Extended Unemployment Benefits Slow Economic Growth

Unemployment Benefits

President Obama is urging to reinstate emergency unemployment benefits, but doing so would slow growth and impose an great burden on the working poor. Usually state governments provide a basic benefit for 26 weeks, averaging $300 a week. Washington authorized additional benefits during the Great Recession for as long as 99 weeks.

Recovery is in its 55th month now. With the emergency being over, extensions will surely create entitlement, and Republican leaders are correct to ask Democrats for equivalent spending cuts or new revenue resources.

Unemployment advocates argue that the unemployed spend whatever money they receive on necessities, which in turn provides a strong economic stimulus. Their studies don’t take into account, however, the federal programs that would need to be cut or the taxes that would need to be raised in order to finance these benefits.

Cutting other outlays would have an even bigger negative impact on the economy than failing to extend employment benefits, because much of the latter would not be spent in the economy but rather used to pay down credit cards and debt.

Raising the taxes for benefits would create a terrible burden on the working poor- the ones Obama consistently reminds us need the most help. State and federal payroll taxes finance unemployment benefits, and they are cut off when a worker’s wage exceeds a cap limit established by the various states, the average limit being $12,000. These taxes are usually paid by employers, but having to pay them, means reduced wages for low income workers.

Extended unemployment benefits encourages many to postpone serious employment searches. With many white collar professionals running down savings and collecting maximum unemployment benefits, we have created a society in which the working poor pay professionals not to work.

According to a study by the non-partisan National Bureau of Economic Research, the extended unemployment benefits caused most of the persistently high unemployment after the great recession.

To read more visit the OC Register.

Kenneth G. Marks has been practicing personal injury law since he was admitted to the California Bar in 1981. www.KmarksLaw.com