Short-Term Spending for Long-Term Growth

Interview with Melissa Boteach on Tax Extenders

Melissa Boteach explains the tax extender provisions—what they are, why we need them, and what they will or won't mean for the deficit.

A job seeker fills out an employment application during a job fair in Tacoma, Washington. (AP/Ted S. Warren)
A job seeker fills out an employment application during a job fair in Tacoma, Washington. (AP/Ted S. Warren)

Listen to the podcast (mp3)

The House of Representatives is expected tomorrow to consider H.R. 4213, also known as the "tax extenders" bill. This legislation provides much-needed help to American families and the economy by extending unemployment and COBRA health insurance benefits until the end of the year and providing fiscal relief to states to preserve critical health services and save jobs.

We asked Melissa Boteach, who is Manager of Half in Ten at the Center for American Progress Action Fund, to explain the tax extender provisions—what they are, why we need them, and what they will or won’t mean for the deficit.

What is the problem created by long-term unemployment?

In addition to the havoc that long-term unemployment places on individual families, long-term joblessness really tears at the fabric of entire neighborhoods and communities. For example, children who experience hunger during a recession are less likely to be productive adults. The lost tax revenues from high unemployment cause states and localities to cut back on critical services, which deteriorates the quality of life in local communities. Teachers are being laid off at a massive rate, so that’s going to impact an entire generation of students. And youth who are not able to find work now and are just entering their careers, the gaps on their resume over the long term will create wage gaps with people who enter the labor force in better times.

There’s also consequences for the broader economy, because in deep recessions businesses tend to make fewer investments and that affects our country’s competitiveness. Basically, there are lots of really detrimental effects of allowing long-term unemployment to fester. And right now nearly 46 percent of unemployed workers have been jobless for at least six months.

Can anything be done about this?

Absolutely. Congress can act to spur job creation, and there are a couple of steps they can take. The first is that what makes moral sense makes economic sense. By helping out people who are jobless right now by extending unemployment benefits and COBRA health benefits, Congress is actually saving jobs because it’s keeping demand in the economy. Those people can then go out and buy things in the private sector, which saves the jobs in other companies. So spurring this demand in the economy is a critical part of creating and saving jobs. It’s one of our most important countercyclical programs.

Secondly, it’s really important to provide fiscal relief to states and localities because this is saving the jobs of teachers, firefighters, and police officers. These are critical backbones in our communities, providing critical public services. And they’re also consumers. For every 10,000 teachers that are laid off, the Economic Policy Institute estimates that another 30,000 jobs are lost in other sectors because of the lack of consumerism from the people who have lost their jobs. It’s a ripple effect across the economy. And by providing support to states and localities, you’re saving critical services like Medicaid and other health services.

There are other really important steps Congress can take, as well. One important one is to extend what’s known as the TANF Emergency Fund, or Temporary Assistance for Needy Families. Congress in the Recovery Act created a pot of money that states have been using to create subsidized employment. By the time the fund is projected to expire in September 2011, it is estimated it will have created 180,00 new jobs through this program. And it’s really bipartisan. Of the states that have drawn it down, about equal Republican governors and Democratic governors have recognized that this program really works and is one of the cheapest ways to create jobs.

And finally, I would add that targeting some of the jobs toward youth through programs such as summer jobs—keeping that funding as well as national service opportunities are critical to create jobs for those being hit hardest by the recession.

Critics would argue that it’s not appropriate for the federal government to get into the job creation business, leaving that to the private sector. What do you say to that? Is it appropriate for the federal government to spend money to create jobs?

Some people say that we can’t afford large-scale job creation efforts, but really we can’t afford not to have large-scale job creation efforts. Number one because when people lose their jobs they’re not able to pay taxes into the system, so long-term and prolonged unemployment is actually adding to the deficit by us losing revenue from taxes. It’s not that job creation pays for itself, but if we invest now in trying to have a strong economic recovery, the real problem is long-term structural deficits down the road. So that’s what we really need to be worried about.

The other thing is that the poverty and economic insecurity caused by unemployment creates costs, as well. CAP did a study back in 2007 showing that child poverty alone costs $500 billion a year in lost productivity, associated health care costs, and criminal justice expenditures. And so there’s a cost in not acting and allowing this problem to grow. And it’s very appropriate in the short term for the government to be investing money to create jobs and not to say that the deficit doesn’t matter but to recognize that it’s a longer-term problem that we should be dealing with.

Listen to the podcast (mp3)

For more information, see:

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.