Risky Game: Playing Politics with Jobless Benefits
Policy + Politics

Risky Game: Playing Politics with Jobless Benefits

Congressional Democrats, for the most part, see extending unemployment benefits as a moral issue and critical for struggling families going into the holiday season with their current benefits ending.

Most Republicans see it as another drain on the already red-ink budget that the nation can’t afford without cuts elsewhere.

Many economists consider it a stimulus program, since the unemployed are likely to spend the money quickly – particularly at holiday time. Others don’t see much stimulative effect.

But for David Walsh, a 54-year-old out-of-work physical rehabilitation technician from Langhorne, Pa., it’s a matter of something to fall back on while he continues to hunt for a job in order to pay the bills. “There are no positions and no callbacks,” he said. “I’ve been searching everywhere.” His job hunting began when he was laid off in January2009 from Shriners Hospital in Philadelphia after the hospital’s original $8 billion endowment lost billions in the financial meltdown.

Walsh came to Washington last week to rally with Labor Secretary Hilda Solis and Democrats and to lobby members of Congress to extend unemployment compensation – now at a maximum of 99 weeks. Without the proposed extension – three months at a cost of $12.5 billion, some jobless will lose benefits just in time for the holidays.

The problem has become political as well as economic. With Republicans ready to take over the House in January and with extra strength in the Senate, Congress isn’t inclined to spend more money, reading the results of the midterm election as an indicator that the public wants fiscal austerity. But the public also seems to favor extending the Bush-era tax cuts, which leads many in Congress to want to combine the two into one measure that would offer income for the jobless as well as to the 53 percent of Americans who pay federal taxes.

After the House last week failed to approve an extension of benefits, on a procedural vote that required a two-thirds majority to pass, House leaders began to regroup. “There has been no point in history where unemployment was over 7.4 percent where we did not extend unemployment insurance,” said Majority Leader Steny Hoyer, D-Md. “We are looking at unemployment insurance, and yes, we want to get it done.”

More Bad News on Jobs
Friday’s latest employment report provided more bad news. After three months of holding steady, the unemployment rate rose to 9.8 percent in November, according to the Bureau of Labor Statistics. White House Council of Economic Advisers chairman Austan Goolsbee cited the new numbers in calling on Congress to extend the benefits. “Failure to do this would jeopardize hundreds of thousands of additional jobs, and leave millions of Americans, who are out of work through no fault of their own, on their own."

Without an extension of benefits, 600,000 more Americans would lose their jobs by the end of the year due to lower overall spending, hurting the economy even more, Goolsbee said Thursday when he released a report calling for the extension.

While Republicans are loath to say directly that they oppose extending benefits for the jobless, they tend to put their opposition in deficit-reduction terms.

“We have to find a way to pay for it,” said Rep. Michele Bachmann, R-Minn., a leader of Tea Party members, who will have outsized influence in the new Congress next year, told The Fiscal Times. “We have been extending it longer and longer.” Before the recent series of extensions, time limit for receiving unemployment checks was 26 weeks. To date, Congress has extended benefits four times as a result of the Great Recession.

Bachmann disagreed with economists who say unemployment payments help stimulate the economy. “It hasn’t worked in reality,” she said. “Reality economics teaches us that people want jobs, not checks.”

Rep. Jason Chafitz, R-Utah, is a fiscal conservative who sleeps in his office to save money on an apartment. “I’m sympathetic to people who are struggling,” he said in an interview. “But we have to tackle the tax (cut) question first.” An extension of the Bush-era tax cuts “will do more to solve the unemployment situation than unemployment insurance.”

Better for the Economy: Jobless Benefits or Tax Cuts?
There is disagreement among economists. “We find that for each dollar of unemployment insurance benefits, GDP increases by $1.61,” said Gus Faucher, an economist at Moody’s Analytics. “So the amount of increase in economic activity is more than the government spends.”

By a “back of the envelope” calculation, Faucher said, the government also would get increased tax revenue because, while beneficiaries are spending their unemployment checks, workers are being hired to serve them, and those workers pay taxes. “Under the current circumstances it makes sense to extend the unemployment insurance. It’s one of the biggest ways to assure the economy continues to improve,” he said.

Harvard economist Jeffrey Miron opposes extending unemployment compensation, because he believes it is a disincentive to work. “There are certainly some unemployed who could find work, [although] it might not be as desirable a job, who will keep searching if they have access to unemployment insurance,” he said. “They might be more incentivized if unemployment runs out.”

He doesn’t think the unemployment issue will have much effect on the economy, particularly compared to tax cuts, which he thinks will truly help. “If I were asked to extend unemployment as a compromise to extend the tax cuts as part of a deal, I would say ‘yes,’” he said.

Some on Capitol Hill are considering just that– bundling the tax cuts and the unemployment extension as a way to attract supporters of both. President Obama signaled a willingness to combine the two over the weekend, after the Senate failed to approve legislation that would have excluded tax breaks for millionaires.

But Hoyer appeared to reject the idea in answer to a question from The Fiscal Times last week. “I believe that passing unemployment insurance is a moral imperative, not a political deal,” he said. “We have millions of American families who are without the resources to have any confidence they can put food on the table the next day, pay their rent, get gasoline in their car so they can go look for a job. I think that making a political deal on unemployment insurance is not what America ought to be about.”