Trudeau will join the other two North American leaders in Washington.

Meanwhile, as USMCA took effect last week, the Office of the U.S. Trade Representative (USTR) and the Labor Department detailed the names of the six Americans with backgrounds on labor issues who will serve on the agreement's “rapid response labor mechanism” to investigate alleged labor rights violations.

USTR also announced the names of 10 individuals who will sit on dispute settlement panels to hear other disputes brought by governments under the pact. Those include U.S. Trade Representative Bob Lighthizer's close ally and former USTR general counsel Steven Vaughn.

Washington Insider: Prolonged Battle Over Unemployment Benefits

The Hill reported last week that the generous expansion to unemployment insurance Congress passed to keep Americans afloat during the COVID-19 crisis is due to run out at the end of the month, “potentially leaving millions of people struggling.”

Unemployment remained at 11.1% in June, worse than it was at the height of the Great Recession in 2009. At the heart of the discussion is a recent federal policy that adds a flat $600 to every weekly unemployment check through the end of July.

“It would be unconscionable for Republicans to allow supercharged unemployment benefits to expire with the unemployment rate above 11% and 2.3 million new unemployment claims just this week,” Senate Finance Committee Ranking Member Ron Wyden D-Ore., said Thursday.

Republicans, however, argue the $600 benefit has at best outlived its usefulness and may have been hampering the recovery all along.

The Democratic-controlled House passed the HEROES Act in May, which would extend the extra unemployment payment for another six months, along with other measures such as aid to state and local governments.

The GOP-controlled Senate, however, said the $3 trillion legislation overshot the mark. The unexpectedly strong June jobs report, which saw a record one month increase of 4.3 million jobs, may convince them less help is necessary. Negotiations weren't even set to begin until after the July recess, leaving four weeks for the two chambers to hammer out and pass an agreement.

The debate over the $600 figure gets at the complexity of a patchwork system of unemployment benefits across all 50 states. It also highlights the vastly uncertain path that the economy faces in the coming months, a path closely linked to efforts to contain the coronavirus.

Congress settled on an extra $600 in unemployment benefits in the CARES Act passed in March because it filled the gap between the average weekly unemployment insurance payout across the country and the average salary, while allowing states to more quickly dole out the aid.

Most unemployment insurance is designed to cover just a fraction of a worker's salary as an incentive for people to find new work quickly. But the state-to-state variation in benefits makes the design of an equitable intervention difficult. The $600 addition isn't adjusted for inflation or previous wage levels, meaning that some people are earning more on unemployment than they were at work.

“Despite mounting evidence of the problems these extra payments are causing, the House passed a bill recently to extend them, not just for a month or two, but for another six months, through January 2021,” Senate Finance Committee Chairman Chuck Grassley R-Iowa, said at a contentious hearing on unemployment last month.

The nonpartisan Congressional Budget Office estimated that if the policy were extended for six months, the overall economy would be better through the end of the year, but by 2021 both the economy and unemployment could be worse, as people separated from the labor market took longer to find jobs. Conservative groups have amplified the message.

But in the same hearing, Wyden said Congress had little choice because unemployment programs differ so widely. A more precise policy to block recipients from earning more than their previous salaries, he said, would be impossible to implement quickly. Local unemployment offices contacted by The Hill said “they might take as much as six to nine months to set up a wage replacement program.”

A Grassley spokesperson didn't offer specific alternatives, but pointed to the strong June jobs report and noted that further coronavirus relief legislation would need to address any ongoing problems “in an effective manner and encourage further job growth.”

Still, economists say that the jobs report also points to an extended unemployment crisis. And, CBO last week projected that unemployment would remain above 10% by year's end and wouldn't fall back below 5 percent until 2025, The Hill said.

Left-leaning economists are also warning that a steep shortfall in state and local budgets will lead to a tsunami of new layoffs in the new fiscal year, which for states began this week.

“Without massive additional federal aid, austerity is certainly on the horizon for state and local governments, because state and local tax revenues are plummeting,” wrote Elise Gould and Heidi Shierholz, economists at the Economic Policy Institute. “This means losses in public sector services, including cuts to school budgets at a time when schools are already struggling with the increased need for creative options for students,” they added.

One idea that Republicans may embrace is leaving some level of expanded unemployment in place, but letting people keep some of the extra benefits if they get a job, but the final package remains far from certain, The Hill said.

So, we will see. The enormous cost of the proposed interventions is increasingly unsettling to politicians, but so is the prospect of severe and prolonged high unemployment. Certainly, this is a debate producers should watch closely as it proceeds, Washington Insider believes.

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