Reality check on unemployment taxes

by Chris Fitzsimon

You don’t have to listen to the political debate in North Carolina for long before someone brings up the $2.8 billion the state owes the federal government for unemployment insurance funds the state borrowed to provide the desperately needed benefits to laid off workers during the Great Recession.

That’s good. It is an issue that deserves a robust debate. The problem is that we are not having one. Conservative candidates like to use the debt to add to their “government is out of control” theme or even worse to demonize people who are out of work and call for slashing their unemployment benefits as part of the solution to repay the debt.

Most progressive candidates usually resist the worker-bashing and but don’t ever seem to quite get around to talking about all the real causes of the problem, mentioning only the unprecedented layoffs that came as a result of the worst economic downturn in a generation.

That certainly played a significant role in wiping out the state’s unemployment insurance trust fund, but there was another reason North Carolina ran out of money to pay benefits and had to turn to the federal government for help—tax cuts, lots of business tax cuts.

At the urging of state’s corporate community, lawmakers cut unemployment taxes on businesses six times between 1992 and 2000.

The N.C. Budget & Tax Center reports that if the state had required businesses to pay into the unemployment trust fund at the average national tax rate from 1990-2004, the fund would have had a balance of $2.8 billion in 2004, three years before the Great Recession began.

The state would have been able to pay benefits to unemployed workers on its own, without help from Washington. There would be no debt to repay now.

You would think given those facts that asking businesses to pay more would be a significant part of the plan to repay the debt, but very few people are mentioning it.

The N.C. Chamber instead wants the state to pay off the debt with a bond issue and at the same time reduce benefits to unemployed workers.

Many right-wing politicians and advocacy groups are also pushing hard for a general bond, putting the taxpayers on the hook for the debt, and a reduction in both the maximum weekly benefits for workers and the number of weeks they can receive them.

The NC Budget & Tax Center also reports that the average amount of monthly unemployment insurance benefits in North Carolina is just over $1,100, or just enough to cover roughly half of an average family’s basic necessities according to the BTC’s calculations.

It seems like the least the state should do.

The BTC also finds that unemployment benefits are almost always circulated back into the economy with every dollar in benefits creating two dollars in economic activity. Folks who have lost their jobs are not socking away money for a rainy day, they are paying their bills and feeding their families.

Making unemployed workers suffer because North Carolina corporations convinced lawmakers to give them unwise tax cuts makes no sense. It’s unfair and absurd.

An honest debate about the unemployment debt to the federal government would make that clear.

Too bad so many politicians are unwilling to have one.

Chris Fitzsimon is Director of NC Policy watch and an NC Spin Panelist