Unemployment Benefits: Legislative Issues in the 108th Congress
CRS Report for Congress
Legislative Issues in the 108 Congress
Julie M. Whittaker
Analyst in Applied Microeconomics
Domestic Social Policy Division
Changes in the federal-state unemployment compensation (UC) system wereth
considered during the 108 Congress as legislation was introduced to reform and expand
the UC system. The 107th Congress enacted the Temporary Extended Unemployment
Compensation (TEUC) program (P.L. 107-147), which included a 13-week extension
of UC benefits, an $8 billion distribution to states, and 13 additional weeks of extended
UC benefits in high unemployment states. These temporary benefits were extended
twice during the 108th Congress, (P.L. 108-1 and P.L. 108-26) extending eligibilityth
through the week ending before December 31, 2003. The 108 Congress enacted
special TEUC benefits for displaced airline related workers, known as TEUC-A (P.L.th
108-11). The 108 Congress also enacted the SUTA Dumping Prevention Act of 2004
(P.L. 108-295). This report will not be updated.
The UC system, funded by both federal and state payroll taxes, pays benefits to
covered workers who become involuntarily unemployed for economic reasons and meet
state-established eligibility rules. Federal administration of UC is under the U.S.
Department of Labor (DOL). The UC system, established by the Social Security Act of
1935 (P.L. 74-271), operates in each state, the District of Columbia, Puerto Rico, and the
Virgin Islands. Federal law sets broad rules that the 53 state programs must follow and
levies a payroll tax on employers under the Federal Unemployment Tax Act (FUTA).
States set most of the specific rules for eligibility, benefits, and financing. States also
process the claims and pay the benefits. The UC system helps counter economic trends.
When the economy grows, UC revenue rises and program spending falls, thereby slowing
growth. In a recession, revenue falls and program spending rises, stimulating the
economy. Benefits totaling an estimated $45.3 billion were paid to an estimated 10.2
million UC claimants in all programs during FY2004.
Coverage. Federal law defines the jobs a state UC program must cover to avoid
its employers’ having to pay the maximum FUTA tax rate (6.2%) on the first $7,000 of
Congressional Research Service ˜ The Library of Congress
each employee’s annual pay. If a state UC program complies with all federal rules, the
net FUTA tax rate is only 0.8% for employers. A state must cover jobs in firms that pay
at least $1,500 in wages during any calendar quarter or employ at least one worker in each
of 20 weeks in the current or prior year. The FUTA tax is not paid by governmental or
nonprofit employers, but state programs must cover government workers and all workers
in nonprofits that employ at least four workers in each of 20 weeks in the current or prior
year (the states are reimbursed for the expenditures on federal workers by the federal
government). Table 1 lists the net FUTA tax rates and taxable wage ceilings from 1937
Table 1. Net FUTA Tax Rates and Taxable Wage Ceilings
CalendarNet TaxRateTaxable WageCalendarNet TaxRateTaxable Wage
1937-1939 0.3 none 1972 0.5 $4,200
1940-1960 0.3 $3,000 1973 0.58 4,200
1961 0.4 3 ,000 1974-1976 0.5 4 ,200
1962 0.8 3 ,000 1977 0.7 4 ,200
1963 0.65 3,000 1978-1982 0.7 6 ,000
1964-1969 0.4 3 ,000 1983-2007 0.8 7 ,000
1970-19710.53,0002008 & later0.67,000
Source: CRS compilation of Federal Unemployment Tax Act changes.
Benefits. To receive UC benefits, claimants must have enough recent earnings to
meet their state’s earnings requirements. States usually disqualify claimants who lost
their jobs because of inability to work or unavailability for work; voluntarily quitting
without good cause; discharge for job-related misconduct; refusal of suitable work
without good cause; or a labor dispute. Generally, benefits are based on wages in covered
work over a 12-month period. Most state benefit formulas replace half of a claimant’s
average weekly wage up to a weekly maximum. Weekly maximums in 2004 ranged from
$133 (Puerto Rico) to $508 (Massachusetts) and, in states that provide dependents’
allowances, up to $762 (Massachusetts). The average weekly benefit nationwide was
$262 for FY2004. Benefits are available for up to 26 weeks (30 weeks in Massachusetts
and Washington1). The average benefit duration in FY2004 was 16.4 weeks. A federal-
state extended benefits (EB) program offers benefits for an additional 13 to 20 weeks in
states with unemployment rates above certain levels.
