The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

Congress’s bipartisan approval of the fiscal cliff compromise, H.R. 8, the American Taxpayer Relief Act of 2012, includes an extension of the federal Emergency Unemployment Compensation (EUC) program through 2013 (see Title V of H.R. 8), continuing crucial benefits for America’s unemployed workers. Many raised their voices to ensure that the unemployed were treated as a top priority in the fiscal cliff negotiations. This extension of the EUC program will help keep millions of people out of poverty.

The extension of EUC was appropriately deemed an emergency measure, which meant its cost is not required to be offset. The slow economic recovery makes this extension absolutely essential in helping people who are actively looking for work. Without the continuation of the EUC program through 2013, more than two million unemployed workers would have lost benefits on January 3, 2013, nearly one million would have run out of state benefits by March (and would not have had access to federal ones), and more than five million would have been denied EUC in 2013. In Illinois 90,000 unemployed workers would have received their last EUC payment by mid-January, and an additional 2,800 unemployed workers each week would run out of state benefits and would have no access to federally funded benefits.

Congress has never allowed federally funded unemployment insurance benefits to expire when the unemployment rate is above 7.2 percent (see figure 2), and, with the renewal of the EUC program, Congress preserves this crucial program. Although the nation’s jobs deficit is still significant, strong job creation policies and continued aid will help unemployed workers avoid their own personal fiscal cliff.

The maximum number of weeks of EUC unemployed workers may receive is determined by the number of weeks a state pays for regular benefits and the unemployment rate in that state. What does this means for unemployed workers in Illinois? For individuals who started their regular (state funded) benefits during 2012 (and therefore eligible to receive a maximum of 25 weeks of regular benefits, reduced from 26 weeks prior to 2012), and exhausted their regular benefits after September 1, 2012, it looks like the maximum number of weeks of EUC benefits they are eligible to receive is 35.75 weeks (final calculation still to be determined). This is a total of 60.75 weeks of unemployment insurance.

The Shriver Center recently published a guide to help workers through the unemployment insurance maze, A Worker’s Guide to Unemployment Insurance in Illinois. The guide covers a range of topics including eligibility issues, the claims process, and what to do if you are denied benefits. Also visit the website of the Illinois Department of Employment Security (IDES) for the latest information about the EUC program.

For more information on how unemployment insurance is crucial in reducing economic hardship for families and in putting people back to work, visit the National Employment Law Project’s website

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Congress has recently reached a compromise on a measure to extend federal unemployment insurance benefits through the end of the year, which will keep 3.3 million long-term unemployed individuals from losing a critical lifeline. Without the compromise, 166,700 unemployed workers in Illinois would lose their unemployment benefits, which for most is the only way to provide for their families still struggling in the weak economy. Yet, even though the economy has seen recent sustained growth and a slight decline in the overall unemployment rate, long-term unemployment (unemployment lasting for 27 weeks or more) still accounts for 42.5% of all unemployment in the United States. And Congress’ agreement is indeed a compromise between proponents and opponents. The agreement unfortunately also reduces the maximum duration of benefits available in states with high unemployment from 99 weeks to 73 weeks. For the long-term unemployed, the deal is bittersweet.

A report from the Pew Fiscal Analysis Initiative found that the challenge of long-term unemployment is persistent, which makes the extension of federal benefits even more critical. The number of workers who were out of work for at least a year nearly doubled after the official end of the recession—from 16% (2.5 million) to 31.8% (4.4 million) nationally between 2009 and 2011. States typically provide around 26 weeks of regular benefits (though many states provide less or have recently reduced the number of weeks available, as Illinois did by passing legislation last spring that reduced the total number of weeks of benefits available to 25 weeks), but in the current economic climate it often takes the unemployed far longer to find a job. Currently, jobless workers endure an average 40.8 weeks, or nearly 10 months, of job searching. For each new job opening, there are over four unemployed people.

