Only Washington politicians could argue that “reallocation” of deficit spending can “pay” for more deficit spending | American Institute of Business


Supporters of Washington’s latest trillion-dollar spending plan suggest they have a new way to supposedly pay for some of the massive new infrastructure spending they are proposing – that is, – say by clawing back some of the unprecedented unemployment benefit funds that Congress has already authorized. As a source describes the plan, “Reallocated federal unemployment insurance will account for $ 25 billion in agreement payments. . . . The bulk of the funding for UI will come in the form of “the integrity of the UI program,” which will provide $ 80 billion in revenue. “

Legislative text is still being drafted, but the “reallocated” funds appear to refer to efforts to claw back the extended and expanded federal unemployment benefit funds currently denied by more than half of the states, including 25 states led by Republicans and Louisiana, which has a Democratic governor. These states argue that these federal pandemic benefits, which include a $ 300 per week bonus added to other unemployment checks, lead to more unemployment by paying some people more to avoid than to return to work.

‘Program integrity’ funds apparently refer to the fruits of currently undefined efforts to improve fraud prevention in the future, as well as potentially recovering some of the unprecedented losses due to fraud and abuse noted. during the pandemic. A widely cited expert recently suggested that up to half of all spending on unemployment benefits during the pandemic could have been a mistake, resulting in staggering losses of $ 400 billion or more for taxpayers. Official government sources suggest losses well below 10% of all unemployment benefits paid during the pandemic, a still astonishing amount of over $ 80 billion. But that figure is based simply on the program’s past error rate, which is certainly too conservative given the massive scale of fraud seen in some states. There is also no guarantee that once poorly spent benefits will ever be clawed back, so the amount of potential “savings” is a guess.

Meanwhile, the actual level of spending on these temporary programs has already been well above what the non-partisan Congressional Budget Office (CBO) predicted when the legislation creating them was enacted. Consider the unprecedented pandemic unemployment assistance program created in March 2020 which, like other temporary federal programs, is expected to run until Labor Day. The CBO originally expected the program to cost $ 35 billion between March and December 2020, as part of broader legislation that “would increase federal deficits by about $ 1.7 trillion” . But the actual cost of the program during that time was more than double, or more than $ 76 billion, in part due to extraordinary fraud. Did Congress have to propose additional “pay fors” for these higher-than-expected expenses? Of course not. The additional costs were simply added to the deficit along with the expected program costs.

Preventing fraud and abuse should always be a priority, and many state and federal officials have taken steps to avoid further waste and recoup funds poorly spent during the pandemic. But such efforts will only minimize the amount added to the deficit due to the extraordinary spending that Congress has already authorized. Federal spending on extraordinary unemployment benefits could total $ 700 billion until Labor Day – the equivalent of two decades of unemployment benefits in a typical year. If it turns out it’s less because some states chose to end benefits earlier or some scammed federal funds are being clawed back, it just means less will be added to the deficit. This certainly does not mean that there are new funds that policymakers can “reallocate” to finance new spending projects without increasing the deficit.

Likewise, while so-called anti-fraud savings can better prevent future abusive spending, even liberal pundits question whether the big savings to bank on are roughly realistic. And while most of these presumed savings stem from a cheaper payment of extraordinary federal benefits in a future crisis, current practice suggests that such spending would also add to the deficit in the first place. This means that such “savings” would also reflect only a reduction in future deficit spending.

Ultimately, the suggestion that such “savings” can be used to pay for more new spending comes up against the reality that every penny of federal pandemic benefits in question was added to the deficit in the first place. The same will likely be true for the most extraordinary federal benefit spending in the future. It was only in Washington, DC, that a politician could suggest with a straight face that cutting deficit spending can somehow “pay” for more deficit spending. Everywhere else, this obvious illogical would make people laugh, and rightly so.

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