Financing. The 0.8% FUTA tax funds federal and state administration, the federal
share of the EB program, loans to insolvent state UC accounts, and state employment
services. States levy their own payroll taxes to fund regular UC benefits and the state
share of the EB program. State ceilings on taxable wages in 2004 ranged from the $7,000
1 The maximum duration of UC benefits in Washington for laid-off workers who file new claims
on Apr. 4, 2004, or later was 26 weeks.
FUTA federal ceiling (11 states) up to $31,000 (Hawaii). State UC tax rates are
experience-rated where employers generating the fewest claimants have the lowest rates.
State tax rates averaged 1.8% of taxable wages and 0.6% of total wages in FY2003. State
UC revenue is deposited in U.S. Treasury accounts as federal revenue in the budget. State
accounts in the Unemployment Trust Fund (UTF) are credited for this revenue. These
credits allow Treasury to reimburse states for their benefit payments without annual
appropriations, but these reimbursements do count as federal budget outlays. If a state
trust fund account becomes insolvent, a state may borrow federal funds. State UTF
revenue exceeded outlays from FY1995 to FY2000, but outlays significantly exceeded
trust fund revenue in FY2001-FY2004 (Table 2).
Table 2. Revenue and Spending Associated With
Unemployment Compensation, FY1997-FY2004
(in billions of dollars)
1997 1998 1999 2000 2001 2002 2003 2004 b
UC revenue, total28.227.426.327.127.827.533.237.1
State UC taxes184.108.40.2060.720.820.9126.732.4
UC outlays, total23.722.924.523.731.053.857.445.32
a .02.02 a a 0.16 0.320.16
Emergency UC — — — — 7.911.04.13
Ad ministration 3 .5 3.5 3 .7 3.5 3 .6 3.7 4 .1 4.0
Source: U.S. Department of Labor, UI Outlook, January 1997-January 2004.
a. Less than $50 million.
b. Estimated for 2004.
Legislative Issues in the 108th Congress
Proposals to Extend Unemployment Compensation Benefits
The EB program provides for additional weeks of UC benefits up to a maximum of
13 weeks during periods of high unemployment, and up to a maximum of 20 weeks in
certain states with extremely high unemployment. EB benefits are funded half (50%) by
the federal UTF while states fund the other half (50%). The EB program is triggered
when a state’s insured unemployment rate (IUR2) or total unemployment rate (TUR3)
reaches certain levels. Congress has acted five times — in 1971, 1974, 1982, 1991, and
2 The IUR is the ratio of UC claimants divided by individuals in UC covered jobs.
3 The TUR is the ratio of unemployed workers to all workers in the labor market.
4 For more information on extended UC benefits, see CRS Report RL31277, Temporary
The Temporary Extended Unemployment Compensation (TEUC)
Program. The TEUC program was enacted on March 9, 2002, as part of the Job
Creation and Worker Assistance Act of 2002 (P.L. 107-147). The TEUC program
provided up to 13 weeks of federally funded benefits for unemployed workers who had
exhausted their regular UC benefits. In addition, up to an additional 13 weeks were
provided in certain high unemployment states that had an IUR of 4% or higher and met
certain other criteria (TEUC-X). P.L. 107-147 also provided for a one-time $8 billion
distribution to states known as Reed Act funds.5 TEUC benefits were payable to
individuals who, in addition to meeting other applicable state UC law provisions: (1) filed
an initial claim that was in effect during or after the week of March 15, 2001; (2)
exhausted regular benefits or had no benefit rights due to the expiration of a benefit year
ending during or after the week of March 15, 2001; (3) had no rights to regular or
extended benefits under any state or federal law; and, (4) were not receiving benefits
under Canadian law.6 In addition, individuals must also have had 20 weeks of full-time7
work, or the equivalent in wages, in their base periods.
