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As GOP warms to tax revenues, will anyone in Congress stand up for the long-term unemployed?

June 21, 2011 - by Donny Shaw

Richard Cohen at Politico has a piece this morning on what is probably the most important trend in Congress right now. According to the article, Republicans, from the leadership down, are warming up to the idea of raising revenue through increasing corporate tax rates and closing loopholes. “The targeting of long-protected tax breaks — for ethanol, research and development, manufacturing and foreign company income — is a sign that key House Republicans are ready to break with the orthodoxy of past tax debates while ditching special interests that have long held sway in tax reform discussions,” Cohen writes.

It’s not just talk, either. Last week, 67% of Senate Republicans voted in favor of ending tax breaks for the ethanol industry. After the vote, Sen. Tom Coburn [R, OK] declared that the Grover Norquist-led era of Republicans for tax cuts at any expense is over. “Grover’s old news. It doesn’t matter what he says, it doesn’t matter what he wants,” Coburn said. “We’re going to fix the country, and some of that is going to be revenue increases, that’s the only way you’re going to build a compromise and get it signed by this president.”

So what does it mean for the hottest issue among users of OpenCongress — extending unemployment insurance for the very-long-term unemployed who have exhausted all available benefits without finding new work?

Rep. Bobby Scott [D, VA-3] and Rep. Barbara Lee [D, CA-9] have been meeting with Republican leadership about the unemployment legislation and seem to have made some progress by backing off their preference to fund it as emergency spending that directly adds to the deficit and being willing to offset its costs with new revenues or spending cuts. Last year, a staffer for House Speaker Rep. John Boehner [R, OH-8] said that the “Speaker supports unemployment insurance extensions if they are paid for.” With Boehner and the Republicans now open to paying for through rasing revenues through closing corporate tax loopholes, it would appear that a compromise may be in hand.

But will support for the long-term unemployed take preference over other investments? According to a report prepared by the Congressional Budget Office last year, if the goal is to stimulate the economy and create jobs, it should. Of eleven forms of stimulus, including tax cuts and targeted investments, the CBO concluded that unemployment insurance extensions had the greatest potential to increase output, measured as the cumulative effect on gross domestic product for each dollar invested. Over a 5-year budget window, every dollar spent on unemployment benefits could produce as much as $1.90 in output, the CBO found. The reason: “Households receiving unemployment benefits tend to spend the additional benefits quickly, making this option both timely and cost-effective in spurring economic activity and employment.” With sound tax and spending policy, increasing GDP means increasing revenue and reducing deficits.

The CBO was looking specifically at extending benefits beyond the standard 26 weeks. Presumably, the stimulative and potentially revenue-increasing effect of extending unemployment benefits increases the more they are targeted to people who have been out of work longer and are more likely to have to spend it quickly. The CBO also found that unemployment benefits create more jobs than almost any other form of stimulus. Only payroll tax cuts scored better on job-creation in their report, and only if firms taking the tax cuts actually increase employment. All other forms of stimulus — infrastructure investments, one-time payments, state-aid, etc. — scored much lower than extending unemployment.

Theoretically at least, the pieces are falling in place for Congress to simultaneously help the people who have been hit hardest by the economic crisis, stimulate job growth, reduce the deficit, and eliminate tax loopholes that distort the market. So far, however, neither the White House nor leaders in Congress, from either party, have championed this combination of closing corporate tax loopholes to pay for relief for the long-term unemployed. The data clearly shows its potential for broad benefits to the U.S. economy, but Congress seems to have mostly moved on from trying to help the unemployed. Fact is, the lived experience of the governing elite in Washington keeps Congress insulated from the suffering of ordinary Americans. The economy in D.C. is booming, and the social class the vast majority of lawmakers come from has pretty much recovered from any economic discomfort they felt in the recession.

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