The announcement today that North Carolina has paid down its unemployment insurance debt to the federal government is just a first milestone in the path to a solvent system. It is one that has been achieved through a series of harmful cuts impacting jobless workers, their families and communities and an approach that will ultimately reduce the long run potential of the system to serve as stabilizing force in the economy. So as far as milestones go, the celebration seems premature.
Here are few things to remember about the unemployment insurance debt and the choice that policymakers made to pay employers’ debt with cuts to unemployment insurance for jobless workers.
1. Yes, historic job loss contributed to the need for the state to borrow from the federal government to ensure payments during the Great Recession, but that wasn’t the driver. It was tax cuts in the 1990s that set the system up to fail even before the recession hit.
2. North Carolina’s unemployment insurance system was pretty much middle of the pack on most measures of adequacy, reach and financing when policymakers decided to make their changes to it in 2013. These changes have reduced average weekly benefit amounts and the number of jobless workers accessing the system.
3. The dollars from cutting benefits for jobless workers contributed the most to debt repayment according to estimates by the Upjohn Institute and Fiscal Research Division. Nearly two-thirds comes from cuts to benefits and just 0.7 percent from state taxes.
4. The final payments on the debt mean employers will no longer pay the automatic federal tax increases that were the primary way by which they contributed to the success of this system that benefits them. The automatic federal tax increases went up $21 per worker each year or, for a full time employee, about a penny for every hour that worker worked. By 2013, employers were paying three cents more per hour worked per employee. Unemployment insurance taxes total represent about 0.1 percent of total business costs.
5. Unemployment insurance taxes are not a barrier to job creation or strong economic performance. The opposite is the case: ensuring that the unemployment insurance system can serve its temporary and adequate wage replacement function means that employers are less likely to have to eliminate jobs and more able to rebound from a downturn.
Failure to make changes now to the financing of the unemployment insurance system by ensuring that employers contribute adequately and do not receive more tax cuts (as they will under current law) before the Trust Fund is truly solvent will undermine the system’s stabilizing force in the economy. Future downturns could require more borrowing, benefit cuts or tax increases if policymakers prematurely reduce the state taxes contributed by employers. Failure to revisit the benefit cuts and the harm they have created will undermine the support of this system to the economy.