The New York Times
reports today that the Senate’s unexpected vote on Tuesday to advance
legislation extending expired unemployment benefits touched off delicate
negotiations to secure final passage in the chamber, even as Republicans and
Democrats warily eyed the political motives behind the efforts.
The three-month extension of benefits passed with no room to spare, on a vote of
60 to 37, and some of the six Republicans who voted yes made clear that they
wanted the $6.4 billion cost paid for through cuts elsewhere in the budget.
Dr Peter Morici:
Reinstating emergency unemployment benefits, as President Obama urges, would
slow growth and impose unconscionable burdens on the working poor.
State governments provide a basic benefit averaging $300 per week for 26 weeks.
During the Great Recession, Washington financed additional benefits for as long
as 99 weeks.
With the recovery in its 55th month,
the emergency is over. Another extension would make long-term benefits de
facto permanent and create
another entitlement. Republican leaders are correct to insist Democrats identify
equivalent spending cuts or new sources of revenue.
Advocates argue those benefits provide the strongest economic stimulus, because
the unemployed spend whatever money they receive on necessities. However, their
supporting studies assume other federal programs are not cut or taxes are not
raised to finance benefits.
Cutting other outlays, for example on roads and schools, would have an even
bigger negative impact on GDP and jobs than failing to again extend unemployment
benefits, because some of the latter would not be spent but rather be used to
pay down credit cards and other debt.
Additional taxes to pay for more unemployment benefits would impose a terrible
burden on the working poor—the very folks Obama constantly reminds need the most
Unemployment benefits are financed by federal and state payroll taxes, which
like the social security tax, cut off when a worker’s wages exceed a cap
established by the various states, according to federal guidelines. The average
limit is about $12,000.
Although these taxes are generally paid by employers, economists argue those
reduce the wages employers can pay low income workers by a similar amount. Indeed,
some of the extended unemployment benefits paid during the recession were
financed by a special federal levy that hit low income workers hardest of all,
making extended benefits a cruel hoax on the working poor.
Unduly long unemployment benefits in an economy the President says is picking up
steam encourages many unemployed to postpone serious employment searches. From
Wall Street to Main Street, white collar professionals have delayed accepting
lower pay and changing occupations by running down savings and collecting
maximum unemployment benefits of about $300 a week.
Most could easily earn multiples of those amounts even by accepting positions at
somewhat lower status than their old jobs. It takes a rather twisted view of
social justice to raise taxes on the working poor to pay professionals not to
work but that is exactly what federally-financed extended unemployment benefits
A recent study by the non-partisan National Bureau of Economic Research
indicates extended unemployment benefits caused most of the persistently high
unemployment after the Great Recession.
By raising the cost to employers of hiring low wage workers, higher payroll
taxes to finance benefits discourage employers from adding new jobs—especially
in depressed areas. And extended benefits discourages workers from moving from
high unemployment locations—for example coal mining communities in West
Virginia—to more rapidly growing states—Texas and South Dakota where the oil and
gas boom is driving growth.
Like so many of Obama’s well intentioned policies, emergency unemployment
benefits slow growth, limit jobs creation and incentives to work among many
well-educated Americans and place the greatest burdens on the working poor.
Professor, Robert H. Smith School of Business, University of Maryland,
College Park, MD 20742-1815,
703 549 4338 Phone
703 618 4338 Cell Phone
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