Recent Senate deal on unemployment benefits shows that bipartisanship isn’t always good

Reuters

Members of Occupy Wall Street and People Power Assembly take part in a protest demanding restoration of extended unemployment benefits next to the New York Stock Exchange in New York, February 7, 2014.

Article Highlights

  • The recent Senate agreement on unemployment benefits is a reminder that bipartisan cooperation isn’t always a good thing.

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  • The plan creates a corporate welfare provision that lets employers underfund their workers’ pensions.

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  • It also extends unemployment benefits which does nothing to cure the long-term unemployment crisis.

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  • Agreeing to extend UI will not deflect Democrats’ criticism, but will enable them to focus on raising the minimum wage.

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The recent Senate agreement on unemployment benefits is a reminder that bipartisan cooperation isn’t always a good thing.The deal combines two big policy mistakes that I have criticized before: a corporate welfare provision that lets employers underfund their workers’ pensions and a (largely retroactive) extension of unemployment benefits that does nothing to cure the long-term unemployment crisis.

Pension Funding Relief. The highway bill enacted two years ago included a pension funding “relief” proposal similar to the one in yesterday’s deal. When the Senate passed that bill, my colleague Alan D. Viard and I condemned the move as a budget gimmick with serious consequences:

On paper, pension funding relief is a revenue raiser. Because firms get a tax deduction for the money they put into their pension funds, they pay more taxes if they put less money into the funds. . . . While reduced pension contributions mean more taxes today, what happens down the road? For the pension plans to stay afloat, the firms will have to put in extra money in the future, to make up for their stinginess today. . . . At worst, firms won’t put in extra money tomorrow and some funds will go under, potentially forcing the [Pension Benefit Guaranty Corporation] to tap the federal treasury.

When a similar provision came up again last year, the liberal-leaning Center on Budget and Policy Priorities also slammed it:

The proposal could produce a net revenue gain within the ten-year budget window, but produce subsequent revenue losses. As a result, it would cease to function as an offset, and the package would then increase deficits and debt in all future decades.

Yet, like a bad dream, the proposal has returned. Unions and pension plan sponsors have built bipartisan support for lowering pension funding requirements, and the short-run revenue gain appeases simple-minded fiscal hawks. Employers often claim that this funding relief will allow companies to use the money for new investment to grow the economy. This is nonsense, however, as pension funds are themselves major sources of investment funds, and additional contributions to a pension only increase the pool of investable resources for a plan.

Long-Term Unemployment Benefits. Experts disagree about the merits of extending unemployment benefits for the long-term unemployed. Some, including my colleague Michael R. Strain, argue that the duration of the weak labor market justifies an extension. But I believe that the situation facing long-term unemployed workers is so severe that repeating the same ineffective strategy used for the last five years would be the absolute wrong choice and may exacerbate the problem.

As I wrote in January:

Congress should recognize the inherent ineffectiveness of trying to help people find work through a program that has evolved into a poorly operating welfare program, one that does little to help unemployed workers acquire new skills or relocate, and that has failed to deliver demonstrable results. . . . But [policy options] do exist. Within the context of the unemployment insurance program, this could mean helping people relocate to find work or offering more assistance with job retraining. More broadly, reducing the fiscal uncertainty in Washington, pursuing tax reform on the federal level, and addressing the serious skills gap for those with less than a college degree could yield tangible benefits for all workers.

But the recent bipartisanship on unemployment benefits is tenuous. While some Republicans may see yesterday’s deal as a way to disarm one of the Democrats’ easiest campaign talking points -- the GOP does not care about the struggling worker -- any Republican victory on this front will likely be short-lived. Agreeing to extend unemployment benefits before the campaign season is in full-swing will not ultimately deflect Democrats’ criticism, but rather allow Democrats to sharpen their focus on another faulty populist policy, raising the minimum wage.

Alex Brill is a research fellow at the American Enterprise Institute.

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