Unemployment and Taxes

Posted June 27, 2010, at 6:45 p.m.

Now that the Senate has failed to move ahead with a bill that would have extended unemployment benefits, while closing some tax loopholes and extending some tax breaks, the only way forward is to consider the most crucial elements of the legislation separately.

Many Republican lawmakers and conservative Democrats had balked at the cost of extending unemployment insurance and enhanced Medicaid payments to the states — both aimed at buoying the national economy. So provisions to close tax loopholes, especially those that allowed hedge fund managers and lawyers to avoid paying payroll taxes, were added to the bill. The added tax collections were meant to offset its costs.

The tax portion of the bill, however, has become more complex over time and would have unintended consequences. It can’t be quickly fixed and should be set aside for now.

This week, Republicans said the bill raised taxes at the wrong time and cost too much. A vote to shut off debate on the measure failed by a vote of 57-41 on Thursday. Sixty votes are needed to end a filibuster. Sens. Olympia Snowe and Susan Collins voted against moving ahead with the legislation.

On Friday, Sen. Snowe called upon the Senate to approve an extension of unemployment benefits as a stand-alone measure, even if it wasn’t paid for, a position also supported by Sen. Collins. This is the only way forward now.

Mark Zandi, chief economist for Moody’s economy.com, has consistently found that extending unemployment benefits is one of the most effective economic stimulants because it allows those who are out of work to nearly maintain their spending.

Another element of the bill the Senate rejected last week was increased federal funding for the Medicaid Federal Medical Assistance Percentage, or FMAP. The American Recovery and Reinvestment Act included temporarily higher reimbursements to bolster state economies.

After House and Senate votes approving a continuation of the higher FMAP payments earlier this year, Maine and 32 other states included the increased federal funds in their budgets. If the FMAP funds are not forthcoming, Maine’s shortfall in the budget that begins July 1 would be at least $85 million.

Without the federal money, Gov. John Baldacci would be forced to issue a curtailment order, which would cut state spending immediately — in areas far beyond health care. Worse, without the FMAP funds, health care providers and the state would be forced to lay off employees, driving up the state’s unemployment rate and leaving some low-income families and children without medical care.

Temporarily extending unemployment benefits and higher Medicaid payments will add to the short-term debt, but they are necessary and worth this cost by working to avert an economic downturn, which would surely worsen the long-term deficit.

Without these extensions, millions of families also will be hurt, which is why lawmakers must continue to work for a bill that includes these needed fixes.

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