Personal Finance

Unemployment insurance program is unprepared for a recession: experts

Published

7 months ago

August 9, 2024

Business Finance News

Job seekers attends the JobNewsUSA.com South Florida Job Fair on June 26, 2024 in Sunrise, Florida.

Joe Raedle | Getty Images

Renewed fears of a U.S. recession have put a spotlight on unemployment.

However, the system that workers rely on to collect unemployment benefits is at risk of buckling — as it did during the Covid-19 pandemic — if there’s another economic downturn, experts say.

“It absolutely isn’t” ready for the next recession, said Michele Evermore, senior fellow at the Century Foundation, a progressive think tank, and former deputy director for policy in U.S. Labor Department’s Office of Unemployment Insurance Modernization.

“If anything, we’re kind of in worse shape right now,” she said.

Unemployment insurance provides temporary income support to laid-off workers, thereby helping prop up consumer spending and the broader U.S. economy during downturns.

The pandemic exposed “major cracks” in the system, including “massive technology failures” and an administrative structure “ill equipped” to pay benefits quickly and accurately, according to a recent report issued by the National Academy of Social Insurance.

There’s also wide variation among states — which administer the programs — relative to factors like benefit amount, duration and eligibility, according to the report, authored by more than two dozen unemployment insurance experts.

“The pandemic exposed longstanding challenges to the UI program,” Andrew Stettner, the deputy director for policy in the Labor Department’s Office of UI Modernization, said during a recent webinar about the NASI report.

The U.S. unemployment rate, at 4.3% in July, remains a far cry from its pandemic-era peak and is low by historical standards. But it has gradually drifted upward over the past year, fueling rumblings about a potential recession on horizon.

Policymakers should address the system’s shortcomings when times are good “so it can deliver when times are bad,” Stettner said.

Why the unemployment insurance program buckled

Joblessness ballooned in the pandemic’s early days.

The national unemployment rate neared 15% in April 2020, the highest since the Great Depression, which was the worst downturn in the history of the industrialized world.

Claims for unemployment benefits peaked at more than 6 million in early April 2020, up from roughly 200,000 a week before the pandemic.

States were ill-prepared to handle the deluge, experts said.

Meanwhile, state unemployment offices were tasked with implementing a variety of new federal programs enacted by the CARES Act to enhance the system. Those programs raised weekly benefits, extended their duration and offered aid to a larger pool of workers, like those in the gig economy, for example.

Job growth totals 114,000 in July, much less than expected, as unemployment rate rises to 4.3%

Later, states had to adopt stricter fraud-prevention measures when it became clear that criminals, attracted by richer benefits, were pilfering funds.

The result of all this: benefits were extremely delayed for thousands of people, putting severe financial stress on many households. Others found it nearly impossible to reach customer service agents for help.

Years later, states haven’t fully recovered.

For example, the Labor Department generally considers benefit payments to be timely if issued within 21 days of an unemployment application. This year, about 80% of payments have been timely, compared to roughly 90% in 2019, according to agency data.

It’s imperative to build a system you need “for the worst part of the business cycle,” Indivar Dutta-Gupta, a labor expert and fellow at the Roosevelt Institute, said during the recent webinar.

Potential areas to fix

Experts who drafted the National Academy of Social Insurance outlined many areas for policymakers to fix.

Administration and technology were among them. States entered the pandemic at a 50-year low in funding, leading to “cascading failures,” the report said.

Today’s system is largely financed by a federal tax on employers, equivalent to $42 a year per employee. The federal government might opt to raise that tax rate, for example, the report said.

Raising such funding could help states modernize outdated technology, by optimizing mobile access for workers and allowing them to access portals 24 hours a day, seven days a week, for example. It would also make it easier to pivot in times of crisis, experts said.

Financing is the “biggest pitfall” that has allowed state systems to “really deteriorate,” Dutta-Gupta said.

Additionally, policymakers might consider more uniform rules around the duration and amount of benefits, and who can collect them, said Evermore, a NASI report author.

States use different formulas to determine factors like aid eligibility and weekly benefit payments.

The average American received $447 a week in benefits in the first quarter of 2024, replacing about 36% of their weekly wage, according to U.S. Labor Department data.

But benefits vary widely from state to state. Those differences are largely attributable to benefit formulas instead of wage disparities between states, experts said.

