The 2014 unemployment extension bill keeps getting kicked down the road by Congress, but it’s possible that a new report from the Congressional Budget Office (CBO) may indicate hard times ahead for Social Security programs in general, including unemployment benefits.
In a related report by The Inquisitr, the CBO has Social Security Disability running out of money by the year 2016, although it’s possible their estimate may be off by a year in either direction.
Now, the solution Congress decided upon for saving the Highway Trust Fund relied upon using the exact same pay-fors that Senators Jack Reed and Dean Heller had devised for their 2014 EUC bill. Reed and Heller had already cut the cost of the extended unemployment benefits down to $10 billion from $26 billion by removing retroactive benefits, but their borrowed method of paying for the five months of coverage would have added to the federal deficit in the short term since pension smoothing and extended U.S. custom fees will not kick in until years down the road. This means Congress is essentially borrowing money now with the promise that it will be paid for many years down the road, which is why some critics now argue our highways are funded by a gimmick.
The two Senators are not giving up, though, and intend on finding a new method for funding the unemployment extension, but, based upon the Congress work calendar, it’s highly likely the bill will be pushed back until 2015, due to the 2014 mid-term elections. Unfortunately, the prospects for 2015 may even be worse since Congress has a long list of fast-approaching fiscal crises coming down the pipeline.
The CBO recently published its long-term deficit and national debt projections last week, which can dramatically influence Congress’ decision in regards to entitlement programs including Social Security programs and unemployment benefits.
Even the front page of the report is scary since it shows a chart where the “federal debt held by the public” reaches 100 percent of U.S. GDP by 2039 (coincidentally, the CBO previously projected the entirety of the Social Security Fund, not just the disability fund’s portion, will run out of money in the 2030’s).
The good news is that the United States is not Greece, which began to fall apart when their debt reached those levels. Japan obviously still manages to function as a country and its debt to GDP in 2013 was 227 percent.
Still, the CBO does have words of caution, which may influence the unemployment extension debate:
“Large federal budget deficits over the long term would reduce investment, resulting in lower national income and higher interest rates than would otherwise occur…. When the amount of outstanding debt is relatively small, a government can borrow money to address significant unexpected events—recessions, financial crises, or wars, for example. In contrast, when outstanding debt is large, a government has less flexibility to address financial and economic crises—a very costly circumstance for many countries…. A large and continuously growing federal debt would have another significant negative consequence: It would increase the likelihood of a fiscal crisis in the United States.”
If it turns out Congress is still debating the 2015 unemployment extension next year, then the GOP may be making the decisions. It’s projected by some that Republicans will win a majority in both the House and Senate, so the focus may turn to spending cuts since the U.S. national debt currently is around $17.6 trillion and the U.S. federal deficit for 2014 is projected to be $492 billion (which could go up or down if there is a major national event like, say, Cold War 2).
Republicans have historically not been in favor of tax increases, but some economists believe the can has been kicked so far down the road that a combination of targeted tax hikes and spend cuts will become unavoidable.
In this scenario, Reed and Heller face the daunting task of convincing the rest of Congress that their particular spending increase is a national priority. The looming budget crunch will determine many actions, but politicians will need to choose their priorities. For example, we’ve previously written that the 2014 unemployment extension could be paid for by shifting money away from U.S. foreign aid, which cost $50.6 billion in 2013.
How do you think Congress should fund the increased unemployment benefits provided for by the 2014 unemployment extension bill?
[Image Via affluentinvestor.com]