With the odds of getting a job in the current weak economy stacked against the unemployed, federal extended benefits are monumentally important to lending individuals and families an economic lifeline while staying attached to the workforce. The nation saw the labor force participation rate (the proportion of all working-age adults who are either employed or seeking employment) decline to just 64% by the end of 2011, the lowest percentage since 1985. A decrease in the labor force participation rate such as this can in part be attributed to unemployed people giving up on their job searches, which has the net effect of pushing down the official unemployment rate since only those who are actively looking for work are counted as unemployed. The long-term unemployed may be more likely to give up on their job searches and run the risk of dropping out of the labor force completely, as the longer these individuals remain unemployed the more likely they will become “unemployable” because of atrophied work and job search skills, or dispirited by the stigma of being out of work for months or even years on end.

Unemployment insurance not only ensures that unemployed workers and their families can continue living their daily lives and meeting their basic needs, but also stirs much-needed economic activity when recipients spend their benefits at local businesses, which allows local businesses to grow and create jobs. A study by the Labor Department found that, in the depths of the recession, regular, state-funded unemployment benefits boosted employment by 1 million jobs and an additional 750,000 jobs by federal emergency unemployment benefits. The country cannot afford to lose federal unemployment benefits while the economy is still underperforming and the recovery has only begun to regain steam.

Furthermore, policymakers should not lose sight of the purpose of unemployment insurance and how it has historically functioned to benefit the economy. Misguided attacks on unemployment insurance from House Republicans (such as proposals to limit eligibility for benefits, like requiring claimants to have at least a high school diploma or GED or requiring claimants to pass drug tests in order to obtain benefits) played a significant role in the compromise. These proposals were a gross injustice to unemployed workers who lost their jobs through no fault of their own. It is unfair to workers to assume a prevalence of drug use among unemployment insurance claimants when there is no evidence, and furthermore blames unemployed workers for their joblessness in an economic climate created beyond their control.

In fact, current data tell us that the scope of long-term unemployment is widespread across demographic lines, affecting millions of workers regardless of age, education level, and occupation. Thirty-four percent of unemployed workers with a bachelor’s degree in the third quarter of 2011 had been out of work for a year or longer, compared to nearly 38 percent of jobless high school graduates and approximately 39 percent of unemployed workers without a high school diploma. Whether having a certain level of education is required for a job or not, long-term unemployment affects all industries—more than 20% percent of unemployed workers in every industry had been out of work for a year or longer in 2011. What’s more, older workers who have worked hard throughout their lives may be getting hit the hardest—almost half of all unemployed workers older than 55 had been out of work for at least a year in 2011.

The compromise, which also includes an extension of the payroll tax cut, is likely to pass both the House and Senate before Congress goes on recess this weekend, and includes some drug testing provisions on workers who lost their jobs because of refusal to take an employer’s drug test. While these concessions are unfortunate, extending federal unemployment insurance benefits must be accomplished prior to the recess. It is an important step in the right direction towards fixing our economy and putting people back to work. Nonetheless, we have much more work to do, including increasing education and training opportunities for jobless workers, in order to combat long-term unemployment and its ramifications for families and communities.

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According to the U.S. Bureau of Labor Statistics unemployment is at 9.1% in the U.S., which means over 14 million people are unemployed; of that population, 8 million have been unemployed for over 15 months. President Obama added $40 million in unemployment benefits under the Economic Stimulus Plan, and unemployment benefits were extended by 14 months after the passage of the Worker, Homeownership, and Business Assistance Act of 2009.

In the past, unemployment benefits were delivered by check, and those without bank accounts paid costly check-cashing fees. These benefits, and other federal and state benefits, are increasingly paid via prepaid cards. Prepaid cards are cards that states contract with card issuers to provide. The card issuer administers the cards with funds from the state. Bank of America, U.S. Bank, Wells Fargo, and JP Morgan Chase have each entered into contracts to provide access to unemployment insurance benefits in a total of 41 states collectively. These arrangements save states large amounts of money. Kansas, for instance, has saved over $300,000 a year, and other states, such as New Mexico, are saving over $1.5 million a year in postage and printing costs. South Carolina, which launched its arrangement with Bank of America in July of 2010, expects to save $5 billion dollars in check printing and mailing costs annually. Yet, these cost savings are accruing to states and not unemployment recipients. While this is a win for states, those receiving the benefits, the unemployed, are paying the price.

