WASHINGTON — Amid the fervor over the fiscal cliff in Washington, there's one federal program also facing a Dec. 31, 2012, deadline that if allowed to pass could cost unemployed Americans thousands of dollars and deprive states of crucial federal funding that's helped them weather the worst of the Great Recession.
At the end of this year, unemployment benefits that were greatly expanded during the recession are set to expire unless Congress acts to extend them. All told, more than $250 billion has been spent toward unemployment benefits over the past five years, according to the Congressional Budget Office. It's estimated more than 2 million Americans are receiving the expanded benefits and the total cost reached $94 billion in the last fiscal year alone.
Now, though, the debate over extending the jobless benefits has become mired in negotiations over the fiscal cliff, the mix of spending cuts and tax increases set to take effect Jan. 1, 2013, to lower the federal deficit. The $30 billion price tag for extending the entirety of the expanded benefits is too costly, some deficit-wary lawmakers say. President Barack Obama included the provision in his initial offer to Republicans last week, which they rejected.
The extended benefits allowed unemployed Americans to receive benefits far longer than they usually would have. At its longest, the benefits allowed for 99 weeks of unemployment, compared to just 26 weeks under normal circumstances.
As the recovery took hold, Congress has pared back the more generous benefits depending on a state's unemployment rate. No state offers the full 99 weeks, but all offer some form of extended assistance.
But that could come to an abrupt end at the end of this month, and many worry the economic benefits and the help they offer the unemployed are being lost in the fiscal cliff debate.
The benefit to the economy, even during the worst of the recession, has been significant. The program is seen as a better stimulus of demand for goods and services than many other initiatives, and the CBO says extending the benefits for another year would boost the economy and create 300,000 jobs next year alone.
But the stakes also are substantial for states and their budgets. As part of the expanded program, the federal government paid for a significant part of the expansion. Normally a jointly funded state-federal initiative, the additional federal money freed states from having to rely on already-stretched unemployment insurance trust funds to help the unemployed.
Those trust funds are designed to cover unemployment benefits and ebb and flow with the economy. They comprise taxes on employers and wages, and are meant to remain flush during a strong economy and be drawn down when unemployment spikes.
But they've been battered by the recession. States collectively are carrying more than $26 billion in debt and billions more in mounting interest, having borrowed more than $50 billion from Washington in recent years to offset cash-strapped funds. Those debts already have forced many states to scale back benefits even as they continue to face high joblessness.