Just to outline this framework: under the deal, the Bush tax cuts for all rate levels would be extended for two years. The estate tax, in a monstrous deal, will be lowered from 2009 levels, with a $5 million dollar exemption and a 35% rate, for two years as well. And, the deal adds what is now an annual patch to the alternative minimum class so it doesn’t hit people in the middle class. In exchange, extended unemployment benefits between 26 and 99 weeks will be continued for 13 months, to the end of December 2011 (costing around $65 billion). …
Given the rate of job creation, it looks like a significant number of Americans will be in the same boat as the 6 million current 99ers.
[pro-player width=”400″ height=”320″]http://www.youtube.com/watch?v=tVOIhc2EHUY[/pro-player]
Even as Congress debates whether to extend emergency unemployment checks for more than six million Americans who are approaching the 99-week limit, some four million others are facing the certain end of their benefits over the next year, unless an entirely new program is crafted.
This is the sobering conclusion of a report released by the President’s Council of Economic Advisers on Thursday. The study forecast that the exhaustion of unemployment benefits for so many will curb spending power enough to significantly impede an already weak economic recovery.
The typical household now receiving emergency unemployment benefits would see their income fall by a third should they lose their checks, according to the report. Among the roughly 40 percent of households in which the person receiving a check is the sole breadwinner, income would fall by 90 percent.
Without (a) spending to create jobs and (b) extending unemployment benefits further, we are looking at millions of Americans sliding into destitution and privation, with almost no way out. But a plan that will add some $900 million to the debt thanks to the revenue lost to tax cuts means there probably won’t be much spent on job creation. (And I’m willing to bet this is the last unemployment benefits extension we see from this government for the next two years.)
We have long talked of “two Americas” — and now “two societies” — but this deal does nothing to stop and actually seems to make inevitable the creation or expansion of a third America: that of a large and permanent economically desperate class. Many former middle-class Americas will slide into the ranks of the third America, from cul-de-sac to tent city. The rest will find their grasp on middle class status grow more tenuous as the gravitational pull of the desperate class pulls down wages, etc.
It’s a temporary shot in the arm, which will do nothing in the long term. The wealthy, I understand from Moody’s and Paul Krugman, make their spending decisions based on the state of the stock market. Middle- to low-income families, however, make their spending decisions based on their income and how much they expect to make. In the long term, if nothing is done to create jobs beyond “cut-taxes-and-hope-for-the-best” the boost from the middle class tax cut will shrink along with the middle class. The boost from unemployment insurance benefits will be gone when those benefits expire.
I’ve read at least some analysis that it would have been “political suicide” for Obama not to have extended the tax cuts. But this seems like a slower form of economic suicide for the country.
What they — the White House and the GOP — done on unemployment is essentially reset the clock. If we do nothing more than what we’ve done now, we won’t create jobs at a rate anywhere near sufficient to reduce unemployment. With this compromise we’ve extended tax cuts that have a track record of not creating jobs. The CBO has said tax cuts offered the “lowest bang for the buck” in terms of job creation and economic growth. Moody’s recently released study results showing that the rich do not spend their tax cuts, but tend to save them instead.
We’ve essentially decided to spend the next two years doing what we’ve been doing and what hasn’t been working. (Of course, that depends on what you think needs to happen. Maybe zero job growth is just fine.) In two years, if we haven’t done anything else, millions of Americans will still be unemployed and will plunge into poverty when their benefits run out — after 99 weeks. Beyond that there will be no boost.
On the middle class tax cuts, the only thing I can say is that there will be fewer middle class to spend those tax cuts. Granted they’ll have unemployment benefits to spend, but only for 99 weeks. Beyond that there will be no boost, from spending tax cuts or unemployment benefits.
This is a band-aid on a cut to a major artery.
Or maybe there’s some nuance I’m missing somewhere. But if this is indeed the last unemployment benefits extension we get out of this government, the problem is it doesn’t keep Americans from going over the side of a cliff (economically speaking). It just extends the cliff.