Recently, the Huffington Post reported that the division of US Bankcorps that encompasses prepaid cards earned $357 million dollars between July and September of this year, accounting for over one fourth of the bank’s total revenue. Part of this revenue derives from fees charged to use unemployment prepaid cards. The National Consumer Law Center’s (NCLC) study of the 40 states that offer unemployment benefit prepaid cards, which was discussed in a previous Shriver Brief blog, reported that fees on prepaid cards vary by state. Such fees can include debit purchase fees, fees to talk to a teller, fees for ATM withdrawals, overdraft fees, insufficient funds fees, and fees for checking account balances.

As previously reported, new federal regulations, issued as part of the Dodd-Frank Wall Street Reform Act, cap what banks can collect from merchants when consumers swipe ordinary debit and credit cards. These limits, some of which do not apply to unemployment cards, will cut Bank of America’s revenues by $2 billion dollars this year. Most banks are aiming to recoup between 30 to 50 percent of this lost revenue through other methods. Thus, while Bank of America recently aborted its plans to charge customers $5 a month to use their debit cards in the face of national outrage, it has quietly continued to mine another source of fees: jobless workers.

Some state prepaid unemployment card systems are better than others. NCLC’s report highlights California and New Jersey as good models for best practices. These states’ systems provide ample, free ways for beneficiaries to get cash without fees. These include:

• free in-network ATM withdrawals;
• free bank teller withdrawals;
• two free out-of-network ATM withdrawals either every two weeks (California) or every month (New Jersey) before incurring a $1 fee;
• free cash back from a purchase;
• no overdraft or denied transaction fees;
• no ATM fees for balance inquiries either in or out of network;
• free automated and live customer service calls;
• no fees for point-of-sale transactions; and
• no inactivity fees.

Interestingly, both California’s and New Jersey’s prepaid unemployment card arrangements are with Bank of America, and, while these arrangements are applauded for their low fees, Bank of America’s arrangement with South Carolina is fraught with high fees. When South Carolina found out about this discrepancy it demanded fee reductions in line with those states. States should, at a minimum, review their contracts to ensure that their fees are in line with other states’. 

Prepaid unemployment benefit cards need to be regulated and fees limited in order for these types of systems to actually benefit unemployment beneficiaries rather than increase card insurers’ revenues. The Department of Labor and the newly established Consumer Financial Protection Bureau should regulate prepaid benefit card programs by banning unfair fees and providing consumer protections. The Benefit Card Fairness Act of 2010 and the Prepaid Card Consumer Protection Act of 2010 would provide some of these protections. With such regulations in place creating a card that is good for card issuers, states and unemployed workers would be much more feasible.

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Last night, President Obama finally drowned out the summer’s budget deficit political circus with an impassioned speech and serious proposal to deal with our real American crisis – the jobs deficit. Between the jobs lost in the recession, and the growth of the American population, the National Employment Law Project calculates that we have a deficit of more than 11 million jobs. The President will send Congress a bill called the American Jobs Act, which would pump a half billion dollars into the economy in 2012 through jobs-creating programs, infrastructure investments, and tax credits. The priority of this funding must be strengthening the American middle class, including creating on-ramps for those who have worked hard, but never been able to get there yet. The President’s proposal will enable us to create jobs now by making critical investments in our nation’s future prosperity. You should contact your representative immediately to ensure that Congress passes it right away.

The proposals in American Jobs Act are tried and true strategies, which have had the support of members of both political parties. The bill looks to our nation’s immediate needs but does so with a long-term goal in mind – an American “economy that creates good, middle-class jobs that pay well and offer security.”

