Millions Face Loss of Unemployment Insurance
On Nov. 18, the House failed to pass a three-month extension of unemployment insurance (UI), putting the benefits of nearly 2 million Americans in jeopardy. With funds for federal benefits set to expire Nov. 30, the failure to enact an extension sets up a post-Thanksgiving battle between UI extension advocates and deficit hawks. Complicating matters, the debate over extending the Bush tax cuts will likely encroach upon the UI benefits extension dispute, increasing the likelihood that many citizens will be cut off from help as the holiday season begins.
Currently, when an unemployed individual exhausts his or her 26 weeks of state benefits, he or she can claim federal emergency benefits for up to 73 weeks or 99 weeks, depending on his or her state’s UI rules. After Nov. 30, funds will not be available for the Emergency Unemployment Compensation (EUC) program and the Extended Benefits (EB) program, which were enhanced and created under the American Recovery and Reinvestment Act (Recovery Act), respectively. Without these funds, new exhausters of state benefits will not be able to join the programs, and those already claiming federal benefits will only be allowed to collect through completion of their current "tier," which means they will not be able to stay in the program for much longer than a month.
To stop federal benefits from expiring, House Ways and Means Committee Chairman Sander Levin (D-MI) introduced a three-month funding extension of emergency federal unemployment insurance. Even though the bill had more than a majority supporting it, it came up short, 258-154, since it was introduced under special rules requiring a two-thirds majority to pass. Eleven moderate Democrats, along with most of the Republican caucus, balked at the $12.5 billion cost of the extension.
If Congress successfully passes an extension, it will be the fifth time since the start of the Great Recession that an extension has been necessary. The most recent successful effort, which passed in July, occupied weeks of time in the Senate, where Republicans – most notably Sen. Jim Bunning (R-KY) – opposed the extension on similar spending grounds. At one point, benefits actually lapsed for three months before Democrats reached an agreement with Republicans and passed the last extension.
Though some Republicans claim that unemployment insurance discourages people from looking for work – which is demonstrably false – continuing federal benefits for the unemployed is important for several reasons. The economic recovery is taking longer than originally hoped for; the unemployment rate is still above nine percent; and there are still five unemployed workers for every new job opening. This recession is qualitatively different from ones past, typified by longer stretches of unemployment, making it crucial to maintain UI benefits longer than normal. Indeed, many, including President Obama, along with social equity nonprofits, are claiming the House-proposed three-month extension would simply be an ineffectual stopgap and are calling on Congress to extend benefits for a full year, as economists are forecasting the economy will still be sluggish into 2012.
In addition to providing stability to the unemployed, extending UI benefits would be beneficial to the economy at large. The Department of Labor recently affirmed that for every dollar the government spends on unemployment benefits, it generates two dollars of economic activity, making UI benefits one of the most powerful forms of federal spending. The Congressional Budget Office (CBO) came to a similar conclusion in January when it noted that every dollar in federal benefits generates $1.90 in the economy. Thus, the benefits of extension far outweigh the monetary costs, which will be negligible on the long-term deficit.
If Congress fails to pass an extension, the National Employment Law Project (NELP) estimates that nearly 2 million people would lose benefits in December, and large numbers of unemployed workers would lose benefits each month after that. Economists project that expiration of the federal emergency unemployment programs would "cut consumer spending significantly and reduce already-languid gross domestic product (GDP) growth by half a percentage point." UI benefits are, therefore, a “two-for-one”: the spending both stimulates the economy and helps those most in need.
Many fiscal hawks in Congress, however, think the nation does not need more UI benefits. Recently, Rep. John Kline (R-MN), the incoming chair of the House Education and Labor Committee, when asked in an interview what he would tell those who are "hanging on by a thread" if Congress fails to extend emergency unemployment benefits, replied:
Well, they, heh, the best thing to do for them is to get the economy back on track and get businesses hiring so that they have a job that they can go to. We simply don't have the money to keep extending unemployment benefits indefinitely. We just don't have the money.
Kline repeatedly pointed out that the government spends too much money and that our deficits are too high. Instead, the congressman, along with the rest of his party, would rather pass an extension of the Bush tax cuts, arguing that if Congress passes all the Bush tax cuts, it will "get the economy back on track" and the unemployed will "have a job that they can go to."
The problem is that extending the Bush tax cuts, especially for the top two income tax brackets, does not guarantee economic growth; in fact, it is one of the least effective stimulative policies available to policymakers. Additionally, failure to offset the cost of extending the top two rates – which no Republican has come out against – will add roughly $700 billion to the deficit over the next decade. Indeed, if choosing between extending high-income tax cuts and providing the unemployed with additional time to collect benefits, Congress should choose extending UI benefits based solely on the likelihood of stimulating economic activity.
Image in teaser by flickr user Daquella manera, used under a Creative Commons license