CAP en Español
Small CAP Banner

Help When It’s Needed: Economic Downturn Requires Targeted Action

SOURCE: AP/Mark Lennihan

People wait in line to enter a job fair on Wednesday, April 16, 2008 in New York. The number of newly laid off workers filing claims for unemployment benefits increased by 12,000 last week, providing further evidence of strains in the labor market.

    PRINT:
  • print icon
  • SHARE:
  • Facebook icon
  • Twitter icon
  • Share on Google+
  • Email icon

Congress this month needs to pass a supplemental spending bill to fund the Iraq war through the remainder of the Bush presidency—a necessary step that also offers Congress a chance to act on emergency domestic spending measures at home to help many Americans cope with the current economic downturn. A variety of economic indicators illustrate that deeper economic problems await us after seven years of failed conservative economic policies.

Employment declined by 80,000 jobs in March 2008—the largest loss since March 2003. Over the past three months, the economy lost 232,000 jobs. This follows seven years in which most working Americans have suffered through tepid job creation, rising debt, and stagnant wages. Factoring in inflation, hourly wages were only 2.3 percent higher in February 2008 than in March 2001, and weekly wages were only 1.1 percent higher over the same period.

Congress and President Bush must exhibit real leadership to address the needs of American workers and families who today bear the brunt of the current economic downturn while slipping so much further behind wealthy Americans who profited handsomely over the past seven years. Here’s what a sensibly crafted legislative package to help those most in need would accomplish:

  • Increased unemployment benefits and low-income energy assistance would get money quickly into the hands of people who need it the most
  • Increased spending on Federal Medical Assistance Percentages programs would help preserve health coverage, jobs, and state financial stability as more and more state governments grapple with declining tax revenues
  • Increased infrastructure spending would spur job growth by jumpstarting immediately needed repairs and help shift to a low-carbon economy, both of which collectively would provide both short- and long-term economic benefits.

Unemployment Insurance

We believe that any new economic package should include an extension of unemployment benefits. Jobless workers receiving Emergency Extended Unemployment Compensation amid a widespread economic downturn would have the extra money and time necessary to find new work. They would also immediately spend their disbursements to cover their basic living expenses, therefore directly feeding those funds back into their communities and the national economy more generally, helping other low- and moderate-income workers keep their jobs.

An effective unemployment insurance proposal should adopt the provisions outlined in H.R. 5749. That bill seeks to fund all states so that they can provide up to 13 weeks of Emergency Extended Unemployment Insurance to those who have exhausted their regular unemployment benefits. In those states with higher levels of unemployment, beneficiaries could receive an additional 13 weeks of compensation (or a total of 26 weeks of extended unemployment insurance).

Energy Assistance

Many households that are behind on utility payments face having their energy shut off amid escalating prices—and this is occurring after federal assistance to help those in need was sorely lacking over the past winter. Today, Low Income Home Energy Assistance Program grants cover a paltry 35 percent of heating and fuel costs.

Policies to buffer vulnerable consumers from escalating home energy bills should be enacted and implemented rapidly. We advocate fully funding LIHEAP grants and home weatherization assistance to the levels authorized by the Energy Independence and Security Act.

Federal Medical Assistance Percentages Programs

Increasing the federal share of Medicaid costs through Federal Medical Assistance Percentages programs will help those states and their citizens most directly affected by the immediate economic consequences of a recession. A new Kaiser Family Foundation report concludes that a 1 percentage-point increase in unemployment results in 1.1 million Americans losing health coverage.

At the same time, state general fund revenue would decline by 3 percent to 4 percent as the economic downturn takes hold. An increase in the number of uninsured will result in greater uncompensated care and fewer health care jobs. Higher uninsurance also creates a vicious circle of higher coverage costs. And more uninsured also increase the so-called “hidden tax,” or the cost of uncompensated care that raises premiums for workers with health insurance.

Given wage stagnation, this increase could cause people and companies offering health insurance to drop employer coverage. And as more people lose jobs and income, more people qualify for Medicaid. To ensure that increased Federal Medical Assistance Percentages aid is targeted to individuals and states suffering the most from the economic downturn, states could get this fixed, time-limited increase in federal funding only if they maintain existing Medicaid eligibility levels.

Expanded unemployment insurance is vitally important because the current economic downturn is exhibiting a long-term unemployment rate of 18.5 percent, which is nearly twice the percentage that would be expected based on historical patterns. The Congressional Budget Office estimates that in 2008-2009, 3.2 million jobless workers will exhaust regular unemployment benefits and collect extended unemployment insurance under the provisions of H.R. 5749.

