Just when expectations were raised that the U.S. Congress would finally consider free trade agreements with Colombia, Panama and South Korea, the Obama Administration demanded action on one of its top trade priorities – trade adjustment assistance for workers. This was no surprise. U.S. Trade Representative Ron Kirk and other Administration officials have mentioned it repeatedly since authorization for extended programs ended in mid-February.

 

Trade adjustment assistance (TAA) was first authorized by the Trade Expansion Act of 1962 and eligibility and benefits were expanded by the Trade Act of 1972. The Trade Act of 2002 reauthorized the TAA and established the Alternative Trade Adjustment Assistance (ATAA) that provides half the difference in pay between a job lost due to trade and a lower paying new job of less than $50,000 per year for workers over 50 years of age.

The arguments for TAA are straight forward. Trade liberalization enhances economic efficiencies and improves the standard of living for citizens of importing and exporting countries. With global competition, some firms and workers face difficult adjustments to new industries and employable skills. Rather than have the economy as a whole suffer from trade protectionism, it is better to use government programs to aid redeployment to other industries. TAA is a political response to an economic transition problem.

Early in the Obama Administration, February 5, 2009, a bipartisan agreement was reached to extend existing TAA programs through December 31, 2010 and expand programs for workers, firms, and farmers, and add programs for communities. These changes became part of the American Recovery and Reinvestment Act of 2009, better known as the “stimulus bill.” Eligibility for TAA was extended to services firms and workers and more flexibility was provided to qualify for assistance. The Omnibus Trade Act of 2010, passed on December 22, 2010, extended the TAA through February 12, 2012. The expanded provisions covering eligibility for services firms and other programs passed in the stimulus bill expired on February 12, 2011 due to an oversight in the legislation.

Most of the discussion of TAA is centered on programs for workers administered by the Employment and Training Administration in the Department of Labor. They provide extended income support as well as training, job search, and relocation benefits to workers who become eligible because their jobs moved to other countries, were lost due to increased imports that led to a decline in sales or production, or were lost due to the loss of business with a primary firm because of a trade-related reason. Up to 130 weeks of income support equal to workers’ weekly unemployment benefits were provided for TAA-eligible workers who are participating in training programs. Workers age 50 or older may be able to opt for the alternative trade adjustment assistance. In addition, workers could claim a refundable health coverage tax credit equal to 80% of workers’ monthly health insurance premiums.

TAA programs for workers had budget authority of $959 million in FY2009 with no money from the stimulus plan. Budget authority doubled to $1.82 billion in FY2010 with stimulus funds. When the Administration proposed a budget for FY2011, it estimated current law budget authority of $1.94 billion with a legislative proposal to expand the programs to $2.37 billion. In its FY2012 budget, the Administration projected FY2011 TAA funding at $1.82 billion, the same as FY2010. Current law budget authority for FY2012 was estimated at $1.1 billion, with a legislative proposal of $1.67 billion, down $0.7 billion from the legislative proposal for FY2011.

The Obama Administration’s support for the TAA programs has been consistent for months. When Congress adjourned in December without a long-term extension of the programs, USTR Kirk voiced the Administration’s disappointment. Mr. Kirk had a carbon copy of that press release when the changes provided in the stimulus bill expired in mid-February. On April 7 Mr. Kirk and Secretary of State Hillary Clinton sent a letter to key leaders in the House and Senate stating “…we must also work together to find a way forward on authorizing a long-term extension of TAA programs..” Testimony by Administration officials to Congress and speeches before other groups had similar language. For the Administration to now drive a hard bargain for the 2009 stimulus provisions is consistent with earlier efforts.

House Republicans are resisting extension of most of the stimulus spending, not just the TAA programs. Their focus now is on moving toward a balanced budget by reducing outlays compared to the last two years. The expiration of the 2009 TAA additions will save an estimated $570 million per year pushing down the cost of the programs to about $1.1 billion. The health care tax credit would decline from 80 percent of the premium to the previous 65 percent. Two years of job training would be provided along with up to 52 weeks of Trade Readjustment Allowances for workers in job training. Job search and relocation allowances would continue.

The President and a majority of the House and Senate have reached a consensus that the Colombia, Panama and South Korea trade agreements are good for U.S. consumers and producers. TAA programs are a political and budget issue where there is no similar consensus. The only possibly outcome is a political compromise that neither side likes, but recognizes the seriousness of the government budget issues that are now driving all policy decisions.

The difference of $570 million between the original programs and the ones in the stimulus plan will neither balance the budget nor create the next financial crisis. Businesses and workers will continue to make adjustments, positive and negative, as consumers select from a wider choice of items as trade continues to expand. TAA can soften the transition for some firms and workers, but at a cost to all taxpayers. The best solution is a stronger economy that produces more jobs for all workers. That will only come through favorable economic and regulatory policies.