Order Code 95-742 EPW
Updated May 23, 2002
CRS Report for Congress
Received through the CRS Web
Unemployment Benefits: Legislative Issues
in the 107th Congress
Celinda Franco
Specialist in Social Legislation
Domestic Social Policy Division
Summary
Changes in the federal-state unemployment compensation (UC) system are under
consideration during the 107th Congress. Recent legislation has been introduced that
would temporarily extend benefits for workers who exhaust their regular UC benefits.
The House of Representatives passed four stimulus packages, the latest of which was
H.R. 3090, as amended, on March 7, 2002. H.R. 3090, as amended, includes a 13-week
extension of UC benefits, a $8 billion distribution to states, and 13 additional weeks of
extended UC benefits in high unemployment states. The Senate passed H.R. 3090 on
March 8, 2002. The legislation was signed into law by the President on March 9, 2002
(P.L. 107-147). (This report will be updated as legislative action occurs.)
Background
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 $23.5 billion are expected to be paid to 7.5 million UC
claimants in FY2001.
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
each employee’s annual pay. If a state complies with all federal rules, the net FUTA tax
rate is only 0.8%. 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
Congressional Research Service ˜ The Library of Congress

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CRS-2
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.
Benefits. To receive unemployment compensation 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 2001 range from $133 (Puerto Rico) to $478 (Washington), and, in states
that provide dependents’ allowances, up to $715 (Massachusetts). The average weekly
benefit nationwide is estimated to be $224 for FY2001. Benefits are available for up to
26 weeks (30 weeks in Massachusetts and Washington). The average benefit duration
in FY2001 is expected to be 14.0 weeks. A federal-state extended benefits (EB) program
offers benefits for an additional 13 to 20 weeks in states with unemployment rates above
certain threshold levels.
Financing. The 0.8% FUTA tax funds federal and state administration, the federal
share of EB, loans to insolvent state UC accounts, and state employment services. States
levy their own payroll taxes to fund UC benefits. State ceilings on taxable wages range
from the $7,000 FUTA federal taxable wage ceiling (11 states) up to $28,400 (Hawaii).
State UC tax rates are experience-rated. (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 FY2000.
State UC revenue is deposited in U.S. Treasury accounts as federal revenue in the
budget. State Unemployment Trust Fund accounts 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. Unemployment
Trust Fund revenue has exceeded outlays each year since FY1995 (Table 1).
Legislative Issues in the 107th Congress
Proposal to Extend Unemployment Compensation Benefits
The EB program provides for additional weeks of 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 50% federally funded,
with states funding 50% from their trust funds. The benefits are triggered when a state’s
insured unemployment rate (IUR) or total unemployment rate (TUR) reaches certain
levels. However, the EB program has been viewed by some as not being sufficiently
sensitive to changes in the economy. The Congress has acted 4 times — in 1971, 1974,
1982, and 1991 — to establish temporary programs of extended UC benefits.1
1 For more information on extended UC benefits, see CRS Report RL31277, Temporary
(continued...)

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Table 1. Revenue and Spending Associated With
Unemployment Compensation, FY1993-FY2001
(in billions of dollars)
1993
1994
1995
1996
1997
1998
1999
2000
2001
UC revenue, total
25.2
28.0
28.9
28.6
28.2
27.5
26.4
27.1
28.7
FUTA tax
4.2
5.5
5.7
5.9
6.1
6.4
6.5
6.7
7.1
State UC taxes
21.0
22.5
23.2
22.7
22.1
21.1
19.9
20.4
21.6
UC outlays, total
38.9
29.6
24.6
25.6
23.8
22.9
24.4
25.1
27.7
Regular benefits
21.9
21.7
20.9
22.0
20.3
19.4
20.7
21.6
26.8
EB
*
0.2
*
*
*
*
*
*
*
Emergency UC
13.2
4.2
*
*
*
—
—
—
—
Administration
3.8
3.5
3.6
3.6
3.5
3.5
3.7
3.5
3.6
Source: U.S. Dept. of Labor. UI Outlook, August 2001.
* Less than $50 million.
Several bills have been introduced in the 107th Congress to establish a temporary
program for extending benefits. After numerous attempts to reach agreement on an
economic stimulus bill that included a temporary extension of UC benefits, the Congress
passed the Job Creation and Worker Assistance Act of 2002 (H.R. 3090), which was
signed into law by the President on March 9, 2002 (P.L. 107-147). Title II of the new law
provides for the Temporary Extended Unemployment Compensation (TEUC) program
and distributes $8 billion to states in surplus federal unemployment funds, known as Reed
Act funds.
The TEUC program provides up to 13 weeks of federally funded benefits for
unemployed workers in all states who have exhausted their regular UC benefits. In
addition, up to an additional 13 weeks may be provided in certain high unemployment
states that have an IUR2 of 4% or higher and meet the criteria to trigger the EB program.
According to DoL, TEUC is payable to individuals who, in addition to meeting other
applicable state law provisions, (1) have filed an initial claim that was in effect during
or after the week of March 15, 2001; (2) have exhausted regular benefits or have no
benefit rights due to the expiration of a benefit year ending during or after the week of
March 15, 2001; (3) have no rights to regular or extended benefits under any state or
federal law; and (4) are not receiving benefits under Canadian law.3 In addition,
1 (...continued)
Programs to Extend Unemployment Compensation, by Jennifer E. Lake.
2 The IUR is computed by dividing the number of UC claimants by the number of individuals in
jobs covered by UC.
3 DoL, Employment and Training Administration, Unemployment Insurance Program Letter No.
17-02.