These temporary benefits ended on December 28, 2002; however, the 108th Congress
extended TEUC twice (through P.L. 108-18 and P.L. 108-26). Thus, TEUC eligibility was
possible through the week ending before December 31, 2003, and TEUC benefits were
paid through the week of April 3, 2004.
A number of bills were introduced in the 108th Congress to further extend and
expand the TEUC program. While some bills were superceded by P.L. 108-1, others went
beyond the provisions of P.L. 108-1. Some would have extended the program beyond the
end of May 2003; others would have provided for additional weeks of benefits for
unemployed who have exhausted their benefits; some would have temporarily established
alternative triggers for qualifying states as high-unemployment for the TEUC-X program.
In addition, some bills would have also temporarily expanded regular UC eligibility in all
states to include part-time and low-wage unemployed workers. After the enactment of
P.L. 108-26 on May 28, 2003, several bills were introduced to further extend and expand
On February 4, 2004, the House passed an amendment to the Community Services
Block Grant program reauthorization bill, H.R. 3030 (H.Amdt. 462), administered by the
Department of Health and Human Services, that would have provided a six-month
Programs to Extend Unemployment Compensation, by Jennifer E. Lake.
5 For more information on the Reed Act, see CRS Report RS22006, The Unemployment Tax Fund
and Reed Act Distributions, by Julie M. Whittaker.
6 DOL, Unemployment Insurance Program Letter No. 17-02.
7 A worker’s benefit rights are determined on the basis of his/her employment in covered work
over a prior period, called the base period. In most states, an individual’s base period is a four-
quarter, 52-week period that depends on when the worker first applies for benefits or first begins
drawing benefits. However, several states lengthen the base period under specified conditions.
8 See CRS Report RS21397, Unemployment Benefits: Temporary Extended Unemployment
Compensation (TEUC) Program, by Celinda Franco for additional details.
extension of TEUC benefits. It was received in the Senate and referred to the Committee
on Health, Education, Labor, and Pensions. No further action was taken.
Benefits for Certain Workers Unemployed by Terrorist Attack and The
War on Iraq. In response to the unemployment of airline and airline related workers
resulting from the September 11, 2001 terrorist attacks, subsequent security measures
taken, and the war with Iraq, P.L. 108-11, was signed into law on April 16, 2003. This
temporary program provided up to 39 weeks of extended benefits to qualified individuals
whose regular UC claim is based in whole, or in part, on qualifying employment with a
certified air carrier, at a facility in an airport, or with a producer or supplier of products9
or services for an air carrier. The program had two tiers of benefits, known as TEUC-A
and TEUC-AX. These programs were authorized through the week ending before
December 29, 2003, and there was a phaseout period for individuals with an existing
claim that ran through the week ending before December 26, 2004. H.R. 3405, which did
not pass either house, would have made employees of foreign air carriers eligible for
TEUC-A and TEUC-AX.
Other Proposals in Unemployment Compensation
Tax Avoidance and Other Abuses of the UC system. In 2004, the
Administration proposed to require states to amend their state unemployment tax laws to
deter schemes to avoid paying UC taxes through such means as transfers from businesses
to shell companies (commonly referred to as State Unemployment Tax Acts, or SUTA,
dumping) and to reduce UC benefit overpayments and fraud and abuse.
On August 28, 2004, the SUTA Dumping Prevention Act of 2004 (P.L. 108-295)
was enacted. The law amended Title III of the Social Security Act (SSA), requiring the
states to amend their UC laws to provide substantial penalties for SUTA Dumping
Activities. It directed the Secretary of Labor to study and report on implementation of the
requirement. P.L. 108-295 also revised Title IV part D of the SSA, directing the Secretary
of Health and Human Services to disclose information on individuals and their employers
in the National Directory of New Hires to a state agency for purposes of UC
administration. The Secretary is to provide states access to the directory of the names and
Social Security account numbers for faster detection of individuals who have gone back
to work, but who continue to collect UC benefits.
