Small Disagreement Suggests Deep Dispute over Role of Unemployment Insurance Advisory Council

The Wisconsin State Assembly passed a bill Wednesday to approve a bipartisan idea, but in the process rekindled debate about respect for collective bargaining. What made the debate interesting and significant is that it could have been avoided by simply passing the version of the bill approved by the Unemployment Insurance (UI) Advisory Council, with the full support of the labor and business groups on that advisory body.

The headlines here is that the Obama Administration narrowed the demand they maintained for four years, for tax rates to increase above $250,000, and they would agree to a benefit cut for Social Security and $400 billion in unspecified Medicare cuts, and in exchange they would mostly extend current law on a few fronts (but not all) and get an unspecified amount, no more than $50 billion, in infrastructure spending.

In trying to make a quick understanding of the Boehner counter-offer on the fiscal slope yesterday, I knew that his reference to the “Bowles plan” was not a reference to Bowles-Simpson but rather something Bowles wrote or said in November 2011. It turns out that it came from testimony before the failed Super Committee, where Bowles basically spitballed a reform measure totaling $2 trillion by averaging out each sides’ initial offers.

In the context of doing a deficit reduction deal at all, this is an extremely strong bid that Tim Geithner delivered to John Boehner today. Now we know why Boehner whined and cried all afternoon.

Let’s walk through it.

Liberals are working hard to more accurately name the fiscal cliff. They want to remove the sense of immediacy, the idea that the world would end on January 1 if Congress takes no action on expiring tax and spending policies. Democrats would benefit from a strategic standpoint from “going over the cliff” in many cases, so they want to ensure that people understand that Americans won’t immediately find themselves in a punishing recession on January 2.

However, there is a fiscal cliff intertwined with all the other expiring measures.

As I always point out, Goldman Sachs has an excellent research department, led by Jan Hatzius. Their economic forecasts are almost always on target; if there’s one thing Goldman understands, it’s money. They were the ones who found that federal fiscal policy turned negative in mid-2010. And they now have updated that forecast, incorporating the possibilities for the fiscal slope.

It’s not the threat of recession from the fiscal cliff that is despairing so much as it’s the CBO estimate that, even if the fiscal cliff gets put off, we’re staring at anemic 1.7% growth for 2013, and an unemployment rate remaining above 8% by the end of next year. This points to some serious problems with the US economy, and being the “best in the world” at a time of global slowdown is a cold comfort.

Perhaps the most unassuming of “fiscal cliff” policies that expire at the end of the year is extended unemployment benefits. Benefits have already been reduced from 99 weeks to, at most, 79 weeks, in the states, and they will fall to a maximum of 73 weeks by the end of the year. If the program is not extended after December 31, then unemployment benefits will be cut off for millions, with the program reverting back to 26 weeks.

The 99ers are no more. There are still plenty of people who have been out of work for 99 weeks or more, to be sure. But the 99 weeks of unemployment secured by one tier of extended benefits have ended. This has affected a half-million workers, and it’s a direct result of the failure to change “look-back” rules the last time that benefits were extended.

Austerity has clear negative consequences for Greece, but one of the major problems in that country is an inability to collect taxes. That’s why all the austerity measures to “increase taxes” in Greece, without setting up or funding a new tax collection system, made no sense. And the one solution that did move in that direction, to couple property taxes with power bills, has failed miserably.