President Obama promised that the cost of the bill will be paid through a deficit reduction plan he will introduce in ten days. The outline of the plan represents a balanced approach of increasing revenue and making additional spending cuts on a responsible timeline. These cuts must not harm the most vulnerable among us. It also will include tax reform so that the wealthiest Americans and the most profitable corporations pay their fair share. The President will also propose changes to Medicare and Medicaid. We need to see the specifics of these proposals. They must make smart changes that assure that America’s seniors and low-income individuals and families have access to quality health care for decades to come.

About half the cost of the bill is a relatively modest proposal to extend and expand the payroll tax cut. Currently workers pay 4.2% of their income to fund Social Security, but that will rise back to 6.2% at the end of the year if Congress takes no action. The proposed cut would halve the payroll tax paid by employees through 2012 to 3.1%, saving a worker who makes $50,000 per year about $1,500. The bill also would cut the payroll tax paid by small businesses for the first time. Early estimates suggest these will cause employers to add 50,000 jobs per month. Additionally, all business would get tax credits for hiring workers, especially the long-term unemployed and veterans, for giving raises, and for making capital investments. Payroll taxes go to funding Social Security, and the President indicated that the amount saved by individuals and businesses would have to be paid in through other sources of government revenue. The challenge is that we still have to continue to support Social Security and ensure its long-term viability as one of the most important anti-poverty programs in America.

The American Jobs Act also funds major infrastructure investments, including building and repairing roads, bridges, railroads and airports, and repairing and modernizing 35,000 school buildings, through a public-private fund that picks projects with two criteria: “how badly a construction project is needed and how much good it would do for the economy.” The construction industry is ripe for adding workers, including women and minorities, who have historically been underrepresented. Additionally, it provides funding for critical workers that states have cut – teachers and first responders.

The bill has many other important provisions. There are several key provisions to help the long-term unemployed. First, the bill would extend unemployment insurance another year. Without this extension, millions of Americans who have been out of work for 6 months or more would lose their benefits starting in January, and would stop spending those benefits in their communities, further damaging the economy. Second, it would prohibit employers from discriminating against someone just because they are unemployed. Third, it creates a $4,000 tax credit for businesses that hire someone who’s been looking for work for 6 months or more. However, the proposal to create a work program along the lines of Georgia Works is concerning because recipients of unemployment insurance are placed at work sites where they are supposed to be trained, but may instead just be free labor to a corporation.

The American Jobs Act seeks to create economic opportunity for all. Right now we have a crisis where young people can’t find summer work, or first jobs. This summer, the smallest proportion of youth were working compared to any summer since the Bureau of Labor Statistics started recording this data in 1948. This long-term, early unemployment is doing serious damage to their lifetime economic prospects, and we’ve seen the rioting that youth hopelessness, poverty, and unemployment have caused in England this summer. President Obama’s proposal would create more opportunities for young people and low-income and disadvantaged Americans who want to work by connecting them with training and jobs through the creation of the Pathways Back to Work Fund. We need more details on the size and scope of this program.

The American people expect the politicians in Washington to make real choices to get our economy growing again. The American Jobs Act will create jobs now through smart investments in our future prosperity, and will be funded by fair increases in revenue from big business and the wealthiest Americans. That’s true to our American values of shared sacrifice and equal opportunity.

The circus is over. Congress, go back to work. America needs you to pass the American Jobs Act, so we can get back to work too.

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The financial meltdown has led many people to rely on unemployment compensation (UC) more than ever. Only 54,000 jobs were created in May, and the unemployment rate remains high at 9.1%. In this volatile market, it is becoming increasingly important for the government to protect consumers who were hit hardest by the economic crisis – the unemployed.

Forty states including Illinois, California and New York have transitioned paying UC from paper checks to prepaid cards. A prepaid card is a network branded – VISA or MasterCard – card that can be used like a bank debit card without the individual bank account. Delivering UC benefits on prepaid cards allows: (a) state government agencies to eliminate the costs of issuing paper checks; and (b) recipients, who may prefer not to have their employment payments deposited to a bank account because of the problems with overdraft fees, garnishment by debt collectors among others.

