The unemployment insurance system is built on the very simple but very effective principle of forward-financing. Employers contribute to the fund in good times so that in tough times, when benefit payouts increase and payrolls shrink, funds are available for workers who lose their jobs through no fault of their own and demand is maintained in local economies.

In the mid-1990s, North Carolina’s policymakers enacted a series of tax changes that abandoned forward-financing. These changes brought the state’s unemployment insurance trust fund levels below safe levels proscribed by the best evidence—just before the first recession of the 2000s hit. If North Carolina had required contributions from employers at the national average tax rate from 1990 to 2004, the UI Trust Fund would have had $2.8 billion in 2004, potentially erasing the current solvency issues. Read More…

There is broad agreement that something must be done to address the solvency of the state’s unemployment insurance trust fund.  Without action, businesses will face a continued federal increase of their taxes and the trust fund will be in no position to support the economy in the next economic downturn.

And the latter, afterall, is the fundamental role of the unemployment insurance system and why it’s funding was designed to build up in good times so that it could pay out in downturns.  In so doing, the unemployment insurance provides workers with a modest payment to meet their families’ most basic needs and continue their search for work. And as most economists note such support to workers redounds to businesses too in sustaining their consumer base and continuing to circulate dollars in local economies.

But the financing principle of forward-financing, or preparing for the winter so to speak, was abandoned in North Carolina in the 1990s when a series of tax cuts effectively reduced the trust fund balance and left the state ill-prepared to sustain the system through two successive, one historic economic downturn in the 2000s.

Correcting for these failings now is critical.  Doing so in a way that aligns with what most reasonable people agree doesn’t harm North Carolinians struggling with joblessness or the fragile economic recovery is fundamental.   Read More…

The Truth and Hope Bus Tour launched with a tour of northeastern North Carolina last week.  An appropriate starting place to begin to put not just a face on poverty but to outline the community conditions that make poverty persist in certain geographies.

A report from the Budget and Tax Center released today provides data on the 10 counties in NC classified by the USDA measure as persistently poor.  These communities have experienced high poverty rates (over 20 percent of their population lived in poverty) for three decades.

All of North Carolina’s persistent poor counties are in the eastern region of the state and the northern tip of the “Black Belt,” a crescent of economically distressed communities that stretches south to Louisiana.  The lack of wealth, few employment opportunities and a crumbling opportunity structure in these communities makes it difficult to provide pathways to mobility.  The result is poverty persists.

Importantly, there are successes to point to in these communities and beyond.  When targeted policies, like additional funding for public education is available,  the development of stronger institutions in these communities can lead to improved student educational attainment.  When commitments to regional economic development, like with the Appalachian Regional Commission, have been implemented, there has been a reduction in the level of sustained poverty in a community.

Governor Christie of New Jersey signed into law last week a work-sharing program which is a proven tool that keeps workers on the job even when economic growth is weak or nonexistent.  This will be the 24th program in the nation.

The program works by reducing workers hours and using unemployment insurance benefits to pay a portion of the wages that employees lose. The programs are voluntary for employers and administered through the unemployment insurance system.  A similar program in Germany kept that country’s unemployment rate below 7 percent despite a steeper economic decline there relative to the US experience.

Such an approach benefits both employers and workers. Employers are able to maintain a trained workforce that can quickly ramp up production when the economy turns around and do not incur the costs of retraining. Eighty percent of employers in a study of short-time compensation programs in the United States reported employees on short-time were either as productive as or more productive than non-short-time employees. Additionally, employees maintain their income and access to benefits such as health insurance and retirement plans. And because incomes are not significantly impacted, consumer demand remains relatively constant, thereby eventually supporting businesses to produce more goods and services. Estimates at the national level suggest that if employers of 60 million workers shortened their hours by 5 percent rather than instituted layoffs, 3 million jobs would be created.

We praise the Governor for her announcement today that she will submit a budget proposal that includes revenue. In so doing, she has put at the forefront of the debate the fundamental driver of North Carolina’s budget woes: a collapse in revenues brought on by the economic downturn and a fundamental need for modernizing the revenue system for today’s economy.

Her proposal to include three-quarters of the penny sales tax would raise an estimated $863 million in additional state revenues next year.  These dollars could restore hundreds of millions in cuts to classrooms, adequately fund our State’s Medicaid program, serve all eligible children in our State’s nationally-recognized pre-kindergarten program, partially restore cuts to early childhood education and reduce the cost of accessing the courts. This would effectively turn the direction set forth in last year’s final budget, which put state investment at the lowest level in 40 years.

All policymakers should consider revenue when approaching the second year of this budget.  The sales tax is one option, but so are responsible reforms to personal and corporate income taxes that will ensure North Carolina can invest wisely in structures that support widespread prosperity without placing an unfair burden on working families and those in need.  The time is now to start a robust and inclusive conversation about revenue and revenue modernization so that North Carolina can be positioned to best support an economy that works for all.