Order Code 95-742 EPW
Updated December 30, 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 were
considered during the 107th Congress. The Congress enacted H.R. 3090 (P.L. 107-147),
which included 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. These
temporary benefits ended on December 28, 2002. Legislation was considered to extend
these temporary benefits, but the Congress failed to reach agreement on such a bill
before the adjournment of the 107th Congress. (This report will not be updated.)
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
current or prior year. The FUTA tax is not paid by governmental or nonprofit employers,
Congressional Research Service ˜ The Library of Congress

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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
Programs to Extend Unemployment Compensation, by Jennifer E. Lake.

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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 were 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,(P.L. 107-147). Title II of the new law
provided for the Temporary Extended Unemployment Compensation (TEUC) program
and distributed $8 billion to states in surplus federal unemployment funds, known as Reed
Act funds. The TEUC program provided up to 13 weeks of federally funded benefits for
unemployed workers in all states 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 IUR2 of 4% or higher and meet certain other criteria (TEUC-X).
TEUC benefits were payable through December 28, 2002, to individuals who, in
addition to meeting other applicable state 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
have 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.3 In addition,
individuals must also have had 20 weeks of full-time work, or the equivalent in wages,
in their base periods.4
2 The IUR is computed by dividing the number of UC claimants by the number of individuals in
jobs covered by UC.
3 DoL, Unemployment Insurance Program Letter No. 17-02.
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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Several bills were considered to extend the TEUC benefits. S. 2714 and H.R. 5089
would have extended the first tier of TEUC benefits to equal the lesser of the number of
weeks an individual received under regular UC or 26 times the individual’s average
weekly benefit amount. S. 2892, S. 3009 and H.R. 5491 would have provided all eligible
TEUC recipients with 26 weeks of first tier benefits, would have reduced the TEUC-X
benefits (second tier) in high-unemployment states to 7 weeks, and would have extended
the program until June 30, 2003. H.R. 5587 would have extended the TEUC program for
high unemployment states and allow individuals already entitled to TEUC benefits on
December 28, 2002, to receive their full benefit entitlement.
On November 14, 2002, the Senate passed an amended version of H.R. 3529 which
would have extended TEUC through March 31, 2003. On the same day, the House passed
H.R. 5063, which would have continued benefits until February 2, 2003, for workers
eligible for TEUC or TEUC-X by December 28, 2002, and would have extended the
regular TEUC benefits only for workers in high unemployment states until February 2,
2003. However, no agreement was reached on these measures and the 107th Congress
adjourned November 22, 2002, without having passed an extension of the TEUC
program. The TEUC program expired on December 28, 2002.
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 would have provided for state collection of the
FUTA tax. The bill would have provided for interest premiums or penalties based on
whether states exceeded or failed to meet state funding goals during a quarter. States
would also have been provided interest-free advances to state accounts if they met their
funding goals. The bill would have also lowered the EB program trigger from 5% to 4%.
In addition, states would have been 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 have
expanded UC eligibility to part-time workers. As part of the FY 2003 budget request, the
Administration proposed several reforms to the UC program. These included 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 on April 16, 2002, would have expanded UC eligibility to
include certain part-time workers, workers who qualified for UC under an alternative
wage base period; certain seasonal workers; workers who left employment because of

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sexual harassment; workers who left employment because of loss of adequate child care
for dependent children under age 13; and workers who left employment because they were
victims of domestic violence. H.R. 4373 would have increased 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 lowered the FUTA tax to 5.59%. The
bill would have increased 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 have been denied to individuals who were
separated from employment because their spouse or domestic partner had to move in
connection with starting a new job, and would have provided a higher UC weekly benefit
to individuals whose average weekly wages did not exceed 50% of average weekly wages
subject to UC taxes under state law. H.R. 4373 would have increased and decreased
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 have lowered the IUR triggers
for the permanent EB program from 5% to 4% and from 6% to 5%, and would have
eliminated 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 have repealed
the FUTA surtax effective after December 31, 2000. H.R. 3097 would have repealed the
FUTA surtax effective after December 31, 2001.
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 were introduced. S. 1454, H.R. 2946, and H.R. 2955,
would have provided assistance for employees who were totally or partially separated
from employment as a result of reductions in service by air carriers and airport closures
caused the terrorist attacks. H.R. 3008, as passed by the House on December 6, 2001,
would have established a new program to provide additional assistance for workers
separated from employment due to the terrorist attack.

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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
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 provided assistance to individuals whose
employment or self-employment had been lost or interrupted as a direct result of a major
disaster and who were 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.
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 would have increased 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 have excluded 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. H.R. 592 and H.R. 2670 would have provided that an individual who leaves
employment because of sexual harassment or domestic or sexual violence would have
been considered “good cause” for determining UC eligibility.
5 For more information on the DUA program, see CRS Report RS21023, Disaster Unemployment
Assistance (DUA), by Jennifer Lake.

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