The Unemployment Benefits Debacle

THE pathetic four-month fight between the White House and Congress over extended unemployment insurance (UI) benefits is finally finished.Everyone lost: the Democratic Congress, which turned the issue into an effort to gain a partisan edge on the Republicans; the president, who gave the impression that he is unaware that the economy has not recovered from the recession; and especially those workers who have lost their jobs and are wondering where their Christmas money is going to come from. This emergency legislation is similar to that passed in every recession since 1954. During the 1990-91 recession we have seen the same cyclical increase in the percentage of long-term unemployment workers as in past recessions. An increasing number of UI recipients are exhausting their entitlements and are facing reduced living standards. Even in good times, half the workers who receive UI benefits need them to prevent their living standards from dropping sharply. Among long-duration unemployed workers t he fraction is higher. Extended benefits do reduce hardship fairly efficiently. They are necessary during a recession, especially one that comes after a steady shift in the composition of unemployment toward a greater percentage of long-term unemployed workers. The potential cost of the legislation is $6 to $7 billion. To avoid enlarging the $300 billion federal deficit and siphoning off still more private savings from productive investment, the benefits will be paid for mostly by resorting to yet another variation on the old Washington theme of fiscal "smoke and mirrors." Extending the payroll tax that finances the benefits will raise its part of the needed revenue and will maintain the soundness of the unemployment insurance program. The other methods - extra taxes on high-income earners, and garnishing income-tax refunds from delinquents on student loans - have very small targets and require great administrative finesse. They are unlikely to raise the expected revenue. When the smoke clears and mirrors disappear, the legislation will raise the deficit. Even ignoring that, the most serious problem with the squabble is that it has chipped away at confidence in unemployment insurance. This 53-year-old program has provided families with a minimum of support when needed. People have come to expect that benefits will be available for longer periods during recessions. BY stalling on this extension, the president has lowered public confidence on the program and helped reduce the very consumer spending that is necessary to boost demand and bring the country out of the recession. By playing games with financing the program, the Democratic Congress has enlarged the already bloated deficit, and has also reduced public confidence in the certainty of receiving benefits. Together they have increased the hardship of the recession and weakened the economy for the long term.

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