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America's Incredible Shrinking Safety Net

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President Obama's 2009 stimulus bill expanded federal aid for people affected by the worst recession since the Great Depression, but congressional heartburn over deficit spending has prompted a campaign to reduce the deficit impact of further spending almost entirely through slashing the safety net.

On Wednesday, Senate Democrats hope to pass a bill that, to offset the cost of $16 billion in Medicaid assistance for states and $10 billion to prevent teacher layoffs, will cut $6.7 billion in future food stamp funding. The cut is the latest in a series of drop-in-the-bucket efforts to avoid adding to a federal budget deficit expected to top $1.4 trillion this year.

The first cuts came in May, when Democratic leaders hoping to move a broad domestic aid package in the House of Representatives, bowed to deficit demands and dropped $24 billion in state Medicaid assistance and $7.7 billion in subsidies for laid-off workers to maintain their health insurance via the COBRA program. "It's obscene," said Rep. David Obey (D-Wisc.).

House Democrats also shortened the extension of unemployment benefits for the long-term jobless by one month, saving roughly $6 billion.

When the scaled-down bill landed in the Senate, Democratic leaders discovered they'd need to make further cuts to win the support of conservative Democrats and moderate Republicans. A handful of senators fought to replace the COBRA subsidy and the state Medicaid assistance (known as FMAP), but the amendment that prevailed instead cut $25 per week from unemployment benefits, saving $5.8 billion.

Another program that fell by the wayside was the TANF Emergency Fund, a welfare-to-work program that has subsidized more than 240,000 jobs. Extending the program through next year would have cost $2.4 billion.

Each of the programs cut was put in place by the stimulus bill, formally known as the American Recovery and Reinvestment Act, enacted in February 2009 when the unemployment rate stood at 8.2 percent. The rate is now 9.5 percent and few economists expect it to drop much further down anytime soon, but compassion for the unemployed has been replaced in Washington with the suspicion that extended jobless aid discourages people from looking for work.

After a 50 day delay, Senate Democrats finally passed a reauthorization of unemployment benefits with a $33 billion deficit impact at the end of July.

Democrats have attempted to pay for their domestic aid packages by closing tax loopholes exploited by investment fund managers and companies that ship jobs overseas, but those measures have failed. The bill coming up for a vote in the Senate on Wednesday would revive one of them and raise $9 billion by eliminating foreign tax credit loopholes, but Democrats have apparently lost their appetite for trying to drum up support for hiking taxes on hedge fund managers.

Before it went away, that provision was weakened every time a different piece of jobless aid disappeared, deficit reduction needs notwithstanding. At first, closing the loophole would have raised $18.685 billion. In the next draft of the domestic aid bill, it raised $14.157 billion. Then $13.905 billion, and then $13.594 billion. (In Obama's budget, raising taxes on "carried interest" would have raised $23.89 billion.)

The Obama administration has encouraged Congress to reauthorize the programs, but the pressure hasn't been overwhelming.

Meanwhile, Republicans have done everything they can to stand in the way of reauthorizing jobless and state aid, a strategy that will continue this week. "The $1 trillion stimulus bill was supposed to be timely, targeted and temporary," said Senate Republican leader Mitch McConnell on Tuesday. "Yet here we are, a year and a half later, and they're already coming back for more."

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