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What does "fiscal cliff" mean for the jobless?

While President Obama has placed his focus of the looming "fiscal cliff" on raising the tax rates for the wealthy, another program that is set to expire that will impact many millions of Americans has received little attention: unemployment benefits.

Up to two million people could lose their jobless benefits on January 1 if Congress doesn't act. It is among a host of programs coupled with tax hikes and spending cuts that make up the so-called "fiscal cliff."

"This is the real cliff," Sen. Jack Reed, D-R.I., said today. He said the economy would suffer as people would be unable to pay their mortgage and buy groceries without their benefits.

President Obama's opening offer to avert the "fiscal cliff," which included $1.6 trillion worth of tax increases, included an extension of unemployment benefits, but it has been overshadowed by the larger discussion over whether to extend the Bush-era tax rate for the wealthy.


Increasing the tax rate on incomes above $250,000 has been central to Mr. Obama's demands, but the extension of unemployment insurance has been a Democratic priority through out the recession and its aftermath as unemployment hovers around eight percent.

Aides to Republican leaders in the House and the Senate did not offer a position on whether they support the program. One Republican leadership aide said it's not possible to talk about individual pieces of the president's proposal at this point as negotiations are stalled. Republicans have, however, insisted that spending be reduced if taxes are to be increased. In their proposal they call for $900 billion in cuts to entitlement programs. While much of it comes from Medicare, unemployment insurance is considered an entitlement program.

Democratic senators called for an extension of the program as part of a "fiscal cliff" deal or in spite of one.

"If there is an agreement, unemployment insurance must be included. If there's not an agreement, we must extend unemployment insurance separately," Sen. Tom Harkin, D-Iowa, said.

The program is expensive, however, and has divided Republicans and Democrats in recent years. A one-year extension would cost $30 billion and the program has cost $520 billion in the past five years.

The evolution of the debate over jobless aid can closely be tracked to the congressional-made creation of the "fiscal cliff."

The issue at stake is an expansion of jobless benefits beyond the traditional 26 weeks and up to 99 weeks in some states and is a battle Congress has had many times over the past four years. In 2010, Republicans in Congress opposed the extension without the cost being offset by reductions elsewhere in the budget, but a 13-month extension was passed after the president agreed to extend the Bush-era tax rates for the wealthy. Last year, Congress accepted another one-year extension along with the addition of an extension of the payroll tax cut. The Bush-era tax rates, the payroll tax cut and unemployment benefits expiring all at the same time are contributors to the "fiscal cliff."

While the program is costly, many economists agree that the purchasing power of the benefit is a direct boon to the economy, and the program's reduction would harm economic output.

The program "has the most immediate and strongest effect on the economy," said Adam Looney, policy director at the Hamilton Project. He argued that it has more of an impact than raising taxes on the wealthy.

The Congressional Budget Office said in a recent report that every dollar of unemployment insurance dispersed raises economic activity by $1.10 because it keeps people in their homes and purchasing products.

The program reached a peak with 5.69 million receiving benefits but as the economy has improved, two million are obtaining claims.

Economist Mark Zandi with Moody's Analytics told a congressional hearing today that he expects the number "to fall even more than that in the coming year just because unemployment rates are falling."

Sen. Chuck Schumer, D-N.Y., said it would be "unfair" and "unwise" to not include unemployment insurance as part of any "fiscal cliff" deal.

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