Green Jobs

Despite the economic hardships befalling many American families, the rolling economic downturn offers Congress at least one opportunity—the potential to enact a “green jobs” program tailored to simultaneously address the housing market crisis, job loss in the construction and manufacturing sectors, and skyrocketing energy costs.

Such green legislation would:

  • Extend the renewable energy tax credits
  • Fund critical mass transit programs currently bottlenecked for lack of federal dollars
  • Match state funds for programs providing energy efficiency and green retrofits to public buildings
  • Launch a series of “smart grid” pilot projects
  • Ensure a qualified workforce through expanded job training programs for emerging “green collar jobs”

New legislation that supports a combination of these programs would be a wise investment, with the potential for immediate job creation, lower energy costs for consumers, improved infrastructure, and a down payment on our transition to the low-carbon economy of the future. This is a timely set of measures that would help many Americans help themselves and their country cope with the immediate economic downturn and longer term economic renewal.

Other Domestic Spending Measures

Other progressive economic policy proposals are also currently being considered by Congress independent of the supplemental defense spending bill. These separate legislative measures would help tame the U.S. housing crisis and rising food costs, which in turn would help many Americans handle the financial stresses that always accompany an economic downturn. These proposals, too, should pass Congress swiftly for the president’s immediate signature.

Housing

A separate housing package moving to the House floor includes two principal pieces of legislation. The first bill, H.R. 5818, the Neighborhood Stabilization Act of 2008, authored by Rep. Maxine Waters (D-CA), would authorize crucial funding for neighborhood stabilization efforts to cope with the foreclosure crisis. The second, the American Housing Rescue and Foreclosure Prevention Act, authored by House Financial Services Committee Chairman Barney Frank (D-MA), is important legislation to provide mortgage refinancing assistance to allow families to stay in their homes, protect neighborhoods, and help stabilize the housing market.

Rep. Frank’s bill also includes legislation to reform the prudential and mission oversight of Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks. And it includes legislation to begin long-needed efforts to modernize the Federal Housing Administration. The Neighborhood Stabilization Act is moving separately but of equal importance. Together these two bills are essential pieces of an effort to begin economic recovery.

We also urge consideration of further provisions to authorize the Federal Reserve to conduct auctions to facilitate the bulk transfer of mortgage assets to new lenders who can more easily restructure more of the loans. And we urge consideration of narrowly targeted legislation to authorize judicially mandated loan modifications. These components are complementary to the essential FHA credit enhancement and neighborhood stabilization pieces. Together they would provide the most effective set of tools to prevent unnecessary foreclosures, prevent the most extreme freefall of home values, restore liquidity to the credit markets, and ameliorate the economic downturn.

Food Stamps

In the last year, overall U.S. food prices have risen by 4.5 percent, and 2007 saw the greatest increase in food prices since 1990. Prices for some key basic food staples have risen far more. Since March 2007, for example, milk prices have increased by 13 percent, cheese by 12.5 percent, cereals and bakery products by 8 percent, and eggs by 30 percent.

These price increases have the most severe impact on low-income households, for whom food is a larger share of family budgets. Food stamp benefits currently average only $1.05 per person per meal. While the pending Farm Bill contains important permanent improvements in the Food Stamp Program, a temporary increase in Food Stamp benefits would provide immediate help for families facing rapidly escalating food prices.

Action When it’s Needed

All of these legislative measures need to be taken by Congress in the coming months as part of sound domestic policymaking so that low- and moderate-income Americans can prepare for the economic dislocations already evident in our rapidly slowing economy, and so that we as a nation can begin to rebuild our economy after seven years of mismanagement by the Bush administration. President Bush’s arguments against attaching some of these measures to the supplemental defense spending bill ring hollow. The need for the swift solutions and enactment of these measures is self-evident.

For more details on our economic policy proposals, please go to the Economy page of our website.

To speak with our experts on this topic, please contact:

Print: Katie Peters (economy, education, poverty, Half in Ten Education Fund, women's issues)
202.741.6285 or kpeters@americanprogress.org

Print: Tom Caiazza (foreign policy, health care, LGBT issues, gun-violence prevention, the National Security Agency)
202.481.7141 or tcaiazza@americanprogress.org

Print: Chelsea Kiene (energy and environment, Legal Progress, higher education)
202.478.5328 or ckiene@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Rachel Rosen
202.483.2675 or rrosen@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org