The Unemployment Trust Fund and Reed Act Distributions

Julie M. Whittaker
Specialist in Income Security

Under the Federal Unemployment Tax Act (FUTA, P.L. 76-379), the federal unemployment tax on employers finances the states’ administrative costs of Unemployment Compensation (UC) and loans to states with insolvent UC programs. The extended benefits program is funded 50% by the federal government and 50% by the states, but the 2009 stimulus package (P.L. 111-5 §2005) as amended temporarily provides for 100% federal funding of this program through March 7, 2012.

FUTA tax revenues are placed into the Unemployment Trust Fund (UTF) that—among its many accounts—contains three federal accounts and 53 individual state accounts from the states’ unemployment taxes. Under certain financial conditions, excess federal tax funds in the Unemployment Trust Fund (UTF) are transferred to the individual state accounts within the UTF. The transferred funds are referred to as Reed Act distributions.

The Reed Act, P.L. 83-567, set ceilings in the federal UTF accounts that trigger funds to be distributed to state accounts; Congress has changed these ceilings several times (P.L. 105-33, P.L. 102-318, and P.L. 100-203). There are other transfers in the UTF that are labeled by legislation as special Reed Act distributions. These are distributed in a manner similar to the Reed Act but do not follow all of the Reed Act provisions.

The most recent regular Reed Act distribution was $15.9 million and occurred in 1998. The Balanced Budget Act (BBA) of 1997, P.L. 105-33, limited Reed Act distributions for the 1999 to 2001 period to special Reed Act distributions of $100 million each year. In March 2002, the Job Creation and Worker Assistance Act of 2002, P.L. 107-147, provided for a one-time special Reed Act distribution of up to $8 billion to state accounts.

The American Recovery and Reinvestment Act (P.L. 111-5 §2003) provided for a special UTF distribution that has some properties similar to a Reed Act distribution. The law distributes up to a total of $7.5 billion to the states through a special transfer of funds from the federal accounts within the UTF to the state accounts, using the methodology required by the Reed Act to determine the maximum state allotments. Up to $7 billion will be distributed to states as incentive payments for changing certain state UC laws. Administrative funds totaling $500 million will be distributed among the state accounts, regardless of whether states change their UC laws.

According to the Department of Labor, there is no projected regular Reed Act distribution through FY2021 on account outstanding loans in the UTF owed to the general fund of the U.S. Treasury.


Date of Report: January 17, 2012
Number of Pages: 7
Order Number: RS22006
Price: $19.95

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Taxation of Unemployment Benefits

Julie M. Whittaker
Specialist in Income Security

Unemployment compensation (UC) benefits have been fully subject to the federal income tax since the passage of the Tax Reform Act of 1986 (P.L. 99-514). Individuals who receive UC benefits during a year may elect to have the federal (and in some cases state) income tax withheld from their benefits. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 §1007) included a temporary exclusion on the first $2,400 of UC benefits for the purposes of the federal income tax. This exclusion existed only in 2009. The Joint Committee on Taxation estimated this would reduce federal receipts by approximately $4.7 billion.

There is no federal income tax exclusion for unemployment benefits for tax years 2010 or 2011. The Workforce Fairness and Tax Relief Act of 2011 (H.R. 2806) would repeal the taxation of unemployment benefits and any trade adjustment assistance payments.

This report provides an overview of the taxation of UC benefits and legislation related to taxing UC benefits.


Date of Report: January 17, 2012
Number of Pages: 8
Order Number: RS21356
Price: $19.95

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SBA Small Business Investment Company Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. It also administers the Small Business Investment Company (SBIC) Program. Authorized by P.L. 85-699, the Small Business Investment Act of 1958, as amended, the SBIC program is designed to enhance small business access to venture capital by stimulating and supplementing “the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program’s primary objective.

The SBA does not make direct investments in small businesses. It works with 296 privately owned and managed SBICs licensed by the SBA to provide financing to small businesses with private capital the SBIC has raised and with funds the SBIC borrows at favorable rates because the SBA guarantees the debenture (loan obligation).

SBICs pursue investments in a broad range of industries, geographies, and stages of investment. Some SBICs specialize in a particular field or industry in which their management has expertise, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., start-up, expansion, or turnaround) and identify a geographic area in which to focus.

The SBIC program currently has invested or committed about $17.1 billion in small businesses, with the SBA’s share of capital at risk about $8.3 billion. In FY2011, the SBA guaranteed $1.8 billion in SBIC small business investments, and SBICs provided another $1.0 billion in investments from private capital, for a total of more than $2.8 billion in financing for 1,339 small businesses.

Congressional interest in the SBIC program has increased in recent years primarily because it is viewed as a means to stimulate economic activity, create jobs, and assist in the national economic recovery. However, there are disagreements concerning whether the program should target additional assistance to startup and early-stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation.

