Legislature to take on unemployment taxes, benefits

By Scott Mooneyham | Dec 05, 2012

RALEIGH -- One of the first items on the agenda for the North Carolina General Assembly in January will be coming up with a way to repay $2.4 billion borrowed from the federal government to pay jobless benefits.

Without any action, North Carolina's employers will have to foot the bill by paying higher unemployment insurance taxes after already seeing rates automatically increase over the past year.

Fortunately for the general taxpayer of the state, any notions of sticking them with the tab, or issuing bonds — in other words, refinancing the debt -- seem to have dried up and blown away.

What won't be going away are proposals for North Carolina to follow the course of some other Southern states by cutting unemployment benefits.

Legislative leaders obviously feel compelled to do something.

The state's unemployment insurance debt is third highest in the country, behind only California and New York. Most of that $2.4 billion debt was accumulated during the height of the recession, when benefits paid to the unemployed outstripped the dedicated taxes being paid into the system by employers.

There is a legitimate argument to made that rising unemployment insurance rates could hurt economic growth.

But there are downsides to trimming benefits too.

Besides the obvious -- the individual hardship that the families of the unemployed will suffer if benefits are cut -- reductions in those benefits will also mean less money circulating through the economy.

The Great Recession would have been far worse had not the unemployed been able to count on extended jobless benefits to pay bills, buy groceries and otherwise frequent the businesses that were dependent on their patronage

To legislators' credit, they did not act to trim those benefits last year or earlier this year.

As slow as the economic recovery may be, legislative leaders can feel a little more comfortable considering benefit changes as we move further away from the recession's height.

Reducing the length of North Carolina's benefits from 26 to 20 weeks may have been a bad idea when the state's unemployment rate stood at over 11 percent in the winter of 2010 or at almost 11 percent in the summer of 2011.

It becomes a little more palatable when the unemployment rate is 9.3 percent and appears to finally be a on steady, slow decline.

Legislators also are likely to consider reducing the maximum amount of benefits, now at $535 per week.

As they do so, they might want to remember that the state's unemployment insurance fund once had an $800 million surplus.

Then previous legislatures reduced the unemployment taxes paid by employers, five separate times.

The legislators who pushed for those rate reductions argued that it wasn't fair to bleed that money from employers when it might be put to better use.

Maybe so. And maybe the near bankruptcy of the system now argues for more fluidity with both rates and benefits, and not only when it faces a crisis.

 

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