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1 IRET Congressional Advisory 1 (1991)

handle is hein.taxfoundation/iretcgadv0001 and id is 1 raw text is: RqI i'E2 -5,f! i i!i i September 26, 1991 No. 1 MAKING A BAD SITUATION WORSE: THE ILL-CONSIDERED PLAN TO EXTEND UNEMPLOYMENT BENEFITS In August, Congress passed a bill to extend unemployment compensation benefits to jobless workers who have exhausted their benefits for an additional 20 weeks. To release the funds to pay for the added benefits, the bill required the President to declare an emergency in order to breech the spending ceiling in the 1990 budget agreement without an offsetting tax increase. The President signed the bill but did not declare the emergency, effectively tabling the payment of the additional benefits. In response, the House passed a new extended benefits bill that deems an emergency to have been declared by virtue of the fact that the President signed the August legislation. The Senate passed its own version that retains the requirement that the President declare an emergency in order to release the funds. A conference to reconcile the two bills is expected to be convened and concluded quickly to send the legislation to the White House by next week. The President should not have signed the first bill, and he should veto the second one. Both are prime examples of a feel-good mentality in government decision making that has pushed federal spending to record heights. Policy makers too often are far too generous in dispensing largesse using taxpayers' dollars, not their own. The positive aspect of the extension is direct and obvious: it would assist people who have been unemployed several months and are about to or have already exhausted their unemployment benefits. Nevertheless, there are steep costs to the proposed extension that are indirect and less obvious, but no less real. The expense of the enlarged program would reduce production, saving, and, ironically, employment. As so often is the case, Congress legislated without the benefit of a careful consideration of what can be achieved and at what cost. The current proposal, estimated to cost $6.5 billion over the next 5 years (although actual spending usually turns out to be higher than forecast), would be deficit financed. It is peculiar that the very people who were most vociferous a few years ago about the supposed evils of the deficit when they were demanding that taxes be raised apparently are unconcerned today about a $350 billion deficit when they are trying to push through another costly spending plan. This unconcern is particularly inappropriate because deficits are most damaging when they result from higher government spending. Higher spending means that the unproductive government sector is taking more valuable resources away from the productive private sector. The proposal rejects the sound financial rule that the costs of government programs should be made as obvious as possible, so people can judge whether programs are worth their costs; it opts for hiding government spending behind the deficit whenever possible. This is not to say the plan would be improved if it were financed by higher payroll taxes. On the contrary, taxes on employment are potent job killers. By making it more expensive to hire workers, employment taxes destroy jobs. Imposing this extra cost on producers now, when they have been cutting back their work forces because of numerous other government-mandated expenses and because of the recession, would be especially bad timing. Thus, the unintended and perverse effect of hiking employment taxes to pay for extended Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to inorming the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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