Working On A Deal

President Obama announced yesterday that he had worked out a deal with Republican leaders in Congress on taxes and unemployment compensation.  The deal would extend all of the Bush-era income tax rates for two years, provide extended unemployment compensation for another 13 months, and reduce payroll taxes for a year, among other components.

The Bush-era tax cuts expire on December 31, so the deal needs to make it through Congress promptly.  There is some question about whether the “grand compromise” will be sufficiently well received — particularly among President Obama’s liberal base — to be passed in the lame duck Congress.  The concept of extending “tax cuts for the rich” is anathema to them, and they feel like President Obama weakly gave up far more to Republicans than he got in return.

It would not be at all surprising if there were many Democratic defections when votes are taken on the legislation needed to implement the proposed deal.  I know that Richard, for one, is so infuriated by the concept of extending the current tax rates for individuals earning more than $250,000 that he didn’t even want to talk about it at the dinner table last night.  I’m confident that many liberal Democrats share his disgust — and, more and more, the disgust is directed at the President.  If the deal does pass, we will see a significantly different political dynamic in 2011 than existed in 2010.  Not only will conservative Republicans control the House of Representatives, liberal Democrats will be increasingly likely to criticize President Obama as a sell-out who cannot play hardball with Republicans.

Who’s Playing Politics? (Cont.)

CBS News has an interesting take on the issue of who is playing politics on the extension of unemployment benefits for out of work Americans.  It turns out that President Obama, in signing a prior extension bill, specifically noted that it was fully paid for and therefore fiscally responsible — which is all that Republicans were asking to be done in connection with this latest bill.

Every voter understands that there is a galling hypocrisy in political leaders of both parties.  But does the games-playing have to be so flagrant and duplicitous?  Given this kind of phony about-face, are the President’s advisors really scratching their heads about why his approval ratings are plummeting?

The new extension bill, by the way, adds $34 billion to the federal deficit.

When Should The Extensions Stop? (Cont.)

The Senate has gone on recess without acting on a bill to extend unemployment benefits, and the debate about whether to further extend the extended payments continues.  Some economists argue that continuing to pay unemployment benefits has a stimulative effect on the economy; Arthur Laffer — of Laffer Curve and supply-side economics fame — argues to the contrary.

Competing economists always seem to be able to mine and then cite obscure economic statistics to support their competing arguments.  Practically speaking, however, it’s hard to see how the extended unemployment compensation benefits paid to date have had any appreciable stimulative effect on the economy.  It is also hard to see how we can continue to pay people, indefinitely, for not working.  Human experience certainly suggests that someone who is paid for months without working is going to have less incentive to aggressively seek work — or, for that matter, to start his or her own business venture.

When Should The Extensions Stop?

In Ohio, eligible unemployed workers can receive weekly benefit payments that are approximately 50 percent of their average weekly wage, up to certain maximum amounts, for a period of 26 weeks — that is, half a year.  The federal government then offers emergency unemployment compensation which provides additional payments to eligible unemployed workers that can continue payments for more than a year after the worker becomes unemployed.  Since the beginning of this year, Congress has enacted, and President Obama has signed, legislation to further extend the unemployment compensation payments, to as much as 99 weeks — only a few weeks shy of two full years of benefits.  As the California Employment Development Department website notes, the 99-week period is “unprecedented” in our country’s history. 

The extended benefits — as well as the $25 weekly supplement paid by the “stimulus” legislation, and the COBRA subsidies for unemployed workers — are set to expire on June 2.  Legislation has been introduced to further extend the extended unemployment payments, and certain workers groups are lobbying for Congress to extend the benefits through the end of 2010.  Such an extension would mean that workers could receive nearly two and a half years of benefit payments.

Should Congress grant such an extension?  I do not think you can continue, indefinitely, to pay people for not working.  Such payments inevitably must reduce the incentive to look hard for a job.   Furthermore, two years seems like an ample period of time for someone who is truly motivated to find a new job and, if they live in an especially depressed area, to move to a place where jobs can be had.  The line must be drawn somewhere, and now seems like a good time to draw the line — particularly with the concerns that are arising from our debt situation and the out-of-control debt situations in places like Greece.