Why Extending Unemployment Benefits Matters Most In Red States

Senate Republicans and the White House may have reached a deal on a new federal stimulus package, but it’s still expected to take weeks to iron out in Congress. The delay means 25 million Americans will see critical unemployment benefits expire after Friday.

Treasury Secretary Steven Mnuchin and Senate Majority Leader Mitch McConnell, R-Ky., say they support some unemployment insurance supplement, perhaps something around $400 per week. House Speaker Nancy Pelosi, D-Calif., told reporters at her weekly press conference she wants “a commitment for the $600,” per week included in the first federal stimulus package.

If it’s not extended, that could disproportionately hurt taxpayers in red states.

Florida, Texas and most of the largely conservative Southeast are home to most of the coronavirus hotspots in the U.S. as the rate of the disease’s spread has increased alarmingly in recent weeks.

Some red state governors — like in Arizona, Florida, New Mexico and Texas — have put the breaks on their state’s reopening which means some people won’t be able to work. According to data from WalletHub, Florida, followed by Louisiana, Virginia, New Mexico and Mississippi, saw the largest increases in unemployment claims during mid-July compared with the start of this year. States recovering the fastest are, in order: Maine, Pennsylvania, Oregon, Connecticut and Missouri.

When it comes to states whose unemployment claims are recovering the slowest since the start of the Covid-19 crisis in March, it’s again mostly red states: Georgia, Florida, New Hampshire, Oklahoma, Virginia. And nationwide, blue states have a slight edge over red states in this category.

Extending supplemental unemployment benefits would help many of these workers living in Republican-led places where claims are rising the fastest. All told, some 25 million workers are receiving the benefit set to expire July 31. In pushing back on the extension, President Trump and the GOP have argued that the $600 unemployment bonus means that many low-wage workers in hard-hit industries like restaurants and retail have received more money in unemployment.

“We had something where … it gave you a disincentive to work last time,” Trump said in an interview with Fox Business earlier this month. “We want to create a very great incentive to work.”

But as re-openings, particularly in red states are paused, those lower-wage workers are most affected. Lower wage earners have little-to-no financial cushion. So over the last few months, that federal stimulus has helped many of these unemployed workers continue to afford basic basic necessities like food and fuel. Withdrawing or even reducing the monthly amount means removing a lifeline.

Here’s another incentive for red states: no stimulus means even less money moving around in state economies. State policymakers are well aware that the supplemental unemployment insurance checks have not just helped taxpayers, they’ve also helped state and local budgets to a degree. While not all purchases are taxed, many are and that sales tax revenue is a key part of government budgets.

For a number of red states, sales tax revenue is not just key — it’s pivotal. According to the Pew Charitable Trusts, sales tax revenue accounts for more than half of revenue in six states: Florida, Texas, Washington, South Dakota, Nevada and Tennessee. (Namely, states that don’t tax wage income.)

We don’t have data yet for June or July, but an analysis of May data by the Tax Policy Center shows sales tax revenues plummeted by an average of 21%. That’s a $6 billion difference, and that was with a federal stimulus. Take away that money or even reduce it, and consumer spending goes down even more.

That means less revenue for states and cities that are already dealing with budget shortfalls. For now, government budgets take into account much lower expectations for sales tax revenue. But for places that are particularly reliant on that revenue, an even bigger drop in their main income stream could result in even more difficult choices and cuts.