Today, 800,000 people lost their unemployment-insurance benefits. Almost 2 million more will lose theirs in January if the government does nothing.
Unemployed people are losing their insurance because Congress can't agree on a plan to extend benefits for people who have been jobless for more than 26 weeks. That's six and a half months of unemployment, which may sound long, but consider that there are 2.9 million job openings for 14.9 million unemployed people -- one job opening for every five applicants.
Unemployment insurance doesn't provide lavish benefits. On average, an unemployed person collects $310 a week. That's barely above the poverty line for a single earner, and nowhere near it for anyone supporting a family. Yet opponents of the extension believe that the safety net is a disincentive to finding work -- people would rather scrape by on government payments than earn a living wage, an idea that's hard to reconcile with the realities the jobless experience.
Even setting aside the human cost, there is a powerful economic argument for this extension. Recovery requires demand, and aid to the unemployed is a very effective way to create that demand: The unemployed spend their checks to pay for housing, food, clothing, and the necessities of life, rather than saving their money. That helps keep businesses afloat.
In the past 40 years, Congress has never failed to extend long-term unemployment benefits while the jobless rate has been above 7.2 percent. The current rate is nearly 10 percent and isn't projected to decline for years. Last year, these benefits kept some 3.3 million Americans out of poverty, according to the Center on Budget and Policy Priorities; should they lapse, the result will be simple: More Americans will be rendered indigent.
The fiscal price of a yearlong extension in unemployment benefits for the affected recipients is $60 billion, roughly equivalent to the 10-year cost of the pay cuts for federal employees proposed yesterday by President Barack Obama. The two-year freeze, of course, is in effect a pay cut, as the cost of living increases in the intervening years without a commensurate boost in wages.
The president's proposal was apparently driven by the political reality of Republicans' increasing power in Washington, but observers are hard-pressed to explain what the president gains from this unilateral concession. While the need to cut public-employee pay is debatable, the need to extend these benefits is paramount. The White House's failure to link the pay freeze to unemployment benefits was a missed opportunity.
Savvy observers see a deal coming with the expiration of the Bush administration's tax policy on Jan. 1. President Obama has proposed extending middle-income tax breaks that affect all Americans, while Republicans want to ensure that the entire policy, including tax breaks targeted exclusively at the wealthy, remains in effect. They're likely to try to hold unemployment funding hostage to that demand.
Upper-income tax breaks, of course, cost far more than the unemployment benefits but have a smaller economic benefit -- the wealthy generally save their marginal income rather than spend it. Even as many in Washington grow increasingly nervous about the deficit -- today the president's fiscal commission will release its final plan to stabilize our finances -- the cost of extending the Bush administration's expensive, unpopular, and unsuccessful tax policy still doesn't register.
So it seems that Congress is on a course for an agreement to endorse, during a time of record-setting income inequality, high deficits, and low tax rates for the rich, further taxes breaks for the wealthy, while managing to scrape together a pittance for the unemployed. Or they will do nothing. Certainly, no plan to create jobs appears poised to pass Congress in the next six months
With legislative deadlock likely, though, the deal offers us a preview of where the next Congress' action will take place: negotiating the budget. As a basis for bipartisan agreement, the fiscal commission's initial working paper hews to a fairly balanced line of deficit reduction, matching spending cuts with tax increases, endorsing much of the president's health-care reform law, even managing a package of reforms to Social Security that only includes one particularly objectionable provision (an increase in the retirement age).
But the working paper's tax-reform plan gives the game away. It starts off on smart premises: Eliminate tax expenditures, broaden the base, and lower rates. Instead of devoting the revenue raised to lowering the deficit, however, it uses a share of it to lower tax rates. It turns out, based on an analysis by the Tax Policy Center, that the plan actually gives the wealthy lower rates than under either the Clinton administration or the current White House proposal.
Lower taxes for the wealthy, it seems, are the price of any agreement between Republicans and Democrats on pressing economic issues, whether it's protecting the most vulnerable members of society when there is simply not enough work to go around or salvaging a decade of irresponsible governing. It's not a sustainable arrangement, and the president and his allies would do well to escape it, rather than reinforce its principles, as he did with the pay freeze.
Otherwise, we will see a hunt for more bipartisan deals. Don't get confused, though. It's only called class warfare when the poor stand to win.