Leaving Extended Unemployment Benefits Out of the Budget Deal is Cruel and Stupid

The budget deal announced last night by conference chairs Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI) is better than another government shutdown, but nicer words than this are hard to find to say about it.

By far the worst aspect of it is the failure to extend the Emergency Unemployment Compensation program (EUC) in 2014. Without these extensions, 1.3 million workers will have their benefits cut off at the end of 2013, and another 850,000 workers will exhaust normal UI benefits over the first quarter of 2014.

The share of long-term unemployed workers in the total labor force was 2.6 percent in November—double the share of June 2008, when President Bush first signed the UI extensions into law.

Besides cutting off a vital lifeline to millions of Americans, cutting these extensions also continues the disastrous march towards budget austerity; a march that has been by far the primary contributor to our failure to recover from the Great Recession. Cutting these UI extensions in 2014 will create a fiscal drag on the U.S. economy that will reduce job growth by more than 300,000 over the year.

A bizarre irony is that the cost of these extensions is nearly identical to the ten-year “deficit savings” achieved in the deal—between $20 and 25 billion. This amount of money is a rounding error in ten-year deficit projections (my back of the envelope calculations say that it’s well under one half of one percent of projected deficits between 2014 and 2023, under the CBO extended baseline). But Congress has chosen to save an amount of money that doesn’t even rise to the level of symbolic over a decade rather than provide real relief to millions of distressed Americans, as well as provide a mild boost to a still-weak job market.

Even worse, spending this $25 billion to extend EUC in 2014 would surely have lowered the nation’s debt ratio, by boosting economic activity and hence tax collections, as well as generating jobs through the demand boost, and keeping workers from collecting as much in safety net spending as they would have absent this boost.  Finally, it is a bizarre budgeting concept that says extended unemployment benefits made necessary by an economic emergency need to be “paid for.” Having automatic stabilizers that disburse money and allow deficits to rise when the economy is slack is a good thing, not something that needs to be fixed.

This exclusion of EUC from the budget deal is both cruel and stupid. One hopes it can be rectified in coming weeks, but for now it looks like 1.3 million Americans will go into 2014 poorer and the economic recovery will be slowed for everybody else.