GOP states cutting $300 unemployment benefits early will cost local economies $12 billion because people will have less money to spend, a bipartisan congressional committee said

• Ending unemployment benefits early could cost local economies dearly, a congressional committee said.
• The 25 GOP states ending $300 weekly payments early could cost themselves a collective $12 billion, it said.
• Texas alone could lose out on $3.51 billion in less than four months, the Joint Economic Committee said.

States choosing to end the supplemental $300-a-week unemployment benefit early could cost local economies more than $12 billion, according to a report by the bipartisan Joint Economic Committee published on Wednesday.

Cutting the benefit early could ultimately hamper economic recovery from the coronavirus because people would have less money to spend, the Congressional committee said.

So far, 25 states - all with GOP governors - have said that they're ending the Federal Pandemic Unemployment Compensation (FPUC), introduced through the CARES Act, at least seven weeks before the national expiry date of September 5.

This would cut disposable income for local residents, the report said. The sooner states prematurely cut off FPUC, the more money their local economies stand to lose.

Read more: McDonald's franchisees blame hiring challenges on unemployment benefits and say an 'inflationary time bomb' will force them to hike Big Mac prices

The committee estimated that every $1 in unemployment insurance generated $1.61 in local spending. This equated to more than $12 billion in total between June 19 to September 5, based on the expiry date and number of FPUC claims in the states cutting off benefits, it said.

Texas is set to lose the most local spending, at $3.51 billion, per the report. More than 1 million people - or 7.5% of its total labor force - received FPUC in April.

Texas is followed by Ohio, which could lose $1.91 billion, the committee said. Nearly 10% of its total labor force received FPUC in April.

Twenty of the states pulling the plug on FPUC are also ending the two other unemployment insurance schemes introduced through the CARES Act: Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, which the report said would cut spending even further.

"By ending these programs early, states are refusing billions of already appropriated federal dollars that could be spent in local groceries, restaurants, and retail shops," the committee said.

And it hit back at claims that unemployment benefits were suppressing reemployment. The average unemployment benefit plus the $300 supplement exceeds average weekly wages in only three states, an analysis by Insider found.

The committee said that, instead, concerns about the virus were the most likely reason why some people weren't reentering the workforce.

"Claims of worker scarcity are largely anecdotal and not supported by national data," the committee said in its report. It came just one day after the US Chamber of Commerce called the labor shortage a "national economic emergency" that's getting worse by the day.

The committee's report also cited a May 26 note from JPMorgan, which said that the decision to cut unemployment benefits was "tied to politics, not economics."

The committee said that unemployment insurance "played an important role in the recovery by stabilizing consumption and keeping jobseekers from dropping out of the labor force entirely."

It said that people would still be able to afford rent, food, and medications, and that the insurance would give them "the breathing room they need to find a better-paying job."