Updated - with a Business Insider post from Dec. 28
This is reproduced from an email from the National Jobs For All Coalition
Unemployment creates a significant addition to the deficit because jobless taxpayers and businesses short of customers are poor sources of federal tax revenues. At the same time, government spends more on indispensable unemployment compensation, food stamps and other social programs. Further, in a high unemployment economy, real wages of employed workers stagnate or even fall, so their taxes also stagnate. Unemployment, moreover, afflicts state and local governments with declining tax revenues and rising costs. These state and local governments can't create credit or borrow as easily as the federal government. As a result public services are slashed and public sector workers are laid off. Attempts to cut our way back to prosperity won't work; it will harm our future and create even more suffering in the present. As Nobel laureate Joseph Stiglitz observes, "No large economy has ever recovered from serious recession through austerity."
There is a better way. Direct government job creation could put people work at jobs that need to be done--repairing infrastructure and providing human services. This is was the federal government did in the 1930s, and the result was a great benefit to the nation. Two bills introduced in Congress, HR 4277 and HR 6411, would create work that meets important needs as well as give jobs to the unemployed. These jobs would be funded without increasing the deficit through a Financial Transaction Tax [already introduced as HR 6411] that would also reduce the harmful financial speculation that was one of the causes of the Great Recession.
The graph is from Joe Weisenthal at Business Insider - charting the Federal deficit at a percentage of GDP, and the U3 unemployment rate for the past 50 years.
Read his article: "There's Only One Way To Fix The Deficit — And Actually It's Totally Painless"