This week has already featured several prominent pieces on North Carolina’s unemployment insurance cuts with the final assessment that many jobless workers have likely been harmed and a more balanced approach to trust fund debt based on evidence not ideology was needed.

On Sunday, the New York Times featured a piece by Justin Wolfers of the Brookings Institution that made clear the evidence just isn’t there to support claims made that North Carolina is experiencing an economic boom and job growth resulting from the unemployment insurance cuts. And while he correctly points out that there is too little evidence to draw conclusions about what is happening in the economy, Wolfers fails to acknowledge that the harm to jobless workers from the cuts is significant enough to raise alarm.

Yesterday, Jared Bernstein of the Center on Budget and Policy Priorities followed up in the Washington Post by highlighting this very fact: there has been very real harm from the cuts created for jobless workers who now have fewer weeks to find a job in a labor market with too few and fewer dollars to meet basic needs, as the Budget & Tax Center documented in our recent report.

And then the Economic Policy Institute released a report looking across the country at states that cut unemployment insurance benefits. The report concludes that these decisions were not fiscal in nature but political and have had no appreciable impact on labor force improvements and been completely lopsided in their approach, effectively requiring jobless workers to pay employer’s debt. Here are a few of their key findings that are illustrative for North Carolina:

  • States with solvent unemployment insurance trust funds (the funding mechanism for the unemployment insurance system paid into by employers) before the Great Recession were less likely to borrow from the federal government.  A states’ experience was not a differentiating factor for states borrowing activities.
  • States that remained solvent had not cut UI-dedicate state taxes nearly as deeply as did other states during the 2001-2007 period of recovery and expansion.
  • Eight of 35 states chose to address their unemployment insurance trust fund debt with cuts rather than taking a balanced approach. What most of the eight states share is a recent history of not supporting safety-net programs not more drastic fiscal challenges.
  • Across the eight states, unemployed workers lost an average $252 per week of curtailed benefits just so states could save roughly nine cents per covered worker per week in UI-state taxes.
  • There was no visible improvement in state labor market outcomes—when looking at employment-to-population ration—following cuts to UI duration.

Bottom line from all this national attention, North Carolina policymakers made the wrong choice and jobless workers are being hurt as a result.

Last week as the Budget & Tax Center released its analysis of the impact of unemployment insurance changes on jobless workers one year later, the Department of Commerce Employment Security Division announced that the unemployment insurance debt will be paid down early.

The resolution of the debt in August 2015 rather than November 2015 will mean that employers will no longer have to pay an additional federal tax that resulted when the Trust Fund came due for the following year. That federal tax represented the primary contribution employers were making to address the debt that was created as a result of tax cuts that they received in the 1990s and the historic job loss of the Great Recession.

As we wrote about in our report released last week, the vast majority of the savings that allowed for this accelerated repayment came from benefits cuts that primarily have reduced the maximum available weeks and the average weekly benefit amount. Both of these changes have hurt jobless workers as they have fewer dollars to make ends meet and continue their job search.

BTC - Changes to UI Benefits

Moreover, because jobless workers have fewer dollars to spend in local communities, these cuts have a ripple effect in local economies. Estimates suggest in this recession and recovery that for every $1 of unemployment insurance payments, $2 in economic activity is either sustained or generated. Each month the fewer dollars for jobless workers is impacting their spending and ability to participate in local economies twofold.

This economic impact and the harm to jobless workers and costs to the state to help these families in other ways are reason enough for policymakers to change the most harmful aspects of current law. By delinking the number of weeks from the unemployment rate to 26 weeks like the majority of states offer and by changing the benefit calculation formula to the two highest quarters of previous earnings while also seriously reforming the state financing of unemployment insurance through a forward financing model, the system can be put back into balance and the debt can still be repaid.

Income tax cut costs will rise to more than $1 billion by 2016, raising serious concerns about whether the current budget negotiations are putting forward a fiscally responsible path to meet the priorities of our state. Before the budget is finalized, legislative leadership must consider this newly available information that the tax cuts will cost more than originally estimated and move immediately to stop further revenue losses in 2015.

Fiscal Research Division revised estimates this week based on new data just released from the Internal Revenue Service on the incomes and taxes paid by North Carolinians through the personal income tax in 2012.

The higher cost of the tax plan is likely the result of the greater benefit that the tax plan has for high wealth taxpayers who have seen their incomes recover more quickly out of the Great Recession. Prior estimates by Fiscal Research Division were based on IRS data from earlier years thus not accounting for this income growth and the latest available information on the costs of deductions and credits.  It is clear not only that the rate reductions are having a larger than anticipated effect but also that we should not expect that base-broadening impacts will be sufficient to hold those revenue losses in check.

The fundamental issue is that the income tax cuts cost more than originally projected and require policymakers to take immediate steps towards stopping further revenue losses with rate reductions automatically scheduled to go into effect in 2015.

With the release last month of the latest labor market figures, the Budget & Tax Center has updated as well its estimate of the number of missing workers in North Carolina’s labor market.  This measure estimates the number of workers who would be in the labor market, looking for work, if job opportunities were stronger.  In June 2014, the number of missing workers remained elevated at 241,445.  If these workers were counted in the unemployment rate, that rate would be 11.5 percent rather than the official 6.4 percent for that month.

BTC - Missing Workers June 2014

In combination with the state’s persistent jobs deficit, the missing worker measure points to a still weak labor market with too few jobs for those who want to work.

Beginning today, jobless workers in North Carolina can access fewer weeks of unemployment insurance despite a continued lack of jobs and the persistence of long-term unemployment. This is the direct result of a provision in HB4, the unemployment insurance overhaul bill that went into effect last July 1st.

The provision establishes a sliding scale for the maximum number of weeks that is tied to the unemployment rate. The lower the rate, the fewer weeks of unemployment insurance anyone can get. Such an approach to establishing the number of weeks available is only done by 2 other states—Florida and Georgia.

Jobless workers in North Carolina will only be able to access 14 weeks maximum of unemployment insurance beginning today, the lowest duration of weeks in the country. In the last year, the average weeks of duration was 17. And available data point to the continued persistence of long-term unemployment and the disturbing trend of missing workers, workers who would otherwise be in the labor market if job opportunities were stronger. Read More