Proposals for a new unemployment benefit program, to replace the $600-a-week scheme that has drawn to a close, have been revealed as plans for the second coronavirus stimulus package continue to emerge.
Details of the renewed assistance for those put out of work by the COVID-19 crisis form part of the HEALS Act - standing for Health, Economic Assistance, Liability Protection and Schools - put forward by Republican Senators on Monday.
The news that further help is on the horizon can’t come a minute too soon for the 25 million Americans (opens in new tab) who have seen the unemployment benefit they receive plummet as the original support program lapses - in some states, the loss of the weekly $600 payment equates to a 71% overnight reduction in income (opens in new tab).
However, what is on the table is nowhere near as generous as the first incarnation of enhanced assistance. So what financial help can the unemployed expect going forward?
What is the new unemployment benefit proposal?
Under the new plans, the $600-a-week payment that has been made on top of the usual state unemployment benefits since the end of March will be replaced by a reduced weekly benefit of $200, paid through October 5 this year. Then, under the Senate bill, the plan is to increase the payments so that, when combined with the state unemployment payment, it would replace 70% of lost wages, through to the end of the year.
How does this compare with the old program?
With unemployment insurance benefits replacing on average just under $400 at the start of the coronavirus crisis, the enhanced $600 program had brought the combined federal and state package for those out of work to almost $1,000 per week, which is near the U.S. average weekly wage.
Since its expiry, jobless Americans are back to relying on whatever unemployment compensation their state normally pays out (opens in new tab). The new scheme should help boost jobless income once again, but according to CNBC (opens in new tab), the typical unemployment payment will be around $521 a week in combined benefits, which it says is a 43% reduction compared with the original benefit enhancement. For some, however, the decrease will be even more severe.
Why are unemployment benefits being cut?
With no end to the COVID-19 crisis in sight and a recovery in the job market seemingly similarly distant, it has been hard for decision-makers to argue against the case for seeking a replacement unemployment benefit program. However, the apparent urgency of the matter has not prevented the usual procrastination that occurs over such matters.
For their part, Democrats have pushed for extending the unemployment benefit further, a motion that was included in the HEROES Act that was passed in the House of Representatives in May. On the other side, some Republicans believed the $600 weekly supplement was deterring Americans from getting back to work and so have pushed for future assistance to take a less generous form.
"We have learned what we knew at the time," Senator Chuck Grassley said on Monday, "that when you pay people more not to work than they would get working, what do you expect? People will not work. And what this country needs is more workers."
Frustratingly for those workers affected, further discussions and arguments undoubtedly await, before arrangements must be made to put any final decision in place.
How has the unemployment program helped?
Alongside the coronavirus stimulus check - of which details of a second payment (opens in new tab) have just emerged - the additional unemployment benefit has been helping prop up the finances of millions of Americans who have lost jobs in record numbers and seen their incomes disrupted (opens in new tab) by the COVID-19 outbreak. According to research (opens in new tab) by JPMorgan Chase, about one in five Americans received jobless aid in June, five times more than the previous highest recipiency rate recorded.
Many households will have necessarily used the extra cash to pay for everyday grocery bills or pay off debt (opens in new tab), perhaps helping to prevent the need to take out a personal loan (opens in new tab) or, at worst, a payday loan (opens in new tab).
At the same time, the additional money has been providing welcome support to the US economy at large. Normally, spending among unemployment recipients falls about 7% in response to job loss because typical benefits replace only a fraction of the earnings that are lost. In the last few months, however, JPMorgan found that out-of-work Americans actually increased their spending beyond pre-unemployment levels once they began receiving benefits.
"The fact that spending by benefit recipients rose during the pandemic instead of falling, like in normal times, suggests that the $600 supplement has helped households to smooth consumption and stabilized aggregate demand," the report said.
What can out-of-work Americans do?
For most Americans recently put out of work, the wait for any new assistance to come into force, and the likely reduction in the help they can expect to receive going forward, will provide major causes for concern. The only step that can be reasonably taken to try and ease the worry is to make sure their finances are in as good a shape as they can be.
Budgeting carefully and not spending beyond your means are both a must, as is claiming for all the benefits that you can. As well as filing for unemployment benefits (opens in new tab), be sure that you have received your coronavirus stimulus check, which can be worth up to $1,200 - millions of low-income Americans were recently said to be at risk of missing out on their payment (opens in new tab).
Tax refunds are another potential source of invaluable income, with the average being given back to taxpayers this year currently around $2,899 (opens in new tab). Given the tax deadline has now passed (opens in new tab), hopefully you will have already made contact with the IRS anyway. If, for whatever reason, you haven’t, it is vital to do so now, to avoid the accumulation of significant fines and penalties that you can probably ill-afford - filing online using the best tax software (opens in new tab) is usually the fastest way to get the job done, and will set the ball rolling for you to receive back any money from the IRS that you might be owed.
If you’re a homeowner, and already struggling with your mortgage payments, don’t be afraid to get in touch with your mortgage company. The best mortgage lenders (opens in new tab) have been providing additional payment flexibility (opens in new tab) to borrowers throughout the pandemic, while foreclosures and evictions are currently banned (opens in new tab). If you’ve had your current mortgage for a while, also consider approaching the best refinance mortgage companies (opens in new tab) to see if you can save money by switching to a new mortgage deal (opens in new tab) and taking advantage of record low mortgage rates.
Inevitably, debt will already be an issue for many, and will likely become an even greater problem now the extra unemployment benefits have ended. Credit card borrowers experiencing difficulties in keeping up with their payments should contact their credit card provider to seek assistance (opens in new tab) if it is needed. Similar advice is valid if you’re struggling to keep up with payments on a personal loan or auto loan (opens in new tab).
Importantly, if you feel you need to borrow money to bridge a financial gap, a credit card or personal loan always remains a far better alternative to getting a payday loan (opens in new tab), and even more so now that certain safeguards have been removed (opens in new tab) in relation to small dollar loans.
It is even more crucial to avoid payday loans if debt has already taken a firm grip on you. Instead, speak to your family, friends or a counseling service to see if they can help, and consider approaching the best debt consolidation companies (opens in new tab) to see whether they could help you better manage your debt going forward. The best debt settlement companies (opens in new tab) can perhaps help if all other avenues have been explored.