CHN: Congress Lets Unemployment Insurance Expire – Again And Blue Dogs Abandon Recession-Torn States

Ending state aid “…will be a serious drag on the economy at just the wrong time.”
–Mark Zandi, Chief Economist, Moody’s Economy.Com, 10/29/09

Aid to states still reeling from budget shortfalls and unemployment benefits are some of the most effective ways to boost the economy. But Congress left for its Memorial Day recess week without completing action to prevent the federal unemployment insurance and COBRA health coverage subsidies from expiring. And House Blue Dogs were willing to risk creating a serious drag on the economy by standing in the way of continued aid to states. They also forced the House leadership to drop health coverage for the jobless from the bill the House finally approved.

On Friday, May 28, the House passed the American Jobs and Closing Tax Loopholes Act (H.R. 4213). It extended the federal Unemployment Insurance program, included welcome additional provisions to assist the jobless and build affordable housing, renewed a number of tax breaks that had been earlier allowed to expire, and prevented a reduction in reimbursements to physicians under the Medicare program. But the Senate had left for its recess on Thursday night, so no final action was taken. As a result, the program of health insurance subsidies for the unemployed expired on May 31, and the federal program providing benefits to the long-term unemployed will expire on June 2. Congress will return on June 7. If the Senate passes its own version and the House and Senate agree on final legislation, these programs can be reinstated.

In addition to restoring the COBRA funding, the Senate will have to add aid to states for their rising Medicaid costs to prevent that aid from ending at the end of December. Squeamish Blue Dogs (a group of House Democrats who variously term themselves fiscal conservatives or moderates) thought the original version of the bill had too much spending in it that was not paid for by revenue increases or savings, even though there had been previous agreements to approve many of these items on an emergency basis (without paying for them). To satisfy the Blue Dogs and gain enough votes for passage, House negotiators split the bill into two parts to avoid a nervous-making single price tag. And they further reduced the cost by dropping $24 billion in Medicaid aid to states and the $6.8 billion COBRA health benefits subsidy.

The House took a separate vote on a further delay in imposing a significant reduction in pay to doctors in the Medicare program. Instead of the 20 percent cut required under previous law, there will be a small increase in reimbursements in FY 2011. While physicians’ groups had sought a permanent end to the payment reductions, and earlier versions would have delayed the cut until 2013, the provision passed by the House staves off the cut for only one year, at a cost of just under $23 billion over 10 years. No source of revenues or savings paid for this. But despite all the out-loud worry over the deficit, the vote for this provision was substantial, 245-171 (15 Republicans joined 230 Democrats in voting yes; 156 Republicans and 15 Democrats opposed).

The rest of the legislation passed by a narrower margin, 215-204 , with 34 Democrats and 170 Republicans voting no (only one Republican, Cao of Louisiana, voted yes).

Among the provisions in H.R. 4213 long sought by advocates was a year’s extension of the Temporary Assistance for Needy Families Emergency Fund. The $2.5 billion Fund will allow states to continue providing short-term or monthly assistance to impoverished families with children and will also allow more funds for subsidized jobs. The Obama Administration is proud of the growing use of the subsidized jobs option by states; in the most recent quarter, more than half of the funds requested by states were to create subsidized public or private sector jobs. It is estimated that 185,000 temporary jobs will be created by the end of September. The TANF Emergency Fund will expire at that time if Congress does not take final action.

The House bill also includes $1 billion for summer and year-round jobs for youth, estimated to create 300,000 – 350,000 jobs. In addition, the legislation includes $1 billion to capitalize the National Housing Trust Fund, and also includes $65 million to support 10,000 new project-based rental vouchers. This investment will create 15,000 construction jobs and 4,000 jobs for the ongoing operation of the housing.

H.R. 4213 also includes about $31 billion in continued tax breaks that had expired but that are usually routinely renewed by Congress, including research and development tax credits, a large number of business tax breaks, tax credits for teachers who spend their own money on school supplies, and individual income tax deductions for state or local real estate and sales taxes. These and other provisions in the law are paid for by about $44 billion in tax loophole-closing. There is a modest increase in taxes paid by investment fund managers and increased revenues collected from those who seek to shelter earnings in foreign countries.

The failure to include more Medicaid aid to states will be a serious blow to the fragile economic recovery if allowed to stand in the final legislation. Separate efforts to provide $23 billion in education aid to states have also met with serious resistance, despite the lay-offs of more than 105,000 teachers so far. In all, 192,000 state and local government jobs have been lost since 2008; another 347,000 public jobs would have been lost if not for the economic recovery legislation. If there is no additional state aid after December, it could cost the economy 900,000 private and public sector jobs.

Continuing unemployment and health insurance benefits is similarly urgent. In the recession of the early 1980s, when unemployment reached double-digit levels, only about one-quarter of the unemployed were out of work for more than 26 weeks. Now, nearly half of the jobless are long-term unemployed, underscoring the urgent need to continue the federal unemployment benefits. (See Mark Zandi’s April testimony before the Senate Finance Committee.)

When the economy was in free fall, Members of Congress believed the large number of economists who told them that providing aid to the unemployed and to state governments would prevent further job loss and create private sector jobs because of the purchases individuals and governments would be able to make. There were majorities to approve extensions of unemployment benefits, aid to states, and other means of boosting the economy. Now, as those measures have just begun to bear fruit, some in Congress would halt the help they are providing. A new Congressional Budget Office report estimates that in the first quarter of 2010 the economic recovery legislation enacted in 2009 increased the number of people employed by 1.2 million and 2.8 million. This progress is most welcome, but there are still 15 million people unemployed and 27 million either on the official unemployment rolls or listed as discouraged workers. The best cure for the deficit is more people at work and paying taxes.

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