Morici: Unemployment Benefits: A Burden on the Poor

NEW YORK (TheStreet) -- Extending emergency unemployment benefits, as President Obama urges, would slow growth and further burden the working poor.

State governments provide a basic benefit averaging $300 per week for 26 weeks. During the Great Recession, Washington financed additional benefits for as long as an extra 73 weeks.

With the recovery in its 55th month, the emergency is over. Another extension would make long-term benefits de facto permanent and create another entitlement. Republican leaders are correct to insist Democrats identify equivalent spending cuts or new sources of revenue.

Advocates argue those benefits provide the strongest economic stimulus, because the unemployed spend whatever money they receive on necessities. Their supporting studies, however, assume other federal programs aren't cut or taxes aren't raised to finance benefits.

Cutting other outlays -- for example, on roads and schools -- would have an even bigger negative impact on gross domestic product and jobs than failing to extend unemployment benefits again, because some of the money from unemployment benefits wouldn't be spent but rather would be used to pay down credit cards and other debt.

Additional taxes to pay for more unemployment benefits would impose a terrible burden on the working poor -- the very folks Obama constantly reminds need the most help.

Unemployment benefits are financed by federal and state payroll taxes, which like the social security tax, cut off when a worker's wages exceed a cap established by the various states, according to federal guidelines.

Although these taxes are generally paid by employers, economists argue the taxes reduce the wages employers can pay low-income workers by a similar amount. Indeed, some of the extended unemployment benefits paid during the recession were financed by a special federal levy that hit low-income workers hardest of all, making extended benefits a cruel hoax on the working poor.

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