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individuals must also have 20 weeks of full-time work, or the equivalent in wages, in
their base periods.4
Proposals to Reform Unemployment Compensation
In recent years, calls for reforming the UC program have emerged from various
interest groups, including labor, employers, and state employment agencies. These
groups argue that changes in the economy and the workforce since the program was
enacted in the 1930s have led to inefficiencies and inequities in the UC program that need
to be reformed. Today more women are in the workforce. They, and many new entrants
into the labor force are often employed in part-time, temporary or short-term jobs that can
leave them ineligible for UC during periods of unemployment. Many see the declines in
UC recipiency as due, in part, to stricter state eligibility requirements related to earnings
minimums and reduced growth in manufacturing. Employers see inefficiencies in the
administration of the program, including complex tax forms, multiple tax filing
requirements, and complex record keeping requirements.
In the 107th Congress, H.R. 3024, introduced by Representative English, would
provide for state collection of the FUTA tax. The bill would provide for interest
premiums or penalties based on whether states exceed or fail to meet state funding goals
during a quarter. States would also be provided interest-free advances to state accounts
if they met their funding goals. The bill would also lower the EB program trigger from
5% to 4%. In addition, states would be required to distribute state-specific information
packets to unemployed individuals that would explain UC eligibility requirements. H.R.
773, the Parity for Part-Time Workers Act, a bill of more limited scope, would expand
UC eligibility to part-time workers. As part of the FY 2003 budget request, the
Administration proposed several reforms to the UC program. These include gradually
shifting responsibility for financing the UC benefits and administration to states over a
5 year transition period; repealing the FUTA surtax as of January 1, 2003; and lowering
the IUR trigger in the permanent EB program from 5% to 4%.
H.R. 4373, introduced by Representative McDermott on April 16, 2002, would
expand UC eligibility to include certain part-time workers, workers who would qualify
for UC under an alternative wage base period; certain seasonal workers; workers who
leave employment because of sexual harassment; workers who leave employment
because of loss of adequate child care for dependent children under age 13; and workers
who leave employment because they are victims of domestic violence. H.R. 4373 would
increase the unemployment taxable wage base from the first $7,000 of an employees
wages to the wage base established for the Social Security program ($84,900 in 2002),
and lower the FUTA tax to 5.59%. The bill would increase job mobility by providing that
the amounts of federal individual income taxes attributable to UC be credited to the trust
funds of qualifying states that provide the following: UC benefits would not be denied
to individuals who are separated from employment because their spouse or domestic
partner had to move in connection with starting a new job, and provide a higher UC
weekly benefit to individuals whose average weekly wages do not exceed 50% of average
4 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.

