Today's issue broke last week when the House of Representatives voted on an extension of unemployment benefits that the President has promised to veto. I have previously discussed the Social Security Act in detailhttp://mob.polireport.com/2008/05/social_security_1.html . Today's focus is on unemployment insurance. UI is a joint federal-state venture. 96% of the people who work are covered by unemployment insurance which is a joint state/federal venture. Employers pay a portion of tax to the federal government and to the state. The unemployment rate determines how much money each state is given by the feds. The principle is simple, the feds gather a war chest of money in boom times and pay it back in sour times.
So what is Congress doing to UI and why is it so controversial?
Jim McDermott (D-WA) proposed this bill http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.5749:to the Social Security Act. According to the CBOhttp://www.cbo.gov/ftpdocs/91xx/doc9148/hr5749.pdf:
Most states’ regular unemployment compensation programs provide up to 26 weeks of benefits to qualified individuals. The bill would authorize a program for emergency extended unemployment compensation (EEUC), which would provide federal funding for additional benefits—up to 13 weeks in all states—to beneficiaries who exhaust their regular benefits.
Well, so what, so you ask, a bunch of people just graduated from college, they can't possibly all have a job the day after graduation, that will produce a slowdown that will make it harder for the unemployed to get a job.
Indeed it will. However, the CBO also notes:
Office estimates that enacting the bill would: • Increase direct spending by $6.2 billion in 2008 and $11.7 billion over the 2008-2018 period; and • Increase revenues by a net amount of $3.2 billion over the 2008-2018 period. In total, these changes would increase budget deficits (or reduce future surpluses) by $6.2 billion in 2008 and by a net of $8.5 billion over the 2008-2018 period.
As I have noted before these kinds of conditions crowd out http://mob.polireport.com/2008/06/tax_policy_part_i_the_crowding.html small businesses, and cause further unemployment effectively exacerbating the situation. Instead of providing a short term fix to unemployment, it produces more of a long term problem. See what Jimmy Carter was able to do here. http://en.wikipedia.org/wiki/Image:Us_unemployment_rates_1950_2005.png
