Jobless Aid Begins Expiring as Congress Deadlocks

Thousands of Americans are set to begin losing unemployment benefits after Congress failed to agree on extending aid to the long-term jobless.

In a replay of a dispute earlier this year, lawmakers are deadlocked over how to finance an extension even as the aid starts to lapse. Democrats yesterday offered to extend benefits for a year, with the $56 billion cost financed with borrowed money.

Republicans balked, demanding the extension be offset with savings elsewhere in the government’s budget.

“Do we provide the important benefits by burdening future generations by adding” to the government’s budget deficit, Senator Scott Brown, a Republican from Massachusetts, asked yesterday.

“Is there a better way? Of course there’s a better way, especially if we work together,” he said.

About 8,400 Americans will see their unemployment benefits cut off by the end of this week, according to the Labor Department. By the end of the third week of December, aid to 1.36 million Americans will be interrupted, the agency said.

The benefits are “needed by families to buy necessities,” House Speaker Nancy Pelosi said at a news conference today. Unemployment insurance “immediately injects demand into the economy to create jobs,” said Pelosi, a California Democrat.

Photographer: Jonathan Alcorn/Bloomberg

An unemployed man uses a hotline phone to get information about unemployment benefits at a State of California Employment Development Department office and job center. Close

An unemployed man uses a hotline phone to get information about unemployment benefits... Read More

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Photographer: Jonathan Alcorn/Bloomberg

An unemployed man uses a hotline phone to get information about unemployment benefits at a State of California Employment Development Department office and job center.

Tax Cuts

Senator Jack Reed, a Democrat from Rhode Island, said yesterday he didn’t understand why some lawmakers object to extending benefits without offsetting the cost and “at the same time insist that we provide tax cuts for the very richest Americans without paying for them.” He was referring to the impasse over extending tax cuts scheduled to expire at the end of this year.

Some Democrats, including Senator Dick Durbin of Illinois, said an extension of unemployment aid should be included as part of any deal to extend tax cuts enacted during the administration of President George W. Bush.

President Barack Obama and many other Democrats want to retain tax cuts passed in 2001 and 2003 only on the first $200,000 annually earned by individuals and the first $250,000 earned by married couples filing jointly. Republicans want tax cuts extended permanently for all income levels, saying that allowing any taxes to rise during a fragile economic recovery is a bad idea.

Boosting the Economy

Though the nonpartisan Congressional Budget Office has called jobless aid one of the best ways of boosting the economy because the payments support consumer spending, lawmakers have struggled to extend the payments amid growing concern over the deficit. Earlier this year, benefits were interrupted for more than a month amid a similar dispute over whether to finance an extension with borrowed money.

Democrats pushed the last extension through with the support of two Republican senators -- Susan Collins and Olympia Snowe of Maine.

Since December 2007 -- the start of the worst U.S. recession since the Great Depression -- Congress has extended the total amount of aid three times so that the unemployed could receive up to 99 weeks of aid averaging $300 per week. The government spent about $160 billion on unemployment benefits in the fiscal year that ended Sept 30, or about what it cost to run the wars in Iraq and Afghanistan.

The National Bureau of Economic Research reported earlier this year that the recession ended in June 2009.

9.6 Percent Unemployment

It is “unclear” whether the aid extensions have contributed to the unemployment rate that stood at 9.6 percent in October, according to CBO. It said in a Nov. 17 report that while aid dissuades some unemployed Americans from searching for work, it also boosts demand for goods and services, which tends to boost employment.

The aid extensions have reduced the nation’s poverty rate in 2009 to 14.3 percent from the 15.4 percent that would have been otherwise seen, according to CBO report.

Allowing benefits to lapse could hurt companies such as Dollar General Corp. (DG), according to a September research note by the investment firm William Blair & Company.

To contact the reporter on this story: Brian Faler in Washington D.C. at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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