NC Budget and Tax Center, Uncategorized

Yes, the Unemployment Insurance Proposal is Out of Balance

Cumulative Fiscal Impact UI ChangesAs the House begins debate on the unemployment insurance bill, it should be clear from data made available from the Fiscal Research Division and the Upjohn Institute that the proposal is out of balance. To get the trust fund solvent, unemployed workers will be contributing far more through reduced benefit payments than employers will be contributing in taxes.

A preliminary analysis of the data on the current proposal compared to existing law under the same economic conditions suggests that 1) Unemployed workers would lose more than half their benefits this year, and much more in later years; 2) Employers would contribute less in state UI taxes; 3) This plan would result in an unemployment insurance system largely unable to perform its basic functions of supporting the economy during recessions and helping unemployed workers make it through hard times.

Unemployed workers would lose more than half their benefits this year, and much more in later years. The magnitude of benefit cuts year to year is significant when compared to current law. In 2013 alone, benefit cuts would be 54% what would have been paid out under the same level of unemployment claims and economic conditions.  In 2014, unemployed workers are contributing roughly three-quarters towards an improved ending Trust Fund balance.

Employers would contribute less in state UI taxes.  The greatest contribution by employers to an improved ending Trust Fund balance is through the federal FUTA credit reduction not state tax law changes.  According to Fiscal Analysis data, the SUTA rate changes contribute at a maximum 0.7% towards the improvement in the ending balance.  Taking into account the FUTA credit reduction contribution by employers, benefit cuts represent two times the tax changes over the period to solvency. Contributions by employers through state UI taxes under this proposal will be far lower than under current law.

This plan would result in an unemployment insurance system largely unable to perform its basic functions of supporting the economy during recessions and helping unemployed workers make it through hard times. By 2021, benefits paid under the current proposal will be 70 percent lower than if current law remains in place.  This will be insufficient to maintain the countercyclical function of the system.

Other options are available which are more balanced and would pay off the debt in the same timeframe. There are ways to achieve a more balanced approach to getting to solvency and still minimizing the FUTA credit reduction impact on employers.  In fact, various proposals would pay off the debt in the same period by establishing forward financing, and yes increasing state unemployment insurance taxes for employers.  Modest increases are merited when significant cuts to benefits and an undermining of a key economic stabilizer hang in the balance.

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