For example, the average Mississippi recipient got $221 a week in June 2024, while those in Washington state and Massachusetts received about $720 a week, Labor Department data show.

Further, 13 states currently provide less than a maximum 26 weeks — or, six months — of benefits, the report said. Many have called for a 26-week standard in all states.

Various proposals have also called for raising weekly benefit amounts, to the tune of perhaps 50% or 75% of lost weekly wages, for example, and giving some additional funds per dependent.

There are reasons for optimism, Evermore said.

U.S. Senate Finance Committee Chair Ron Wyden, D-Oregon, ranking committee member Sen. Mike Crapo, R-Idaho, and 10 co-sponsors proposed bipartisan legislation in July to reform aspects of the unemployment insurance program.

“I’m pretty encouraged right now” by the bipartisan will, Evermore said. “We need something, we need another grand bargain, before another downturn.”

Personal Finance

As the price of bitcoin falls, you can leverage this tax loophole

Published

4 hours ago

February 28, 2025

Business Finance News

Jaque Silva/ | Nurphoto | Getty Images

With the price of bitcoin down from a record high in January, there’s a chance for some investors to score a tax break, experts say.

Following a post-election rally, the flagship digital currency touched $109,000 on inauguration day before falling in February. As of midday Friday, the price was around $84,000, after dipping below $80,000 overnight, according to Coin Metrics.

The latest selloff presents a tax planning opportunity, including a “loophole” that could go away amid Congressional tax negotiations, according to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.

The strategy, known as “tax-loss harvesting,” allows you to offset profitable investments by selling declining assets in a brokerage or other taxable account. Once your losses exceed gains, you can subtract up to $3,000 per year from regular income and carry excess losses into future years.

Some investors wait until December for tax-loss harvesting, which can be a mistake because asset volatility, particularly for digital currency, happens throughout the year, experts say.

“You should look for these opportunities continually and take advantage of them as they occur,” Gordon said.

You should look for these opportunities continually and take advantage of them as they occur.

Andrew Gordon

President of Gordon Law Group

The crypto wash sale ‘loophole’

When selling investments, there’s a wash sale rule, which blocks you from claiming a loss if you repurchase a “substantially identical” asset within a 30-day window before or after the sale.

But currently, the wash sale rule doesn’t apply to cryptocurrency, which can be beneficial for long-term digital currency investors, experts say.

“If you sell, for instance, bitcoin at a loss today and then buy it back tomorrow, you still have your loss on the books,” Gordon said. “This is an extremely effective strategy for crypto investors because they don’t have to exit their position.”

However, the strategy could disappear in the future as Congressional Republicans seek ways to fund President Donald Trump‘s tax agenda.

Sens. Cynthia Lummis, R-Wyo. and Kirsten Gillibrand, D-N.Y., in 2023 reintroduced a regulatory framework for cryptocurrency, which included closing the crypto wash sale loophole. Former President Joe Biden‘s fiscal year 2025 budget also included the proposal.

In the meantime, “the IRS gives us this loophole. We may as well take it,” Adam Markowitz, an enrolled agent at Luminary Tax Advisors in Windermere, Florida, previously told CNBC.

Of course, you should always consider your investing goals and timeline before implementing the tax strategy.

Personal Finance

Americans are suffering from ‘sticker shock’ — here’s how to adjust

Published

9 hours ago

February 28, 2025

Business Finance News

A worker stocks eggs at a grocery store in Washington, D.C., on Feb. 12, 2025.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

Whether it’s a dozen eggs or a new car, Americans are having a hard time adjusting to current prices.

Nearly all Americans report experiencing some form of “sticker shock,” regardless of income, according to a recent report by Wells Fargo.

In fact, 90% of adults said they are still surprised by the cost of some goods, such as a bottle of water, a tank of gas, dinner out or concert tickets, and said that the actual costs are between 55% and 200% higher than what they expected depending on the item.

Many Americans are still cutting back on spending, making financial choices and delaying some life plans, the Wells Fargo report also found. The firm polled more than 3,600 consumers in the fall.

“The value of the dollar and what it is providing may not be as predictable anymore,” said Michael Liersch, head of advice and planning at Wells Fargo. As a result, “consumer behaviors are shifting.”

Still, adjusting to a new normal takes time, he added: “Habit formation does take a while. Next year what you can imagine seeing is consumers being a little less surprised or shocked by prices and adapting to the current situation to create that goals-based plan.”