While using these sorts of prepaid card systems may offer some benefits, effective consumer protection measures must be implemented to ensure that vulnerable unemployed individuals are protected. In particular, pre-paid card fees and other charges can quickly reduce the amount of UC payments. A study by the National Consumer Law Center (NCLC), found that the typical UC check is only $294 a week. This means that it is crucial for recipients to save every dollar and penny by avoiding unnecessary fees.

The U.S. Department of Labor (DOL) has issued guidance for UC cards which states that money drawn from the federal unemployment fund may not be used to cover a state’s administrative costs related to the payment of UC. 

Yet many UC card systems charge multiple fees, presumably to help defray the state’s administrative costs, in contravention of the DOL’s guidance.  Out of the forty UC prepaid cards currently offered by states:

• 22 cards charge fees at network automated teller machines (ATMs), and all charge out-of-network ATMs, on top of ATM surcharges;
• 24 cards charge ATM balance inquiry fees;
• 24 cards charge denied transaction fees;
• 5 cards charge $10 to $20 overdraft fees;
• 16 cards charge for calls to automated customer service menus; and
• 28 cards charge inactivity fees.

States need to eliminate or reduce these fees. Additionally, every state should offer direct deposit and checks, in case of hardship, as well as prepaid cards in order to allow consumers to choose their preferred method of payment and the types of associated fees that they wish to incur. Currently, only 3 states, Alaska, Florida and West Virginia, offer all three payment options. Perhaps most importantly, states must clearly disclose the fees associated with UC cards on their websites. Addressing these concerns will create a UC prepaid card system that benefits both a state and its unemployed workers.

Ji Won Kim coauthored this article.

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Officially, the recession ended in June 2009. But for many Americans, the recession is still in full force. New research shows that the recovery is not being evenly shared. Overall, workers’ earnings are down because the jobs that are hiring pay less than the jobs that were lost. Minorities face much higher unemployment and live disproportionately in states which have the worst economic climate. Young people face especially daunting job prospects. So perhaps it’s no surprise that a recent CBS/New York Times poll shows that only 23% of Americans think the economy is getting better.

Meanwhile, politicians in Washington are discussing budget cuts that could derail the recovery and undermine our long-term competitiveness. Right now, we need to invest in the infrastructure of job training and education, which is a driver of our economy and will help put Americans back to work.  

Well-Being Is Not Improving After the Recession
The Center on Social Exclusion went beyond just measuring gross domestic product to examine 14 indicators of well-being in four categories (housing, health, jobs, and socio-fiscal). Looking back over the last 18 months, the study found that most states had not improved their well-being. Many are still treading water, and 15-24 states have actually continued to lose ground in each of the categories. Furthermore, states with higher percentage minority populations have fared worse on these measures than predominantly white states.  

Unemployment Is Improving Slightly,
But Long-Term Unemployment Continues to Worsen
Private sector hiring is improving, but even with 216,000 new jobs in March we have a long way to go. There is still only one job opening for every four unemployed workers. We need to add 127,000 new jobs every month just to keep up with population growth. At this rate it would take five and a half years just to halve the unemployment rate down to a more acceptable 4.4%. There at 13.5 million unemployed Americans who are actively seeking work, plus 8.4 million Americans who are working part-time only because they can’t find full-time jobs, and at least another 2.4 million who would like to work but aren’t looking right now. The length of time workers are unemployed is still inching up; half of those unemployed have been looking for five months or longer (the average amount of time out of work is now nine months and rising). The overall unemployment rate is 8.8%, but the rate remains especially high for those with limited education, Hispanics (11.9%), Blacks (15.5%), teenagers (24.5%), those aged 20-24 (15.0%), veterans who’ve served since 2001 (10.9%), and persons with a disability (15.6%).  

Real Earnings Are Falling While Corporate Profits Soar
While more Americans are finding work, wages and earnings are heading in the wrong direction.

