Can We Afford to Help the Unempoyed?

The fiscal toll unemployment is taking on the federal government is laid bare in the recent July Budget Report.

Unemployment expenses rose almost 41 percent as of July during the government’s fiscal year to $135 billion, surpassing the fiscal year gains seen on an adjusted basis in Medicaid (8.3 percent) Social Security (5.8 percent), defense (5.3 percent) and Medicare (4.5 percent).

Given that unemployment remains above 9 percent, those figures are hardly surprising. They are only bound to increase further as members of Congress continue to push through extensions of unemployment benefits. Congress recently passed the eighth extension of unemployment benefits since July 2008. These payments are designed to help the unemployed from starving or becoming homeless. Everyone, including me, knows people who are availing themselves of it.

Unemployment Insurance is far from perfect.  The rules sometimes seemed designed to discourage people from looking for work.  There also is widespread abuse as the Obama Administration itself noted in its budget proposal.

“When States have to finance high levels of UI improper payments, employers face higher taxes and workers may see cuts in
their benefit levels,” it says.  “Despite the efforts of States to reduce improper payments, over $11.4 billion in UI benefits were erroneously paid in 2009—an overpayment rate of almost 10 percent.”

The Administration believes it can address the problem by cracking down on cheaters.   That’s going to be difficult.   As jobless benefits expire after 99 weeks, desperate people will game the system.  There are some who view small stipend they get from the federal government as a “paid vacation” , but they are in the minority.

This is one of the most difficult challenges facing President Obama.  There are no easy answers. For instance, many are arguing that he should cut or scrap the F-35 Joint Strike Fighter.  As McClatchy Newspapers recently noted, the costs of the aircraft are skyrocketing.

Based on figures in the document, the average cost of one F-35 — $62 million when the program was launched in 2002 — could rise to $115.5 million, not counting inflation, by the time all 2,457 planes that the U.S. plans to buy are built.

Including inflation, the government now expects each F-35 to cost an average of $133.6 million. But even that figure could swell to more than $150 million when revised estimates are completed in June.

Ending the program would put tens of thousands of workers out of work since there is less other work for them now that the Pentagon is slashing spending.  Once these workers are jobless, they create new costs for the government and society as a whole, particularly if they lose their homes through foreclosure.

Last week,  Congress passed a $26 billion state aid bill that was designed to save the jobs of 320,000 teachers and other government workers.  Though I am happy that people are going to keep their jobs, one uncomfortable question remains:  how can we afford this?

Uncle Sam can’t continue to spend huge amounts of money to support the unemployed.   Something has to give.  The choices Obama has are politically unpopular in an election year — deep cuts in spending or steep tax hikes.  It’s time for him to pick his poison.

Jonathan Berr