We Need To Pay Attention To The Small Print In The Stimulus Bill

According to the Tennessean.com website, the Democrat governor of Tennessee may not accept part of the government stimulus package.  The stimulus would raise the amount of money that each unemployed person could collect and it would make some previously ineligible people eligible to collect unemployment.  Governor Phil Bredesen is considering rejecting some of the unemployment money because of some of the stipulations that come with it.  According to the article:

“Critics say the conditions will saddle states with a host of people who are newly eligible for unemployment benefits, an obligation legislatures will have to fund long after money from the stimulus package has been doled out.

“We’re looking at adding new benefits that don’t fall under the scope of unemployment,” said Jim Brown, state director for the National Federation of Independent Business. “There’s real mission drift.”

The stimulus package allocates $7 billion to states for unemployment trust funds, but to get the money, they must meet two sets of requirements:

>> One-third of the payout is contingent on states’ changing the formulas used to calculate whether people qualify for unemployment payments. The change is meant to make more people eligible for benefits.”

>> Two-thirds of the payout is contingent on states’ taking two actions on a menu of four options. These options are: adding a $15 allowance for dependents, lengthening benefits for people who are training for a new job, extending benefits to people looking for part-time work or letting people claim unemployment if they leave work for some family reasons, such as a sick relative or domestic violence.

The state of Tennessee is planning to raise taxes on businesses in the state to keep the unemployment fund solvent in the future.  This will slow down the job growth of those businesses.  Adding to the number of people collecting unemployment is counterproductive to balancing the fund.  The long term negative effect of accepting the unemployment money from the stimulus outweighs the temporary gain from taking the money.

In evaluating the changes the stimulus package makes to collecting unemployment benefits, we need to remember that when the government subsidizes any behavior, that behavior increases.  By lengthening the time a person can collect unemployment, you actually tend to slow down that person’s job search–they’re in no hurry–they have months more or benefits!  This sets us up for higher government expenditures in the future.