High jobless rate adds billions to deficit

The nation’s unemployment rate has pushed the budget deficit to a record $1.4 trillion in 2009.

The unemployment rate hit 9.8 percent in September and is widely expected to hit 10 percent before the end of the year. Some predict it will not fall until next September.

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Unemployment hasn’t been this high for decades, and the added expenses and lost revenue is expected to add billions more to the national debt in coming months.

High unemployment means more unemployment checks and less tax revenue, costing the government roughly $100 billion annually, said Stan Collender, a former congressional budget aide. Those costs will persist for the next couple of years, if economists are correct in predicting the jobless rate will average more than 9 percent through 2011.

Unemployment compensation rose from $47 billion in fiscal 2008 to $120 billion in 2009, a 156 percent jump.

Of the major spending categories tracked by the Congressional Budget Office (CBO), only spending for financial bailouts grew by more and at a faster pace during the past year. Total spending aside from bailout and debt payments increased by less than 13 percent.

High unemployment has also added to the deficit by helping drive down tax revenue. Individual income taxes in 2009 dropped from $1.15 trillion the previous year to $916 billion.

Lawmakers in both parties aren’t about to allow unemployment benefits for those hit hardest by the recession to expire, meaning they’ll have to live with the costs and look for budgetary offsets.

Senate Democrats have proposed extending unemployment benefits by at least 14 weeks. In the 27 states where the jobless rate exceeds 8.5 percent, unemployment benefits would be extended by 20 weeks under the Senate Democrats’ plan.

“People who are out of work need this money to help pay the rent, pay their mortgages, buy food, pay for gas,” said Sen. Jeanne Shaheen (D-N.H.).

“Extending unemployment benefits is one of the most effective actions we can take to help get this economy moving again.”

A Democratic aide said that the extension would apply to the nearly 2 million Americans who are unemployed and would see their benefits expire at the end of this year without legislation. The House has already passed a measure to extend benefits by 13 weeks in states with high jobless rates.

The Senate bill is expected to hit the floor this week.

In response to concerns that their plan would add to the deficit, Democrats have proposed offsetting its cost with revenue from an 18-month extension of the federal unemployment surtax, which is paid for by all employers and is set to expire at the end of the year.

“This is a time and a moment to meet the needs of the American public, but to do so responsibly,” said Sen. Jack Reed (D-R.I.).

He said Democrats are taking the responsible route since their bill is fully offset.

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The proposed benefits extension, however, wouldn’t apply to the unemployed whose benefits expire in 2010 or later. That leaves open the possibility that Congress will have to consider another extension before year’s end.

Republicans have held up the Democrats’ plan because of their concerns about its cost. Sen. Jon Kyl (R-Ariz.) objected last week to floor consideration of the Democrats’ bill, noting that CBO has yet to score it. A Democratic aide said Monday that the budget office expects the cost to be $2.4 trillion.

But conservatives have been unwilling to come out against the benefits extension during a recession in which more than 7 million Americans have lost jobs.

“We’ll definitely support that,” Sen. Jim DeMint (R-S.C.) said of the unemployment extension during an appearance on Fox News last month.

GOP senators plan to offer amendments to the bill extending the benefits that would pay for it by reducing spending or taking money from other programs instead of through tax hikes, according to a Senate GOP aide.