The Costs of Paying for Unemployment Insurance

WASHINGTON, DC - DECEMBER 17: U.S. Sen. Rand Paul (R-KY) (3rd R) talks to reporters after a vote December 17, 2013 on Capitol Hill in Washington, DC. The Senate has passed a cloture vote to clear the way for a final vote of the Ryan-Murray Bipartisan Budget Act of 2013.   
National Journal
Fawn Johnson
Jan. 6, 2014, 4:28 p.m.

Re­pub­lic­ans are throw­ing a wrench in­to the de­bate over un­em­ploy­ment be­ne­fits by in­sist­ing that spend­ing cuts off­set any ex­ten­sion of fed­er­al aid for the long-term job­less.

It’s a con­ver­sa­tion shift that makes Demo­crats nervous. Once you start bat­tling over how to pay for something, le­gis­lat­ive talks be­come a new ball game. Passing the bill is no longer a brute battle of polit­ic­al wills. It’s a trad­ing match.

A bill to provide a three-month ex­ten­sion of un­em­ploy­ment be­ne­fits for people who have been out of work for more than six months has been sched­uled for a vote Tues­day, after harsh weath­er pre­ven­ted more than a dozen sen­at­ors from mak­ing it to the Cap­it­ol on Monday even­ing. The meas­ure needs 60 votes to move for­ward, and it’s a high hurdle. The pro­vi­sion car­ries a cost of $6.4 bil­lion over 10 years, and con­ser­vat­ives aren’t will­ing to go there.

That didn’t stop Demo­crats from scold­ing them. “What are you go­ing to tell the 1,600 people in Hager­stown, Mary­land, and those across the coun­try, who are des­per­ately look­ing for work? What are you go­ing to tell them?” de­man­ded Sen. Jack Reed, the Rhode Is­land Demo­crat who sponsored the un­em­ploy­ment bill with Re­pub­lic­an Sen. Dean Heller of Nevada.

Re­pub­lic­ans are, however, will­ing to dis­cuss ex­tend­ing un­em­ploy­ment be­ne­fits if they don’t bur­den fed­er­al cof­fers. Even Sen. Rand Paul of Ken­tucky said Sunday that he is open to ex­tend­ing un­em­ploy­ment in­sur­ance as long as it is paid for. House Speak­er John Boehner told the White House a month ago that he would go along with an un­em­ploy­ment ex­ten­sion if it was off­set. Boehner also wants an un­em­ploy­ment bill to in­clude oth­er pro­vi­sions to cre­ate jobs (and, he notes, the House has passed a bundle of them).

The Re­pub­lic­ans’ de­mands are com­plic­at­ing the un­em­ploy­ment is­sue for Demo­crats, who ar­gue that ex­ten­ded un­em­ploy­ment be­ne­fits have been in ex­ist­ence since the late 1950s and have gen­er­ally not been off­set since 1972. The ex­cep­tions to that rule were in 2009, 2011, and 2012, when the ex­ten­sions were part of lar­ger le­gis­lat­ive pack­ages that in­cluded tax off­sets. For ex­ample, the 2009 un­em­ploy­ment ex­ten­sion was part of the Work­er, Homeown­er­ship, and Busi­ness As­sist­ance Act.

For Demo­crats, set­ting a pre­ced­ent that fed­er­al long-term un­em­ploy­ment be­ne­fits must be paid for opens up a can of trouble. It means that the be­ne­fits are no longer driv­en by eco­nom­ic and em­ploy­ment con­di­tions but by the con­di­tion of the fed­er­al budget. Gen­er­ally, tight-em­ploy­ment eco­nom­ies trans­late to tight budgets, which means it be­comes in­fin­itely harder for law­makers to ap­prove ad­di­tion­al be­ne­fits.

“Quite frankly, I thought it was a mis­take when we off­set it be­fore. It should not be off­set,” said Sen. Ben Cardin, D-Md., who over­saw the un­em­ploy­ment-com­pens­a­tion pro­gram when he was in the House.

Cardin also ar­gues, cor­rectly, that ex­ten­ded un­em­ploy­ment be­ne­fits give a short-term boost to the eco­nomy of about 0.2 per­cent of GDP — not enough to off­set the cost, but it is something.

Demo­crats have not com­pletely closed the door on off­sets, which con­fuses the mat­ter. Rep. Sander Lev­in, D-Mich., the rank­ing mem­ber on the House Ways and Means Com­mit­tee, and Rep. Chris Van Hol­len, D-Md., rank­ing mem­ber on the Budget Com­mit­tee, offered late last year to off­set a short-term un­em­ploy­ment ex­ten­sion us­ing rev­en­ues raised from the farm bill, but there is no sign that their pro­pos­al will come up again this year.

House Demo­crats now are pre­par­ing to pres­sure — or per­haps shame — Re­pub­lic­ans in­to think­ing they have to sup­port an ex­ten­sion without an ac­com­pa­ny­ing spend­ing cut, aides say. Ways and Means Demo­crats are work­ing on an un­em­ploy­ment “counter” that will show a run­ning tally of the num­ber of job­less people who have ex­hausted their be­ne­fits. (It’s run­ning at about 7 per second.)

And the pres­sure tac­tics are work­ing. Sev­er­al Re­pub­lic­ans in both the House and the Sen­ate have called for some type of ne­go­ti­ation to al­low an un­em­ploy­ment ex­ten­sion to con­tin­ue. They just don’t want to give away the ex­ten­sion for free, which is ex­actly what Demo­crats are re­quest­ing.

Budget hawks, however, can be just as stub­born as lib­er­als. They note that even if ex­ten­ded un­em­ploy­ment be­ne­fits passed muster as emer­gency spend­ing in 2008, when the eco­nomy was col­lapsing, it’s been more than five years since then. It’s hard to ar­gue that it’s an emer­gency now.

“If the state [un­em­ploy­ment] fund goes in­to de­fi­cit, they can bor­row in the short term, but they’ve got to pay it back. Ul­ti­mately there has to be a bal­ance. They have to make tough de­cisions,” said Chris Ed­wards, the CATO In­sti­tute’s dir­ect­or of tax-policy stud­ies. “I think it’s a good idea. It en­sures re­spons­ib­il­ity.”

Mi­chael Cata­lini con­trib­uted

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