Committee for a Responsible Federal Budget

Like Other Extenders, Unemployment Benefits Should Be Offset

Dec 4, 2013 | Other Spending

Recently, several Members of Congress and outside groups have called for continuing extended unemployment benefits to allow the unemployed to collect for up to 73 weeks instead of 26. When Congress considers this extension, as with tax extenders and the sequester, they should keep PAYGO principles in mind.

CBO recently estimated the cost of a one-year extension at $25 billion and separately found that this extension would increase GDP by 0.2 percent and employment by 200,000 at the end of 2014. These gains are far from insignificant, but if a policy is important enough to extend, it’s also worth paying for.

The pay-as-you-go (PAYGO) principle ensures that policymakers face the real trade-offs of budgeting, and when abided by, it prevents policymakers from making an already unsustainable fiscal picture even worse.

Moreover, offsetting an extension of unemployment benefits would be a win-win economically. As CBO explains:

"[extending unemployment benefits] would lead to greater federal debt, which would eventually reduce the nation’s output and income slightly below what would occur under current law (unless other policy changes were made that offset the increase in federal debt from the policies analyzed here)."

Offsetting the cost of unemployment benefits with other savings will prevent them from adding to the debt and reducing economic growth, and assuming the offsets are permanent, they will eventually help to slightly accelerate the growth of the economy over the long term.

PAYGO rules are there to enforce fiscal responsibility, not to be waived whenever they become inconvenient. Policymakers should abide by PAYGO strictly, at least so long as the debt is on an unsustainable long-term path.