Argument: Extended unemployment benefits help bolster confidence/spending

Issue Report: Bush economic stimulus plan


  • Congressional Budget Office. “Options for Responding to Short-Term Economic Weakness”. January 2008 – “A new program to extend unemployment insurance to those who exhaust their regular benefits could cost about $1 billion to $2 billion per month, depending on the number of additional weeks provided. Based on CBO’s analyses of the family income of long-term UI recipients in previous periods, it seems likely that recipients would quickly spend most of those benefits. For example, an examination of the experiences of long-term UI recipients in 2001 and early 2002 who had not found work soon after their benefits ended—that is, the people for whom extensions of UI benefits are intended—indicated that their average family income was about half of what it had been when they were working. Moreover, more than one-third of the former recipients who had not returned to work had a family income below the poverty line (measured on a monthly basis), and about 40 percent lacked health insurance.”
‘Extending unemployment benefits helps bolster confidence,’ said Mark Zandi, chief economist at Moody’s and the author of the study. ‘If people start running out of their unemployment benefits, they cut back drastically on their spending and it also scares people around them. It is very debilitating on consumer confidence.’
Providing states with federal support so they don’t have to cut their own programs provides $1.24 in increased spending for each $1 it costs, while a targeted tax cut provides $1.19 boost, according to Zandi’s study.
The reason these items had a bigger payout than they cost reflects the fact that the assistance goes to poorer people who spend the extra benefits quickly. This helps trigger what economists call the ‘multiplier effect’ in that a dollar of increased spending gets recycled through the economy, boosting the spending of other people.
By contrast, other proposals which benefit wealthier individuals such as across-the-board tax cuts and reductions in dividends and capital gains taxes were found to return less than their cost during the first year.”
This extension is important to America’s working families and to our economy. Economists tell us that extending unemployment benefits is the most effective way to quickly grow the economy and create jobs. It is a fast, fair and fiscally responsible investment. For every dollar the federal government invests in unemployment benefits, the return is $1.73 in economic growth. In contrast, for every dollar the federal government provides to cut taxes on dividends, the return is only nine cents