This report examines the SBIC program’s structure and operation, focusing on SBIC eligibility requirements, investment activity, and program statistics It also examines legislation considered during the 111th and 112th Congresses, including H.R. 3854, the Small Business Financing and Investment Act of 2009; H.R. 5554, the Small Business Assistance and Relief Act of 2010; P.L. 111-240, the Small Business Jobs Act of 2010; and H.R. 3219, the Small Business Investment Company Modernization Act of 2011, which address the following SBIC-related issues: (1) the targeting of additional assistance to startup and early-stage small businesses, (2) the SBA’s management of the program’s financial risk and its processing of SBIC applications, and (3) whether the program’s financing levels are appropriate given the nation’s current economic circumstances.


Date of Report: January 18, 2012
Number of Pages: 35
Order Number: R41456
Price: $29.95

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Antipoverty Effects of Unemployment Insurance

Thomas Gabe
Specialist in Social Policy

Julie M. Whittaker
Specialist in Income Security

This report examines the antipoverty effects of unemployment insurance benefits over the past recession and through the beginning of the economic recovery. The analysis highlights the impact of the additional and expanded unemployment insurance (UI) benefits available to unemployed workers through the American Recovery and Reinvestment Act (ARRA, P.L. 111-5) and the Emergency Unemployment Compensation (EUC08) program (Title IV of P.L. 110-252). In 2010, approximately 66% of all unemployed individuals were receiving UI benefits and thus were directly impacted by legislative changes to the UI system. UI benefits appear to have a large poverty-reducing effect among unemployed workers who receive them. Given the extended length of unemployment among jobless workers, the additional weeks of UI benefits beyond the regular program’s 26-week limit appear to have had an especially important effect in poverty reduction.

Estimates presented in this report are based on Congressional Research Service (CRS) analysis of 24 years of data from the U.S. Census Bureau’s Annual Social and Economic Supplement to the Current Population Survey (CPS/ASEC), administered from 1988 to 2011. The period examined includes the three most recent economic recessions.

This report contributes to recent research on the antipoverty effects of unemployment insurance in several ways. Its period of analysis allows comparisons across the three most recent recessions. The report includes estimates of the effects on the poverty rate for the unemployed, for those receiving UI, and for families that report at least one family member receiving UI. It also estimates how much of reported UI benefits went directly to decreasing family poverty levels.

This report’s analysis shows that UI benefits appear to reduce the incidence of poverty significantly among the population that receives them. The UI benefits’ poverty reduction effects appear to be especially important during and immediately after recessions. The analysis also finds that there was a markedly higher impact on poverty in 2010 than in the previous two recessionary periods. The estimated antipoverty effects of UI benefits in 2010 were about twice that of two previous peak years of unemployment—1993 and 2003.

• In 2010, over one-quarter (27.5%) of unemployed people who received UI benefits would have been considered poor prior to taking UI benefits into account; after counting UI benefits, their poverty rate decreased by over half, to 12.5%.

• UI receipt affects not only the poverty status of the person receiving the benefit, but the poverty status of all related family members, as well. In 2010, while an estimated 12.4 million people reported UI receipt during the year, an additional 19.4 million family members lived with the 12.4 million receiving the benefit. Consequently, UI receipt in 2010 affected the income status of some 31.9 million persons.

• The poverty rate for persons in families who received unemployment benefits in both 2009 and 2010 was approximately half of what it would have been without those unemployment benefits.

• In 2010, UI benefits lifted an estimated 3.2 million people out of poverty, of which well over one quarter (26.8%, 861,000) were children living with a family member who received UI benefits.


Date of Report: January 13, 2012
Number of Pages: 43
Order Number: R41777
Price: $29.95

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Value-Added Tax (VAT) as a Revenue Option: A Primer

James M. Bickley
Specialist in Public Finance

This report summarizes issues, arguments, and concerns relevant to a value-added tax (VAT). Long-term fiscal problems, which were exacerbated by the recession that ended in June 2009, resulted in widespread concern about the need to formulate a fiscal solution to the high budget deficits and growing national debt. The levying of a value-added tax, a broad-based consumption tax, has been discussed as one of many options to assist in resolving U.S. fiscal problems. CRS Report R41602, Should the United States Levy a Value-Added Tax for Deficit Reduction? provides a more comprehensive examination of issues, extensive footnoting of sources, and presentation of relevant data.

A VAT is imposed at all levels of production on the differences between firms’ sales and their purchases from all other firms. Arguably, the primary reason for congressional interest in a VAT is its high potential revenue yield. Other aspects of a VAT that often raise interest or concern include international comparison of composition of taxes, VAT rates in other countries, equity, neutrality, inflation, balance-of-trade, national saving, administrative costs, compliance, intergovernmental relations, and size of government.

This report considers the experiences of the 33 nations with VATs in the 34-member Organization for Economic Cooperation and Development (OECD), relevant to the feasibility and operation of a possible U.S. VAT. In order to examine different aspects of a VAT, explanations are initially provided concerning the concept of a value-added tax, the different methods of calculating VATs, exemption, and zero-rating.

The prevailing view of tax professionals is that an optimal VAT would have the following characteristics: a broad base, a single rate, the credit-invoice method of collection, the destination principle, and a significant sales threshold for registration.


Date of Report: January 11, 2012
Number of Pages: 12
Order Number: R41708
Price: $29.95

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