The economy has been expanding for almost two years. Real corporate profits neared an all-time high in 2010, and top CEOs earned 23% more in 2010 than 2009. But the gains in productivity generated by American workers are not ending up in their pocketbooks. Instead, the Wall Street Journal reported last month that, while productivity has climbed 5.2% in the first 18 months of the recovery, that had translated into record profits for shareholders, not higher wages for workers. In fact, since that story broke, real hourly wages have fallen more than 1% in the last two months alone. And that’s not an isolated blip. From March 2009 to March 2011, the average American worker lost 1% of their total earnings in real terms. 

Good Jobs Lost During the Recession Are Being Replaced By Low-Wage Jobs
The National Employment Law Project released a report that shows that while the recession’s job losses were concentrated in higher-wage industries (especially construction, non-durable manufacturing, finance/insurance, and information), the limited job gains since have come disproportionately in the low-wage industries (temporary jobs, retail, administrative support, and the service sector).  

We Must Re-Invest in an Equitable Recovery That Creates Jobs
We need to invest in education and training for American workers so we can innovate, grow the economy, and create jobs that pay a family-sustaining wage. The president has called on all Americans to get at least one year of education or training after high school. That extra education is critical; workers over 25 with some college or an associate’s degree currently have an unemployment rate of 7.7%, compared to 10.5% for high school grads and 15.2% for those with no high school degree. Last year, the federal Workforce Investment Act system, which provides training and job search assistance, served 8.4 million Americans and helped 4.3 million get jobs.

But our national infrastructure for job training and education is under threat. The continuing resolution recently passed by Congress to fund the government through fiscal year 2011 cut $1 billion from our nation’s investments in job training and education, though even further cuts were averted. And House Budget Chairman Paul Ryan’s long-term budget proposal, which passed the House on April 15, included naïve assumptions about Pell grants, community colleges and the workforce development system, and drastic (though still vague) cuts to these critical programs. It should be obvious, but now is not the time to cut job training and employment services. Solving our budget crisis is important, but slashing the workforce development system will undermine our future competiveness and growth. Right now, we need to get Americans back to work.

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It has become fashionable to attack President Obama for a perceived lack of leadership and resolve. These attacks have come from all directions. Undoubtedly the tax cut compromise brokered by the President will give new fodder to his implacable critics on the Right and the Left. The bottom line, however, is that President Obama succeeded in negotiating the best possible deal out there for the unemployed and those in working poverty, while adhering to his principles and deferring until the next presidential election cycle the debate between cutting taxes for the rich and reducing the deficit. 

First, here is the financial situation that the President faced:

1. The program extending unemployment insurance benefits beyond 26 weeks for up to 99 weeks had expired on November 1. Two million people were going to lose their unemployment benefits by Christmas if no agreement was reached.
2. The progressive tax cuts enacted under the President – expanding the earned income tax credit and the child tax credit, growing the college tuition tax credit, and the middle class make work pay tax cut – would have expired on January 1, and the average American’s taxes would have gone up $3,000.

Of course, the Right was faced with expiration of the tax cuts on the wealthiest 2% of Americans and reinstitution of the Estate Tax. Who was in a better position to hold out?

Second, here is the political situation that the President faced:

1. A new, very conservative Republican majority takes control of the U.S. House of Representatives in January.
2. Senate Republicans recently announced that they would block consideration of all other matters in the Senate until the tax cut extension issue was resolved.
3. Influential liberal Democrats had recently introduced legislation that would have extended unemployment insurance benefits for three months only.

The deal reached by the President:

1. Extends all Bush tax cuts, including the tax cut for the wealthiest 2%, for two years.
2. Preserves all of the progressive tax cuts enacted under President Obama (with a temporary reduction in the payroll deduction replacing the make work pay credit).
3. Makes slight concessions on the estate tax.
4. Continues eligibility for extended unemployment insurance benefits, which expired on November 1, for another 13 months, with no requirement that the cost be offset with cuts to other domestic programs.

