Committee for a Responsible Federal Budget

Offsetting A Long-Term UI Extension

Jan 9, 2014

The unemployment insurance saga continues. Today, Senate Majority Leader Harry Reid (D-NV) proposed an alternative unemployment benefit extension which would run through mid-November, in place of the three-month extension previously considered.

Thankfully, and unlike the prior version, this extension would be fully offset [Update: After this blog was written, CBO released a score of the Reid proposal which shows that it would not be fully offset unless the budget window were extended through 2025. The bill will add $17 billion to the deficit through 2023 and about $5 billion through 2024. It would reduce the deficit by about $1 billion through 2025 excluding interest.] -- it appears through a combination of extending the mandatory sequester through 2024 and a modest version of the proposal we previously discussed preventing UI beneficiaries from also receiving Social Security Disability Insurance. We will withhold judgment of this proposal until we have time to see and fully analyze the specifics, but we are glad to see the conversation is turning to offsets, which we have called for several times.

If the offsets put forward by Reid are not adopted, policymakers have many other options. The total cost of the Reid extension, which would also lower the maximum number of weeks one can receive benefits, is reported at about $17 or $18 billion; a full extension of current benefits through the end of 2014 would cost about $25 billion.

These costs could be covered by adopting a combination of policies we previously presented to offset a three-month extension or other small policies to get to the $25 billion cost. There are also a number of bigger options which would mostly, fully, or more than offset the cost in one fell swoop. The table below presents some of these options, in addition to two we highlighted in the previous blog post: extending the 0.2 percent UI surtax and prohibiting UI beneficiaries from also receiving disability insurance. All estimates are through 2024 to reflect the new budget window.

Options for Offsetting UI Extension
PolicyTen-Year Savings
Extend UI surtax permanently$16 billion
Prohibit "double-dipping" with UI and DI$5 billion
Increase UI wage base to $14K, index to wage growth, and lower rate to 0.33%$18 billion
Eliminate direct commodity payments$25 billion
Restrict categorical eligibility for food stamps to cash assistance programs$14 billion
Require DI beneficiaries be moved to Social Security at age 62$14 billion
Close carried interest loophole$19 billion
Encourage use of generic drugs by low-income beneficiaries in Part D$33 billion
Require derivatives be marked to market and tax them as ordinary income$17 billion
Reduce crop insurance premium subsidy$25 billion
Allow USPS to end Saturday delivery$24 billion
Restrict cost-sharing for TRICARE for Life$35 billion
Reduce Medicare payments for bad debts$27 billion
Freeze Medicare means-tested premium thresholds through 2023$28 billion
Require Social Security number to claim refundable portion of child tax credit$30 billion

Source: CBO

Policymakers could also look beyond a ten month or one-year extension to come up with more long-term extensions and reforms to unemployment insurance and other jobs measures. A jobs package could include new infrastructure spending, job training or community college initiatives, targeted tax breaks aimed at promoting job growth or investment, and possibly some additional sequester relief. The President's proposal for correcting the way we measure inflation would generate about $210 billion from the on-budget, non-Social Security portion. If this was used to pay for such a package it would likely promote short-term economic growth, encourage long-term economic growth, slow the growth of the debt, and improve Social Security solvency.

Just like with other extensions, unemployment benefits should be offset. There are a lot of ways lawmakers could do that, so they should have little trouble finding a way that they can agree on.