The Cruelest Cuts: Unemployment Benefits Get the Ax

The cascade of budget cuts continues. The National Employment Law Project (NELP) reported last week that several states, including Michigan, South Carolina, and Florida, were cutting unemployment benefits. For over 50 years, there had been a national consensus that state unemployment benefits should last 26 weeks. These states have bucked that trend and capped benefits at as little as 20 weeks even though the average length of unemployment is almost twice as long. And they are doing so at a time when all of these states have higher unemployment than the national average.

The state lawmakers who are pushing these cuts say their states just can't handle the burden that growing unemployment has imposed. The truth is that many of these states had inadequate unemployment insurance trust funds and therefore had to take out federal loans in order to make up the difference. The interest on those loans is now due. But rather than finding a new way to create revenues, such as increasing employer contributions to unemployment insurance (as Colorado and Rhode Island have done) or raising taxes, these states are balancing the budget on the backs of the jobless. But whose fault is it that the states mismanaged their trust funds? Certainly not workers, who pay their part out of each and every paycheck.

Not only is this morally revolting, but it is also bad economic policy. As the President underscored Monday, not extending unemployment benefits will hinder job growth by cutting demand. A study last year of stimulus measures by economists Mark Zandi and Alan Blinder found that unemployment benefits produced one of the biggest bangs for the buck of any policy, sparking $1.61 in economic activity for every $1 in spending. Compare that impact with corporate tax breaks, which the study found produces just $.32 in activity for every dollar lost in revenue. Nevertheless, some of the same Republican governors cutting back unemployment benefits have pushed through new corporate taxes this year to stimulate growth.

Meanwhile, according to John Irons of the Economic Policy Institute, the debt ceiling deal just negotiated in Washington will reduce spending on unemployment benefits by $45 billion in 2012, lowering GDP by 0.4 percent and costing the economy 528,000 jobs. As my colleague Bob Kuttner points out, this economic hit will result in lower tax revenues than projected, thus negating some of the deficit reduction the deal hopes to achieve.

Besides worrying about budget woes, many Republican leaders in the states fret that unemployment benefits increase the length of unemployment, a point trumpeted endlessly by think tanks like the CATO Institute. They believe that increasing desperation and anxiety among the unemployed will "help" those Americans get off their butts and find work. But, as I argued here, if you're out of work in this recession, you're likely to stay unemployed; the problem is that employers are not hiring because tapped out consumers aren't buying. In some cases, employers are even discouraging applications from the unemployed.

The real irony is that cutting unemployment benefits will only (in conservative-speak) make the unemployed more dependent on the state. Families that have maxed-out on unemployment benefits begin to rely more on food stamps, Medicaid, or the package of services offered by Temporary Assistance to Needy Families. They scale up their use of already overburdened workforce development centers, called OneStops. And they place additional stresses on whatever other state resources are available to help them find work and support their families.

Of course, this is exactly what should happen. These mothers and fathers have every right to do whatever is in their power to secure their families. This includes withdrawing resources that their tax dollars have paid for. But I fear the current preference for budget cuts over extended support will mean that, as soon as these same legislators realize that other support programs are "burdening" the state, they will cut those too. And families will be left without a lifeline.

Even when Republicans were attacking welfare in the 1990s, unemployment insurance was generally perceived as a sacred cow. It was what Americans paid for and what their country owed to them in hard times. To renege on that promise now is a betrayal of one of the best parts of our tradition, the belief that if you work hard, you can secure your future.

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