A new report “Buddy Can You Spare a Dime” produced by the NC Budget & Tax Center demonstrates, yet again, how shortsighted tax breaks hurt us in the long run. This time the damage is to our unemployment insurance (UI) system.
Unemployment benefits are paid from a trust fund, which is financed by employer payroll taxes. The idea is that during good economic times the trust fund balance grows so that there are adequate funds available to pay benefits during economic downturns. In the early 1990’s the trust fund balance seemed large, so state leaders revised the policies and reduced the taxes that employers were required to pay. According to the report, “the General Assembly enacted a series of 13 payroll tax changes between 1992 and 2000.” Some companies saw their payroll taxes reduced to zero. These actions coupled with a decrease in federal funding have undermined the solvency of the UI trust fund.
The unemployment insurance system is an important safety net for individuals and an economic stimulus for the state’s economy. It is important that the General Assembly acts now so the solvency problems can be fixed.