Daily Ticker

Unemployment Benefits, Payroll Tax Cut Really at Risk of Going Over ‘Cliff’

Daily Ticker

In recent months, consumer confidence has risen as the unemployment rate has come down and the housing recovery builds momentum. This weekend's strong start to the holiday shopping season is another sign of an economy that's doing much better than feared.

Related: Black Friday Weekend by the Numbers

But the recession never ended for millions of Americans and many of them now face a frightening prospect: the loss of unemployment benefits.

"More than 40% of the nearly five million Americans who receive unemployment insurance are set to lose those benefits if federal programs expire as scheduled at year-end," The WSJ reports. "Already this year, hundreds of thousands of people have exhausted their jobless benefits. Now, virtually everyone left in the federal programs would lose their benefits if the programs expire as scheduled at year-end."

The roughly 2.1 million Americans at risk are currently receiving benefits through federally backed programs that Congress approved starting in 2008. Those programs, designed to extend benefits beyond the six-month time frame typically offered by states, are now set to expire.

Addressing this issue raises many complex issues, as Henry and I discuss in the accompanying clip. Anecdotal evidence suggests that long-term unemployment benefits have proven to be a disincentive for some Americans to find work, which obviously isn't a desired outcome. On the other hand, eliminating those benefits would put millions of Americans at risk of falling into the depths of poverty, which isn't good for society at large.

One potential solution: requiring people receiving unemployment benefits to do something to earn it, depending on their skills and physical capabilities. Whether collecting garbage on highways or visiting nursing homes or working on infrastructure projects, there are plenty of things people can do to make a positive contribution in exchange for maintaining their unemployment benefits.

At this point, there seems to be very little discussion about this issue — or the broader issue of infrastructure spending — in the ongoing debate about the fiscal cliff.

In a separate but related development, the temporary 2% payroll tax cut is also set to expire on Dec. 31. As of now, it appears the payroll tax cut will be allowed to expire, raising taxes by $1,040 a year for an average family of four earning $50,000.

Related: Here's Why Your Taxes Are Going Up 2% Next Year: Just Explain It

As with unemployment benefits, this issue appears to have been lost in the fiscal cliff discussions, which seems to have become fixated on individual tax rates.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

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