Unemployment Insurance And The Re-Cycling Of Tax Dollars

The unemployment rate is slightly below the 10% mark, which seems terribly important psychologically. It seems that the economy is fine if the jobless rate is 9.7% but is in horrible shape if the number is 10.1%. The Labor Department put the statistic in perspective when it said that unemployment went up in 30 states last month. Five states had record high jobless rates including the most populous state California. Florid hit a record high unemployment level at 11.9%, just below California’s 12.5% number. Michigan, brutalized by the disintegration of the American car industry, topped the 50 states with a jobless rate of 14.3%. The figure is probably closer to 20% in some of the urban areas around Detroit. Detroit itself is so deserted that former professional basketball player and current mayor, David Bing, has proposed that a quarter of the city be bulldozed to the ground. It would be hard, if not impossible, to find a similar proposal by the mayor of a large American history from any time in the republic’s history.

The White House and many members of Congress have admitted that there is little that can be done about unemployment short-term. The Senate passed a new unemployment benefits package recently that will cost $140 billion over the next two years in terms of what it will add to the budget deficit. Bloomberg reports “The chamber voted 62-36 to approve the legislation, which would also extend dozens of expiring tax cuts, ease corporate- pension requirements and head off cuts in Medicare reimbursements to doctors.” The legislation now goes to the House.

The Congressional Budget Office made the point that the kind of stimulus that extends unemployment insurance has immediate benefits for the economy. The jobless usually spend their checks quickly to handle the costs of essential needs which are often all that they can cover.

The conversation about how the nation could afford to spend the $140 billion was not publicized in the same public fashion as the benefits of the bill. Most of the discussion about the legislation focused on the plight of those in need.  The  Senate approved the unemployment package  at the same time that the Treasury Department said that the February budget deficit hit $221 billion. That is up from the $194 billion deficit in the same month of 2008. Federal government spending rose 17% to $328 billion.

Among the most troubling news from the budget report was that for the first five months of the federal government’s fiscal year, corporate tax receipts were down $7.4 billion to $45.5 billion. Receipts from individuals fell 14% to $334 billion. Unemployment, in other words, is destroying the government’s bottom line at an alarming rate.

As the money taken in from people continues to fall, the money spent by the government to provide a social safety net rises. The Social Security Administration spent almost $309 billion in the first five months of the government’s fiscal year. That is up $18 billion from the previous fiscal year. Money spent by Health and Human Services, which handles Medicare and Medicaid, was up more than $22 billion to $342 billion.

The CBO argues that a dollar given to the unemployed goes back into the economy quickly and therefore adds to GDP and perhaps the taxable income of some individuals and businesses.  Only Sophists believe that this system has any real long-term benefit. The government may pay the poor to spend, but that does little to help them find jobs.  If there are no more successful ways to help the unemployed, Congress would be better off passing legislation to create new housing for the unemployed and use the construction jobs created to put some Americans without employment back to work.

If there is any single thing that will help bring down federal deficits over the next several years and keep the nation’s debt from reaching the $20.3 trillion that the CBO forecasts for 2020, it is a sharp drop in the unemployment rate. An unemployment rate of 5%, the level where it was in mid-2005, would mean that seven or eight million people who are out of work now would have jobs. The GDP created by adding that number of jobs would take most of the burden off the Treasury to borrow money at an extraordinary and unsustainable pace. But, if wishes were horses, all the beggars would ride. The best minds in Washington and in the profession of economics have not been able to come up with a single substantial program to reverse the destruction of jobs over the last three years..

A look at the unemployment figures by state, the $140 billion unemployment benefits bill, and the February budget numbers makes one thing clear. Working Americans support almost 15 million unemployed Americans. The people who are working also help support Social Security, Medicare, and Medicaid which adds support of several tens of millions or more people to the burden. The jobless rate is not improving.  People who are out of work for extended periods need government support, and the aging population puts more pressure on the social safety net.

Ten years from now, if the situation worsens considerably, one American will be supporting all 300 million of the others.

Douglas A. McIntyre