In short, the deal reached by the President ensures that 2 million unemployed Americans will not lose their unemployment insurance benefits during the holiday season, that millions more will not lose their benefits next year, and that all of the progressive tax cuts for the working poor enacted during the Obama Administration will continue. It ends, on the most favorable terms available, a stalemate that is hurting low-income Americans every day it continues. The President got a lot more than other progressives were willing to settle for, while bringing the pain to an end.

The two-year extension of the tax cuts means that the issue of driving up the deficit by continuing tax cuts for the rich will be debated during the next presidential cycle. President Obama made it clear in his statement announcing the tax compromise that he strenuously opposes continuation of tax cuts for the rich. The President reached a political compromise, but there was no compromise on principle.

It’s time to move on.

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The devastating effects of the financial crisis continue to be felt by millions of Americans and many are “booing” the stimulus bill, when in fact they should be cheering.

The purpose of the stimulus’ $787 billion in new spending and tax cuts was to keep the economy from spiraling even further out of control by saving and creating 3.5 million jobs over 2 years and helping states with their budget shortfalls. A number of different indicators reveal that the stimulus bill, officially called the American Recovery and Reinvestment Act (ARRA), is doing its job.

Unemployment: Last Hired
In August, nearly 1 in 10 Americans in the labor force were unemployed and prospects for new jobs are not all that promising. This is neither new nor surprising. Historically, unemployment lags behind other indicators of economic recovery and typically does not decline until 6 to 12 months after the economy picks up. The stimulus bill is cushioning the blow of unemployment by creating 2.5 million jobs by the end of 2010 that would otherwise not exist. It is also providing 2.5 million people with extended unemployment benefits through an increase of 1.3 billion per month in unemployment benefit levels. Clearly, the unforgiving job market is hurting many families, but without the stimulus bill it would be much worse.

GDP: Moving on Up
GDP growth is positively correlated with an increased standard of living. As the GDP rises, so do our lives. The non-partisan Congressional Budget Office (CBO) estimated, and others agree, that the stimulus bill added 2-3 and nearly 3 percentage points to GDP growth in the second and third quarters of 2009 respectively. Moreover, GDP is projected to be“1.4 percent to 3.8 percent higher in the fourth quarter of 2009 than it would have been without the stimulus” and similar percentages are expected for the fourth quarter of 2010. This upward trend is the result of the stimulus bill’s success in raising both confidence in the economy and demand, without which GDP, and our lives, would be stagnant.

Budget Cuts
States face a combined $350 billion in projected budget gaps for the next 2 years. Over the same time period state governments will receive $140 billion from the stimulus bill for Medicaid, education funding, and construction/infrastructure projects. Many states have already used some of these funds to avoid cuts to critical programs and to pay for immediate short-term projects. Virginia, for instance, reversed plans to lay off thousands of school personnel and close mental health facilities, while New York canceled major cuts to senior’s prescription drug benefits and school funding. Additionally, many states are using recovery funds for “shovel ready” projects such as paving and street repairs. These immediate uses of stimulus monies create jobs quickly and raise the demand for goods and services, thereby bolstering state economies.

Deficit: Penny Foolish but Pound Wise
Clearly, both the federal government and the states currently have huge deficits. Yet, failing to enact the stimulus bill would have been penny wise and pound foolish. Although the stimulus funds and tax cuts have increased current deficits significantly, their long term effects are minimal. The stimulus bill will add a mere 3 percent to the federal budget shortfall through 2050. Moreover, while the U.S. will likely face a huge deficit in the coming decades, such budget woes are the result of increasing health care costs—and not the stimulus bill. In sum, the benefits of the stimulus bill far out weigh its costs.
 

Three Cheers for the Stimulus
The economic crisis was a long-time in the making and will take a long time to undo. The stimulus bill has not only helped to cushion the blow of this recession, but also started us on the path to recovery. Its positive effects are clear and instead of criticizing we should be rejoicing.

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