Amidst the worst employment crisis since the Great Depression, Governor Kim Reynolds and her colleagues seem fixated not on the magnitude of the crisis, but on the generosity of the CARES Act unemployment programs and the obstacle they apparently pose to getting Iowans back to work.
First, Iowa Workforce Development issued a chilling directive (from which they have now retreated) which very nearly suggested that only those actually laid out by the virus had any claim on unemployment insurance. Now the new “Iowa Eviction and Foreclosure Prevention Program,” (which offers rental and mortgage assistance to households “at risk of eviction or foreclosure due to a documented COVID-19 related loss of income”) actually disqualifies those receiving unemployment insurance from applying.
The logic here is difficult to fathom. Those thrown out of work by the pandemic are struggling to make ends meet, and to sustain rent or mortgage payments. Aren’t these exactly the Iowans who should be eligible for a program of rental or mortgage assistance? Instead, the new program offers assistance to “Iowans who have been economically impacted by COVID-19,” in one breath and then snatches it away in the next — penalizing and stigmatizing those most at need by treating receipt of the federal Pandemic Unemployment Compensation (PUC) benefit ($600 a week through July 25) like a failed drug test.
But even if we put the savage inequity of this aside, the Governor’s evident distaste for the federal supplements to unemployment insurance is just bad fiscal policy. Let’s do the math. As of this week, 178,619 Iowans are receiving regular unemployment benefits and another 17,545 are receiving Pandemic Unemployment Assistance (PUA). The PUA base benefit is paid for with federal dollars, and recipients under both regular UI and the PUA also get the $600 PUC benefit through July. That’s an inflow of over $120 million a week, from the federal treasury into the pockets of working Iowans.
If we assume an effective state income tax rate of 2.3 percent and effective sales tax rate of 5.3 percent (both based on estimates by the Institute on Tax and Economic Policy for Iowans earning between $22,000 and $40,000/year), that’s a boost to state income tax receipts of $2.8 million dollars a week, and a boost to state and local sales tax receipts of $6.4 million dollars a week. In the seven weeks before the PUC expires July 25, that’s a net revenue of gain of $64.5 million — or enough to pay for the mortgage and rental assistance program (which has been allotted $22 million of Iowa’s CARES Act funds) almost three times over.
And these are conservative estimates. The unemployment totals do not include the over 150,000 UI (including those from the last two weeks) that have been filed but not yet processed. They do not include the retroactive benefits payable to those qualifying for UI. They are based on the minimum monthly benefit under the PUA. And they do not include the stimulus or tax revenue impact of state-funded UI benefits.
For the health and safety of working Iowans, we should be encouraging and enabling as many as possible to qualify for unemployment benefits. And, as long as federal government is picking up the tab, we should jump at the chance to backfill state and local budgets with the tax revenues that accompany such benefits.
 The state’s June 3 fiscal update echoes this estimate, attributing a $31.4 million increase in state income tax receipts over the 10-week period from March 19 to June 2 ($3.1 million a week) to withholding from UI benefits. This estimate is slightly higher because it includes the withholding from state-funded benefits as well.