Bang For The Buck: Stimulus Effects of Tax Cuts vs. Public Spending

Bang For The Buck: Stimulus Effects of Tax Cuts vs. Public Spending

Unemployment benefits have not just helped the jobless, they have also pumped up the economy. In fact, UI has been one of the most effective forms of stimulus. According to a study by Mark Zandi and Alan Blinder, each dollar spent on extended UI benefits produced $1.61 in economic activity and has helped to mitigate the worst effects of the economic down turn. This stimulus has been especially crucial economic lifeline in high unemployment areas where UI makes up a significant share of residents’ income.

Reducing unemployment benefits will have negative effects of the economy and job creation. According to study by the Economic Policy Institute, letting extended benefits expire as a result of the debt ceiling deal will take $70 billion out of the economy in 2012, reduce GDP by 0.4 percent, and result in 528,000 fewer jobs. Ironically, this job loss will compromise some of the debt deal’s deficit reduction goals by diminishing the number of workers paying taxes.

When benefits run out, the unemployed rely more heavily on other safety net programs. The so-called 99ers – the 2 million Americans who have been out of work for more than 99 weeks and exhausted all benefits – are relying more on food stamps, Medicaid, or the package of services offered by Temporary Assistance to Needy Families. Laid-off workers have also turned to the Social Security disability program to survive; adding financial stress on that program. In short, inadequate unemployment benefits result in more spending by other government programs.