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Dems and GOP Still Far Apart on Extending Unemployment Insurance

December 1, 2011 - by Donny Shaw

With the new year quickly approaching, the single most important thing for Congress to do (besides keep the government funded) is to reauthorize the federal extension of unemployment insurance. If they don’t, more than 2 million unemployed people will lose their benefits by mid-February and the drag on demand for goods and services would hit the economy quickly and could send us back into a recession.

Congress has never let extended unemployment insurance expire with the unemployment rate above 7.2 percent. The national unemployment rate stands at 9.1 percent right now, and the Federal Reserve does not expect the rate to drop below 8.5 percent during the next 13 months.

Recently there have been indications that both the Democrats and Republicans in Congress are hoping to close out the year with an agreement on extending several provisions of law that are scheduled to expire on December 31, including federal extended unemployment insurance. Yesterday, Senate Health, Education, Labor and Pensions Chairman Sen. Thomas Harkin [D, IA] said that he would block Congress from adjourning for the holidays in the unemployment extension does not get done. And reports this morning indicate that House Majority Leader Rep. Eric Cantor [R, VA-7] is working on a grand bargain, end-of-the-year package that includes an unemployment extension.

Still, it’s far from certain that the extension will actually be passed. On the details, the two sides are still far apart. For example, here’s how the trade-off in Cantor’s grand bargain would go:

Democrats and President Barack Obama would get their much sought-after payroll tax cut extension and jobless benefits, while Republicans would tweak the Pentagon cuts that defense hawks hate.

President Obama has already vowed to veto any attempts to change the spending cuts that are being triggered by the supercommittee’s failure, and I expect that he will stick to that until at least after the 2012 elections.

In the Senate, Democrats and Republicans are facing a stand-off over whether or not an unemployment insurance and payroll tax-holiday extension should be offset with new cuts. Democrats argue that offsetting the programs basically nullifies their stimulative impact on the economy, and in every fight over unemployment benefits in the past few years, the Democrats have found a way to overcome Republican objections and get them passed without offsets. This time it’s different though. The Democrats are now 8 votes short of breaking a Republican filibuster.

Theoretically, the solution might be for some kind of offset plan that senators form both parties could get behind. So far, however, offsets are the area where the disagreement is strongest. Democrats want any offset to come from hiking taxes on high-income earners and protect the middle class while Republicans seem to want pretty much the opposite. The latest Republican offset proposal calls for freezing federal civilian worker pay and laying off 10% of federal employees.

So despite all the happy talk about wanting to extend unemployment insurance before the holidays, there’s still a major stand-off on one of the fundamental questions that divides Washington — who should be asked to pony up for social-welfare and fiscal stimulus programs, the rich or the middle class?

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