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weekly wages subject to UC taxes under state law. H.R. 4373 would increase and
decrease earnings on trust fund balances credited to state UC trust fund accounts when
states met or failed to meet funding goals provided by the bill, would lower the IUR
triggers for the permanent EB program from 5% to 4% and from 6% to 5%, and would
eliminate certain EB eligibility requirements.
Repeal of the FUTA Surtax Extension
Though the net FUTA tax rate is 0.8%, the permanent tax rate is only 0.6% (Table
2). The 0.2% “surtax” was adopted in 1976 to repay loans made to the Unemployment
Trust Fund during the 1974 recession. That debt was paid off in 1987, but Congress
extended the surtax in 1987, 1990, 1991, and 1993. While the added revenue raised trust
fund balances, the main reason for the extensions was to offset costs of new spending for
unrelated federal programs. Budget rules that require pay-as-you-go funding, often
prompt changes in other programs, such as increased taxes or decreased spending for
other entitlements.
The FUTA surtax had been set to expire in January 1999. Employers argued that
the need for this surtax had vanished. However, the Balanced Budget Act of 1997 (P.L.
105-33), included the FUTA surtax extension through 2007 in order to anticipate the
demands of the next recession. Extension, coupled with changes in certain account
ceilings, was estimated to contribute to budget balancing by increasing federal revenue
by $6.4 billion for FY1998-FY2002. In the 107th Congress, S. 189, and H.R. 1037 would
repeal the FUTA surtax effective after December 31, 2000. H.R. 3097 would repeal the
FUTA surtax effective after December 31, 2001.
Table 2. FUTA Tax Rates and Taxable Wage Ceilings
Calendar
Net tax
Taxable
Calendar
Net tax
Taxable
years
rate (%)
wage ceiling
years
rate (%)
wage ceiling
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
1970-1971
0.5
3,000
2008 & later
0.6
7,000

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Other Pending Unemployment Compensation Issues
Benefits for Certain Workers Unemployed by Terrorist Attack and Its
Consequences. In response to the unemployment of workers in certain industries
caused by the September 11, 2001 terrorist attacks and subsequent security measures that
have been taken, several bills have been introduced. S. 1454, H.R. 2946, and H.R. 2955,
introduced by Senator Carnahan, Representative Hastings of Florida, and Representative
Gephardt, respectively, would provide assistance for employees who are totally or
partially separated from employment as a result of reductions in service by air carriers
and airport closures caused the terrorist attacks. Modeled on the Trade Adjustment
Assistance (TAA) program, the bills would make such employees eligible for a maximum
of up to 78 weeks of cash assistance and training benefits. Unlike the TAA program, the
bills would provide employees not eligible for the regular UC program cash assistance
for a period of 26 weeks at an amount equal to the average UC weekly benefit amount
paid in the state. H.R. 3008, as passed by the House on December 6, 2001, would
establish a new program to provide additional assistance for workers separated from
employment due to the terrorist attack.
In addition, to the UC and EB programs, the President’s declaration of a ‘major
disaster’ on September 11, 2001, triggered Disaster Unemployment Assistance (DUA)
in New York City and Arlington, Virginia. DUA provides assistance to individuals
whose employment or self-employment has been lost or interrupted as a direct result of
a major disaster and who are not eligible for regular UC benefits.5 On March 20, 2002,
the Congress passed H.R. 3986, a bill to extend by 13 weeks DUA benefits for workers
directly affect by the September 11 terrorist attacks. The measure is awaiting the
President’s signature.
Exemption for Agricultural Labor. Under current law, farmers who employ
agricultural labor and pay less than $20,000 for that labor in a calendar quarter are
exempt from FUTA taxes. That payroll amount has not been increased since 1976.
During the 107th Congress, H.R. 1003, introduced by Representative Schaffer, would
increase the payroll dollar threshold to $50,000 and provide for annual cost of-living
adjustments.
Excluding UC Benefits from Gross Income. Under current law, UC benefits
are required to be included in gross income for tax purposes. H.R. 886, H.R. 2254, S.
1599, and H.R. 3687 would exclude UC benefits from gross income.
Ensuring UC Benefits for Individuals Experiencing Domestic Violence.
States determine whether an individual is ineligible for UC benefits because they left their
jobs without good cause, committed misconduct in connection with their work, or refused
suitable jobs. States restrict “good cause” only to causes connected with the work or the
employer, and good personal cause is not ordinarily considered enough justification for
leaving a job. H.R. 592 would provide that an individual who leaves employment
because of sexual harassment or loss of child care would be considered “good cause” for
determining UC eligibility. Similarly, H.R. 2670 would not allow states to deny UC
benefits to individuals who were unemployed because of domestic or sexual violence.
5 For more information on the DUA program, see CRS Report RS21023, Disaster Unemployment
Assistance (DUA), by Jennifer Lake.

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