The tension between the states and the federal government over the use of stimulus funds to broaden access to unemployment compensation highlights the “rob Peter to pay Paul” mentality implicit in the Obama administration’s economic agenda.
States are justifiably fearful of passing legislation to incur the financial liability inherent in expanding their unemployment compensation programs, and are unsure of how they will cover the expense of paying benefits to previously ineligible groups when the $7 billion in federal funds runs out. Pressure on legislators to accept the dole has been intense, and states that previously turned down assistance have been forced to reverse their positions. Unfortunately, addressing this immediate need will do nothing to help beleaguered state budgets that will struggle to fund the newly-passed eligibility requirements in the years to come.
The liability for this broadened access cuts two ways, as businesses face potential state tax increases to pay for the expanded benefits at a time when many of the jobs our economy is shedding, such as jobs in the manufacturing sector, are gone for good. Unemployment is expected to escalate at least into 2010, and the longer-term consequences of the economic adjustment created by this recession are unknown. Not only will states be paying benefits to larger numbers of unemployed, they will find themselves paying these benefits for much longer periods of time.
Expanding welfare for people who would rather be working while discouraging business expansion is very bad policy, but Washington seems to prefer this route to addressing the real problem of how to stimulate small business development. The 1% of the stimulus plan targeted to aid small business is offset by legislation that is an absolute disincentive to growth, including forcing employers to front the cost and administrative expense of the 65% COBRA subsidy, and increasing taxes in 2011on small businesses making more than $250,000.00 annually. These very real cost increases will in no way be offset by the illusory tax benefits touted by Washington, such as curtailing the capital gains taxes that many, if not most, small businesses do not pay. They will, however, absolutely discourage businesses from expanding and, reinvesting in themselves by adding employees.
Enough is enough. Allocating massive funding for unemployment benefits while passing legislation that impairs job creation is counterproductive to the point of insanity. The solution is to foster an environment that creates private sector jobs, not an environment that punishes small businesses that have beat the odds in their struggle to succeed.