By National Urban League President Hugh B. Price

With NOW President Kim Gandy

As the nation continues to mourn and absorb the full impact of September 11, existing fault lines in the economy have widened. With signs of an economic recession apparent even before September 11, the challenge at this juncture is to overcome the psychological shock that has severely affected demand for the travel, hotel, restaurant, and entertainment industries and resulted in massive layoffs.

The President and Congress are stepping up their discussions of an economic stimulus package to help address the problem. And Federal Reserve Chairman Greenspan and former Treasury Secretary Rubin have rightly warned that old supply-side remedies, like the capital gains tax cut, are the wrong medicine for our ailing economy. What has been overlooked in the debate thus far is that much of the social safety net, which has contributed to the relatively smooth path of U.S. economic growth since the New Deal, has been weakened or destroyed over the past decade. Our myopia could lead to catastrophe as layoffs–particularly for entry-level, part-time jobs–are announced daily.

During the booming economy of the 90s, America lapsed into a false sense of security and forgot the key role the safety net plays in stabilizing economic demand during a recession. Currently, less than one-third of unemployed workers are eligible to receive unemployment insurance. The five-year time limits imposed by the 1996 welfare act are about to expire, leaving an uncertain future for those welfare recipients who faced barriers to employment during better economic times. The tax cuts that shrank the federal surplus bypassed low-wage earners and went to those at the top of the income scale. If we are to stabilize the economy by protecting demand, we must now reconsider these policies and look to providing relief for those who now face the greatest risk of economic hardship.

"Welfare" as we knew it, was created to counter balance economic downturns. When the economy slows, it makes no sense to run the welfare program with a time clock–a feature meant to solve a different policy question–because it undermines its intended economic function. We must "turn off" the time clock, at least until the economy returns to normal, and revisit the concept of using welfare to stabilize the economy during next year’s TANF reauthorization debate.

Protecting economic demand also means fixing the unemployment insurance system. Because states were overcome by unemployment insurance costs during the recession of the 1980s, restrictions were put in place that favored coverage for full-time employees with steady work records. Not only does that model no longer describe the experience of the American work force, it has the effect of biasing the program against women and minorities. Congress can turn to pending legislation to reform unemployment insurance now, so that those who are getting laid off can get the benefits they deserve.

Correcting the injustice of taxing unemployment benefits should also be a priority. This cruel tax, imposed as part of the supply-side mantra of the 80s, now appears even crueler in light of the huge tax rebates mailed to high-income individuals approved earlier this year.

Ironically, because of the income tax plan pushed through Congress earlier this year, the federal government is now spending money from the Social Security surplus to cover relief measures. So the low-income workers, ignored by the income tax rebate, who contribute heavily to that surplus are now paying a disproportionate share of the relief effort. In order to keep demand high and money circulating in low-income neighborhoods, we must now provide tax relief to those deserving low-income workers.

Some in Congress are now proposing to cut domestic programs to pay for the earlier tax rebate, the relief efforts, and the war on terrorism. But the programs that face the chopping block include low-income housing assistance, food support for infants, heating fuel assistance and job training. All of these programs are key ingredients for supporting economic demand from low-income families, and assuring a strong recovery. If Congress feels the need to stick to budget targets, then it should begin by reconsidering the tax cut.

This is a time for shared economic sacrifice by the American people. It is not just morally wrong to put the burden of these sacrifices on the backs of the low-income; it doesn’t make economic sense to do so.

Hugh Price is the President and Chief Executive Officer of the National Urban League, the nation’s oldest and largest community-based movement devoted to empowering African Americans to enter the economic and social mainstream.

Contact: William Spriggs, Director

National Urban League Institute for Opportunity and Equality

1111 14^th St., NW Suite 1001

Washington, DC 20005

Office: 202.898.1604

Evening: 703.404.1860