Here we go again. After a full year of grandstanding against another extension of unemployment benefits, some Republicans are ready to cave.
“do we believe in free-market doctrine, which suggests that extended UI hurts the economy, or the Keynesian multiplier, which suggests that UI helps the economy?”
If you ever wondered why it is so hard to cut spending, and more importantly, to downsize government, look no further than the fight over extending unemployment benefits.
Despite a year full of political parlance concerning budget austerity, many have forgotten that we have only cut $6.67 billion from the FY 2011 $1.049 trillion discretionary budget authority. Even this miniscule cut might be cancelled out by up to $11 billion in emergency disaster spending, which is not subject to the spending caps. Moreover, after just one year of cuts, discretionary spending will steadily rise during each subsequent year, albeit at a slower rate than originally proposed by Obama.
But there is a more salient observation that must be publicized. These miniscule cuts, including the faux baseline cuts, are only applied to 28% of the budget – the part that is funded through the congressional appropriations process. The other parts of the budget are virtually unscathed, even from baseline cuts. To that end, even as we cut a few billion from baseline discretionary spending, we will still add hundreds of billions more in mandatory spending for each subsequent year.
These mandatory programs have created such inveterate dependency constituencies that nobody wants to touch them with a ten-foot pole. Even if we exclude Social Security, Medicare, and veteran’s benefits, there are still almost $800 billion in other mandatory programs, most of which is spent on welfare. This has become the fastest growing part of the budget, yet it will remain completely fortified from any budget control mechanisms.
The Unemployment Insurance (UI) program has been one of the biggest drivers of increased ‘other mandatory spending’. Over the past two years, due to unprecedented 99 weeks of unemployment benefits and bankrupt state unemployment programs, the UI program has cost between $130-160 billion per year, rapidly becoming the fourth largest expenditure (behind Medicaid) in the budget.
Are we prepared to eschew free-market principles, and permanently enshrine UI as part of the entitlement state?
Although Congress has previously extended benefits beyond the traditional 26 weeks during recessions, this time they are clearly attempting to establish unemployment as a permanent entitlement program. The 73-week extension of unemployment benefits helped balloon the cost of unemployment compensation to the extent that the employer payroll taxes are no longer sufficient to fund the benefits. Over the past three years, the federal government has collected roughly $135 billion in taxes, while paying out $416 billion in benefits.
Now there is bipartisan agreement to extend the 99-week handout, even though it is incontrovertibly clear that it has failed to “stimulate” job growth. In fact, it has helped stimulate exodus from the labor force and record duration of unemployment.
But don’t worry; Republicans are promising to pay for it with other spending offsets (over 10 years).
Unfortunately, the problem with the GOP plan is that they are agreeing to the premise that further extension is indeed a necessity, and not a drag on the economy. Consequently, once the Democrats ineluctably scuttle the idea of offset spending cuts, how will Republicans explain that they are opposing something they deemed inviolate? They will lose the political fight because the public will once again perceive that Republicans ultimately agree with the premises of the progressives, albeit less enthusiastically. As such, they will side with the more enthusiastic and professional supporters of government dependency.
Even if Republicans miraculously succeed in passing offsets, what will they do next year? Based upon past experiences, temporary extensions become impervious to relapse, due to the political climate. If we don’t terminate extraneous long-term unemployment insurance now, or seriously restructure the program, it will become another third-rail unfunded liability, along with the other big three expenditures. It will also stimulate and perpetuate more unemployment.
Furthermore, if we are granting benefits over and beyond what was paid into the system by employers, why not extend unemployment benefits to the millions of college graduates who cannot enter the workforce due to Obama’s economy? Where do we draw the line? At some point, we must ask ourselves do we believe in free-market doctrine, which suggests that extended UI hurts the economy, or the Keynesian multiplier, which suggests that UI helps the economy?
In order to preclude the creation of a fourth entitlement, Republicans should categorically oppose extension, irrespective of supposed spending offsets. They need to stand firm and reject the compassionate conservatism of the past.
Instead, they should counter with authentic employment benefits. Employment benefits would include across the board personal and corporate income tax reductions, repeal of thousands of odious regulations in the federal register, welfare reform, a comprehensive energy production program, and a cessation of job-killing, market-distorting subsidies. Such a program would create new jobs, elevate personal income, and lower the cost of living for consumers.
At the very least, they should demand passage of one of the GOP’s jobs bills (REINS Act, Keystone Pipeline bill, DeMint’s welfare reform, etc.) – a real stimulant of employment – as a precondition to passing more unemployment stimulation (and stand by that demand).
It might be politically tempting to cede the field on this issue. But if we can’t prevent the creation of a new permanent entitlement, how and when will we ever cut a single existing mandatory program? The road will never get easier if we are unwilling to complete our sentences and articulate free enterprise policies from a position of strength. Does anyone really believe that a few billion in discretionary spending cuts will slow our inexorable march towards Greek-style destruction?