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How to Help the Jobless -- and the Economy

By Aaron Bernstein When President Bush in early October proposed slashing long-term tax rates to help juice the economy, critics were quick to jump on it. The stimulus would come too late, they charged, and have little effect in the short run. Largely overlooked in the hoopla were the Bush and House GOP plans to help workers by extending jobless benefits and paying health coverage for laid-off workers.

These proposals would offer a more immediate shot in the arm for consumer spending, but they need to be better crafted. Both now involve little new money, relying largely on the diversion of funds already allocated. What's more, the necessary cash would come from programs for other needy groups, including poor children. And it would likely be six months before the few new dollars on the table could even be spent.

"It sounds like bait and switch," says Brookings Institution tax expert William G. Gale. "Financing worker benefits by reducing other government spending suggests that they're not serious about stimulus."

MORE CASH. An easy fix can turn these plans into real stimulus medicine: Washington could cough up more cash to help the jobless afford health coverage, and workers laid off both before and after September 11 could be added to the rolls for extra weeks of jobless aid. Senate Democrats want to take both steps, but it's unclear if Bush will alter his position.

Take the idea of extra jobless benefits. Both the Administration and the House GOP suggest giving the unemployed 13 more weeks of support after the usual 26 are exhausted. But by simply accelerating routine cash transfers from federal reserves for unemployment insurance to similar funds maintained by the states, the GOP wouldn't spend any new money. Since the states would have gotten the money anyway, the plans add no new dollars to the economy.

The six-month lag time also undercuts the proposals' effectiveness. Economists calculate that most families spend almost all of their jobless checks to meet current expenses. So giving more to the unemployed now would pump money into the economy right away. But Bush's plan applies only to those laid off after September 11. It wouldn't even start until eligible workers run out of regular benefits next March -- about the time most economists figure the Federal Reserve's rate cuts finally will make an impact.

STATE GRANTS. The effects could take even longer to kick in under the Republicans' plan, which the House GOP passed with three Democratic votes on Oct. 24. While it doesn't have the September 11 trigger, the money would come as grants that states don't have to spend on extra jobless benefits. The measure relies on new rules for eligibility that could result in delays of up to six months before the money reaches the unemployed.

To bolster low jobless-fund reserves, many states might sock the money away instead of doling it out to workers. If that happens, only $2.3 billion of the $9 billion earmarked for transfer by the House in fiscal 2002 will actually get to the people it's intended to help, according to Congressional Budget Office estimates.

The other major leg of the proposals, to help the jobless pay for medical insurance, would make even less of a dent. The President would divert $11 billion from the State Children's Health Insurance Program, which is expanding by 1 million poor kids a year.

HEART OF A DEBATE. Giving the money to the unemployed would just redirect aid from kids to workers, again without injecting new dollars into the economy. "There would only be a stimulative effect if spending is somehow accelerated, which seems unlikely," says Wendell Primus, an economist at the Center on Budget & Policy Priorities in Washington.

While putting up new money to help workers would make the stimulus package more effective, it also would leave less for tax cuts for business and individuals. That's the heart of the debate raging in Washington. Until it's resolved, the economy certainly won't be getting a big boost from the bottom. Bernstein covers social policy from BusinessWeek's Washington bureau

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