Personal Reemployment Accounts. The Bush Administration initially
proposed Personal Reemployment Accounts10 (PRAs) in its 2003 economic stimulus
package. On January 29, 2003, H.R. 444, the Back to Work Incentive Act was
introduced. A $3.6 billion proposal, this would have amended the Workforce Investment
Act (WIA) of 1998 and authorized the Secretary of Labor to establish a personal
reemployment accounts (PRAs) grant program. A voucher program, it would have made
9 For more detailed information, see U.S. Department of Labor, Special Temporary Extended
Unemployment Compensation for Displaced Airline Related Workers, at
[ ht t p: / / www.wor kf or cesecur i t y.dol et a.gov/ unempl oy/ f a ct sheet t e uc_a.asp] .
10 For more information on PRAs and subsequent activity in the 108th Congress, see CRS Report
RL31825, Personal Reemployment Accounts: Results from Bonus Experiments, by Linda Levine
and Ann Lordeman.
individuals eligible for a PRA who (1) were identified as likely to exhaust UC benefits
and in need of job search assistance to make a successful transition to new employment;
(2) were receiving regular UC under any federal or state UC program administered by the
state; and, (3) were eligible for at least 20 weeks of regular UC benefits. It would have
allowed PRAs to be used to purchase intensive services, training services, or supportive
services through the existing Employment Service’s one-stop delivery system on a
fee-for-service basis, or through other providers. It would have provided cash
reemployment bonuses consisting of 60% of the balance of their PRAs, to recipients who
obtained full-time employment before the end of the 13th week of unemployment for
which UC benefits were paid, and the remaining 40% if recipients remained in those jobs
for six months.
On March 20, 2004, H.R. 4444, Worker Reemployment Accounts Act of 2004, was
introduced. The bill amended WIA to authorize the Secretary of Labor to establish and
implement a demonstration project on PRAs. H.R. 444 was amended by the Committee
on Education and the Workforce by substituting the language of H.R. 4444. Also inserted
in H.R. 444, as passed by the House, were the texts of H.R. 4409 (Teacher Training
Enhancement Act) and H.R. 4411 (Priorities for Graduate Studies Act). On June 3, 2004,
the House passed H.R. 444 as amended by H.R. 4444. The bill was received in the Senate
and referred to the Committee on Health, Education, Labor, and Pensions. No further
action was taken.
Expansion of Eligibility. H.R. 1802, introduced on April 11, 2003, would have
required states to expand eligibility for UC benefits to workers seeking part-time work
and to use an individual’s most recent earnings in determining UC eligibility (often
referred to as the alternate base period), which would have made it easier for certain new
or low-wage workers to qualify for UC benefits. States would have been prohibited from
denying UC benefits to individuals solely because they were seasonal workers, because
they left employment due to sexual harassment, because of loss of adequate child care for
children under age 13, or because the individual was a victim of domestic violence. The
bill expanded the UC tax wage base from the first $7,000 of employee wages to the
taxable wage base used for Social Security taxes ($87,000 in 2003), and lowered the gross
FUTA tax from 6.2% to 5.59%. No action on the bill was taken.
H.R. 2188 (in addition to extending and expanding TEUC ) would have provided
several reforms to the UC system. The bill would have lowered the permanent EB
program’s insured unemployment rate (IUR) triggers from 5% to 4%, provided for
variable earnings to be credited to state UC trust fund accounts depending on the state’s
ability to meet certain funding goals, and provided interest-free advances to state UC
accounts only to states which met certain funding goals. The bill would have also
provided a two-year suspension of federal income tax on UC benefits for taxable years
beginning after December 31, 2002, and permitted states to collect FUTA taxes from
employers in the state instead of FUTA taxes being sent to the Secretary of Labor for
taxable years beginning after December 31, 2003. No action on the bill was taken.