US Fiscal: Unemployment Insurance's Hard Path

Published on March 25, 2014

Assuming the Senate and House soon reconcile their differences over the Ukraine assistance package this week, Majority Leader Harry Reid has promised to turn the Senate’s attention to S.2148, the bipartisan bill to reauthorize emergency insurance benefits for the long term unemployed proposed a few weeks ago by Rhode Island Democratic Senator Jack Reed and Nevada Republican Dean Heller.

With at least six Republicans on board with the bill, including Ohio Republican Senator and former OMB head Ron Portman, Reid is believed to have the 60 necessary votes to overcome any filibuster threat to the “Emergency Unemployment Compensation Extension Act of 2014,” whose first procedural vote could come as early as this weekend or early next week.

*** Before the bill makes its way to a Senate floor vote, it is still possible the Senate will revise some of the bill’s duration (and thus costs) and the “payfors,” perhaps to extend it for a full year, or at least past the November elections. Otherwise, its current five month time-line, when backdated to December 28 when the UI last expired, means it could expire again barely weeks after it eventually becomes law. The longer period, however, raises the price tag on the payfor, making its already difficult passage even more problematic in the House. ***

*** The Republican House leadership is taking a wait and see attitude on what emerges in a final Senate bill. But the House GOP has for now little to no interest in passing the bill, believing another extension provides disincentives to seek employment and adds to the nation’s structural unemployment problems. The GOP may exact a more realistic payfor as a price for bringing it to a floor vote in the House, or demand the Senate incorporate any of the half-dozen or more job bills already passed in the House but never taken up in the Senate. ***

*** We think the odds are even at best for the UI bill to clear both the Senate and House, and if it does, it is unlikely to reach President Obama’s desk much before late April. Its impact on aggregate demand will be negligible either way, but the political rhetoric around it could elevate the structural issues of long term unemployment, potentially coloring the debate within the Federal Reserve at its April 29-30 meeting. ***

Senate Re-draft Likely

The benefits program for the long term unemployed expired last December 28 and has since been stalled on Capitol Hill after having failed to be included in late last year’s two year budget deal (see SGH 1/10/14, “US Fiscal: The Politics of Unemployment Insurance”). After several abortive attempts, Democratic and Republican Senators Reed and Heller, both from high unemployment states, rewrote S.2148 to garner wider bipartisan support, drawing eight other Democratic and Republican co-sponsors, including Ohio’s Portman, which greatly enhanced the bill’s prospects among Republicans in both the Senate and an eventual vote in the House.

In its current draft, the bill would backdate payment of the unemployment benefits to December 28 for five months to the end of this May. Its CBO-estimated cost of $9.9 billion would be offset by customs fees enacted under the recent budget deal being further extended through 2024, and by changes to federal pension programs, postponing a “pension smoothing” clause that was due to expire at the end of this year, and allowing single-employer pension plans to prepay their flat-rate premiums to the Pension Benefit Guaranty Corp.

Although the bill’s sponsors and the Obama Administration’s Labor Secretary vow the bill can be implemented as written, there are enough questions about it that it may draw some revisions. For one, its short duration could literally mean it would be about to expire by the time it is finally passed, which may take up all of April and into May. And the bill doesn’t address how exactly the backdated payments would be implemented when the program’s expiration has now dragged out for months rather than days or even weeks.

Our sense is that it is likely the bill will be re-drafted either before Reid brings it up for the procedural votes on its way to a floor vote, or certainly once it reaches the House, where it is likely to amended in the Ways and Means Committee. For instance, it could still be backdated but extended for a full year — past the November elections in any case — rather than just for five months. Doing so, however, elevates its costs closer to an estimated $28 billion which, in turn, means additional but always difficult payfors must be found.

All of this is what lies behind why, when asked about its prospects in the House before last week’s St. Patrick’s recess, House Speaker John Boehner quipped “which bill? You mean the one that can’t be implemented?”

Indeed, the potential implementation difficulties, coupled to its certain political difficulties in the House may lead to some back channel negotiations between the House and Senate sides to undertake the sort of fixes to the bill before it goes to a Senate floor vote that would elevate its prospects in the House.

For instance, there is some talk of coming up with more credible payfors than simply stretching out previous budget agreements by another year or two. Boehner has also pointed to several of the self-titled job creation bills the House has previously passed that Senate Majority Leader Reid never opted to take up.

Mixed House Prospects

Assuming some version of S.1845 ever makes it out of the Senate next month, its prospects in the House are still mixed at best and may drag its passage into late April or even early May if it makes it to a House floor vote.

For one, there is very little passion or incentive for the Republican House to take up the bill, or not to exact a maximum political price for letting the bill get to a House floor vote. There is little demand among its rank and file for the bill, and ideologically, Republicans tend to see another extension as only hurting, not helping, the labor market by creating disincentives to seek employment, and thus deepening structural unemployment problems.

One other potential stumbling block is in its timing. In being dragged into late April or early May, the cost of the unemployment insurance bill may invariably get caught up in the House efforts to find further spending cuts to pass a FY2015 budget as proposed by Budget Committee Chairman Paul Ryan.

In order to stick to the pledge to balance the budget within ten years and pass the budget resolution without Democratic votes, the House GOP would need to find deeper spending cuts in the later years to offset the higher spending built into last December’s two year budget deal. That, in turn, may make Republicans facing tough votes on the new budget even more reluctant to make room for the payfors to an UI bill they hold little regard for in the first place.

Making the politics of that even worse, there is no actual need for a FY2015 budget resolution this year since the discretionary spending top line of just under $1 trillion has already been set by the “Bipartisan Budget Act of 2013” passed in late December. This vote is instead entirely cosmetic, to show the House GOP can still pass a budget resolution, in stark contrast to the Senate, which will not bother.

What’s more, even if the bill survives GOP objections, the bill may also suffer from an ebbing level of passion, even among Democrats. At the turn of the year, Democrats were initially pressing hard on the bill as a legislative vehicle to play on Republican “indifference to the suffering” of the unemployed or income inequalities as a campaign theme for the November elections.

To at least some degree, however, there has been some rethinking among some Democrats on the issue, worried that a campaign platform of income inequalities or help for the unemployed could in fact backfire by reminding voters how hard it is to find a good job. Instead, some are beginning to argue that if the economy is indeed picking up, touting a recovery and an improving jobs outlook is the better positioning to take going into November.

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