Some change is already apparent. Although credit card debt recently notched a fresh high, the rate of growth slowed, which indicates that shoppers are starting to lean less on credit cards to make ends meet in a typical month, according to Charlie Wise, TransUnion’s senior vice president of global research and consulting.

“After years of very high inflation, they are kind of figuring it out,” Wise said. “They’ve adjusted their baseline for what things cost right now.”

But with President Donald Trump‘s proposed 25% tariffs on imports from Canada and Mexico set to take effect in March, there is also the possibility that prices will rise even further in the months ahead.

Consumers fear inflation will pick up

Mexico and Canada tariffs could put pressure on some consumer staples, experts say. That includes already high grocery prices, which are up 28% over the last five years, according to the Bureau of Labor Statistics.

The prospect of tariffs and renewed inflation is weighing heavily on many consumers.

The Conference Board’s consumer confidence index sank in February, notching the largest monthly drop since August 2021. The University of Michigan’s consumer sentiment index similarly found that Americans largely fear that inflation will flare up again.

A recent CreditCards.com survey found that 23% of Americans expect to worsen or go into credit card debt this year, in part because they are making more purchases ahead of higher tariffs.

How to battle sticker shock

Consumer savings expert Andrea Woroch recommends setting a spending plan and tracking expenses. That helps you pinpoint wasteful purchases and those where prices are accelerating and take steps to save.

“Write out all your expenses currently from those essentials and the wants, figuring out an average monthly spend for fluctuating categories,” she said. “Once you have it all listed out, you can begin hacking away at unnecessary purchases or at least set goals for reducing in those nonessential categories.”

Identify triggers that lead to impulse purchases to help dodge them in the future, Woroch also said. “If you can’t resist a sale, then unsubscribe from store newsletters and turn off push notifications in deal apps.”

Ultimately, being more in control of your spending will “reduce the stress that comes with worry about how you’re going to afford higher prices,” Woroch said.

Subscribe to CNBC on YouTube.

Personal Finance

There’s still time to lower your 2024 taxes or boost your refund

Published

1 day ago

February 27, 2025

Business Finance News

Pra-chid | Istock | Getty Images

With tax season well underway, you may be eager for strategies to reduce your 2024 taxes or boost your refund. However, there are limited options, especially for so-called “W-2 employees” who earn wages, experts say.

After Dec. 31, there are “very few” tax moves left for the previous year, according to Boston-area certified financial planner and enrolled agent Catherine Valega, founder of Green Bee Advisory.

Once the calendar year ends, it’s too late to claim a tax break by boosting 401(k) plan deferrals, donating to charity or tax-loss harvesting.

But there are a few opportunities left before the April 15 tax deadline, experts say. Here are three options for taxpayers to consider.

1. Contribute to your health savings account

If you haven’t maxed out your health savings account for 2024, you have until April 15 to deposit money and score a tax break, experts say.

For 2024, the HSA contribution limit is $4,150 for individual coverage or $8,300 for family plans. However, you must have an eligible high-deductible health insurance plan to qualify for contributions.

“The HSA is easy,” said CFP Thomas Scanlon at Raymond James in Manchester, Connecticut. “If you are eligible, fund it and take the deduction.”

2. Make a pre-tax IRA deposit

The April 15 deadline also applies to individual retirement account contributions for 2024. You can save up to $7,000, plus an extra $1,000 for investors age 50 and older.

You can claim a deduction for pre-tax IRA contributions, depending on your earnings and workplace retirement plan.

The strategy lowers your adjusted gross income for 2024, but the account is subject to regular income taxes and required withdrawals later, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.

“A traditional IRA simply delays taxation,” he added.

A traditional IRA simply delays taxation.

Andrew Herzog

Associate wealth manager at The Watchman Group

3. Leverage a spousal IRA

If you’re a married couple filing jointly, there’s also a lesser-known option, known as a spousal IRA, which is a separate Roth or traditional IRA for nonworking spouses.

Married couples can max out a pre-tax IRA for both spouses, assuming the working spouse has at least that much income. It’s possible to claim a deduction for both deposits.

But whether you’re making a single pre-tax IRA contribution or one for each spouse, it’s important to weigh long-term financial and tax planning goals, experts say.