Why Democrats Won't 'Pay For' Extended Unemployment Benefits

Labor Secretary Hilda Solis joined a rowdy press conference with congressional Democrats Wednesday to warn of a "horrific, bad holiday season" for two million unemployed Americans if Republicans succeed in preventing a reauthorization of extended unemployment benefits.

Though they're not trumpeting their position at press conferences, Republicans say they are no less committed than Democrats to helping the jobless. The difference, Republicans say, is that they want to do the "fiscally responsible" thing and use spending cuts to offset the cost of the benefits. Sen. Scott Brown (R-Mass.) offered such a bill on Tuesday evening.

"We can settle this tonight. We can provide that extension of benefits tonight," said Sen. Scott Brown (R-Mass.) in a classic bro-like speech on the Senate floor. "My bipartisan idea will allow that to happen and will prevent millions of Americans from losing their benefits."

Brown pointed out that 21 Democrats voted in favor of a failed Republican amendment (on an unrelated bill the previous day) that had the same funding offset he proposed using to pay for benefits. Because of that, he said his idea was bipartisan and ought to win Democratic support. It didn't.

To Democrats, "paying for" extended unemployment insurance is not the same as paying for just anything. They have two objections. The most important one -- though not the one they tend to make first -- is that cutting government spending from one part of the budget to pay for extended jobless aid diminishes the economic benefit of the aid.

Mainstream economists say dropping the extended benefits, which before lapsing Wednesday provided up to 73 weeks of aid above the 26 weeks always provided by states, could reduce annual economic growth by nearly one percent and could cost up to one million jobs. That's because the nearly 10 million people relying on an average $290 a week tend to spend the money immediately on necessities like food and shelter. A yearlong reauthorization of the benefits would cost roughly $60 billion -- money that would reverberate quickly throughout the economy.

"It's not just a matter of compassion, it's a macroeconomic issue as well," Rep. Barney Frank (D-Mass.) told HuffPost.

And deficit spending is the way to do it, economists say, because expanded government outlays make up for slackened demand in the private sector. "Current deficits impose no burden on the economy because there are massive amounts of idle capacity," said progressive economist Dean Baker in an email to HuffPost. "The Federal Reserve can simply buy and hold the bonds to finance the deficit so it doesn't create any interest burden. This should be a real no-brainer."

Mark Zandi, a former adviser to Sen. John McCain (R-Ariz.), has said Congress could reauthorize benefits with a plan to offset their cost not immediately, but a couple years down the line. That way the government would pump money into the economy without removing it at the same time. Yet it's unclear whether such a compromise has ever been discussed on the Hill. Why not? Who knows.

Democrats' other objection to paying for benefits -- typically the first thing they say when asked -- is simply that they don't usually pay for benefits. Federally-funded extended benefits have been put in place during every recession going back more than half a century, and they usually have not been fully paid for, according to research by the House Historian.

"We have not paid for unemployment comp extensions and that's been true under presidents Republican and Democratic, and they're simply looking for an excuse to vote no," Rep. Sander Levin (D-Mich.), chairman of the House Ways and Means Committee, told HuffPost on Wednesday. He's got a point: During the presidency of George W. Bush, for instance, a Republican-controlled Congress in 2002 and 2003 gave the unemployed 13 federally-funded weeks of benefits on top of the 26 weeks provided by states with hardly any deficit controversy.

Complicating the picture, however, is the fact that the cost of extended benefits has been offset in the past -- but with tax hikes, not the massive spending cuts proposed today. In several recessions since the 1950s Congress has partially offset the cost of extended benefits with increased unemployment surtaxes on businesses. In 1991, a $5.5 billion, 13-week extension was fully offset with "higher corporate estimated tax payments, increased taxes on lump-sum pension distributions and a one-year elimination of the personal exemption for high-income taxpayers," according to the New York Times. And in November 2009, when Congress increased the number of weeks available to a total of 99, the $2.4 billion cost of the newly-available weeks was fully offset with increased unemployment surtaxes. (Subsequent reauthorizations of those weeks haven't been offset.)

"It's important to note that the bill I signed will not add to our deficit," proclaimed President Obama in the Rose Garden last November. "It is fully paid for, and so it is fiscally responsible."

Levin and other Democrats say scrambling to find cuts to fully offset unemployment benefits would set a precedent making it more difficult to extend jobless aid in the future. "There's a basic principle because we haven't paid for extensions and once you start, if we had started doing that some time ago, they simply would not have existed," he said. "[Republicans] are trying to dodge the basic economic and moral issue. It's a smokescreen."

Clouding the GOP insistence on fiscal responsibility are Republicans' frequent insinuations that the unemployed are to blame for their own bad situation, and that only a layabout could refuse to work for two whole years. It's a view from the beltway contrary to all available facts about the job situation in this country. The average unemployment spell lasts 33.9 weeks. Of nearly 15 million unemployed, 41.8 percent have been out of work for longer than six months. And only about two thirds of the jobless even receive benefits to begin with.

The difficulty of getting a bill through the Senate probably means the only hope for reauthorizing the benefits before the holidays is a deal attaching jobless aid to deficit-busting tax cuts for the rich. It's a deal House Majority Leader Steny Hoyer (D-Md.) thinks is basically un-American.

"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. That they can pay the rent, get gasoline in their car so they can go look for a job," Hoyer told reporters on Wednesday. "I think that making a political deal on unemployment insurance is not what America ought to be about. America ought to be about helping those who are through no fault of their own in deep economic distress."