So Pat McCrory and the GOP legislature are celebrating paying off the unemployment insurance debt early. To hear them tell it, the state had been spending so recklessly on unemployment benefits for people who wouldn’t get off the couch and go look for a job that North Carolina was in hock to the federal government for $2.75 billion. McCrory and the legislature made tough love decisions to cut off checks and reduce the amount paid to those people still eligible for benefits. The move worked and the state paid off its debt to the feds about four years early, saving the state hundreds of millions of dollars.
Here’s what really happened. Back in the heady of days of the 1990s dot-com boom, unemployment was at an all-time low and businesses were making money hand over fist. With so few people unemployed, businesses lobbied the legislature, which was split between Republicans and Democrats, to reduce the amount of money paid into the unemployment fund.
Progressives warned that in a major recession, the fund could see a shortfall that would hurt businesses and workers. Nobody wanted to hear that nonsense, especially when there was so much money to be made. So the business community laughed them off and the legislature ignored them. With no recession in sight, the legislature gave into greed and fiscal irresponsibility and cut the amount of money businesses paid into the unemployment fund.
That worked out pretty well for a dozen years or so. Then, the recession hit. Instead of record employment, we faced the highest unemployment since the Great Depression. The underfunded unemployment fund quickly dried up. To meet its obligation to the unemployed workers, the state had to borrow money from the federal government to cover what should have business debt.
But instead of holding businesses accountable for their underpayment, McCrory and company blamed the victims of the recession. They paid off the debt by reducing payments to people who lost their jobs through no fault of their own. It may be good for business bottom lines, but it’s not good for workers. Income is still flat and labor force participation is still abysmally low.
To defend the harsh measures, Republicans claim they fixed a broken system. That’s not true. They just bailed out businesses on the backs of victims of the recession by cutting the length and amount of benefits but they left the system essentially intact. As the Budget and Tax Center notes, businesses still pay too little to adequately support the the Unemployment Insurance Trust Fund, leaving workers and the economy vulnerable in the next recession.
Helping businesses climb out of a recession by reducing their debt is a noble goal. Doing it on the backs of the people still struggling is not. By 2013, when the legislature cut benefits and kicked unemployed people to the curb, the wealthiest people had fully recovered from the recession but the poor and middle class still struggled. McCrory and the legislature, of course, took the money from the poor.
Thomas Mills is the founder and publisher of PoliticsNC.com. Before beginning PoliticsNC, Thomas spent twenty years as a political and public affairs consultant. Learn more >
NC employers have been paying back the loan from the feds for 4 years now, in the form of a reduction of the *normal* credit against Federal Unemployment Tax, effectively an increase in FUTA tax.
From WIKI: “When states lack the funds to pay UI benefits, they may obtain loans from the federal government. To assure that these loans are repaid… the federal government is entitled to recover those monies by reducing the FUTA credit it gives to employers, which is the equivalent of an overall increase in the FUTA tax.”
Employers did not get off scot free. But now, with no lesson apparently learned, the rate has been reduced to practically zero.
Not being a business owner myself, I can’t say I understand the burdens. Being a taxpayer, I understand paying my share (how fair it is I don’t know). Is there anything preventing businesses to pay a graduated scale of insurance based on their size? Wouldn’t that be more fair?
Thomas, thanks for “telling it like it is”. This debt existed because businesses paid in, with the legislature’s approval, TOO LITTLE money, hense the state had to borrow from the feds to compensate the unemployed. Technically it was employers that owed this debt not we the people and certainly not the recipients of the unemployment benefits. But, as Republicans like to do, the burden went to those least able to pay it. Then McCrory, Berger, Moore and company cranked up the propaganda machine. Works every time.
Have any of you guys ever owned or started a small business?
When the downturn came, the final straw towards my partner and our small 17-year old manufacturing business closing in 2012 (and laying off 23 employees), was the impending NC unemployment insurance payment due in a few months (early ’13).
I had left months earlier to find another job to take the pressure off the business to support me, and my partner had forgone his salary for 12 months and spent most of his 401K to survive so we could continue to pay the employees and the suppliers.
But our accounting firm advised us that if we didn’t close before 2013, we would personally be on the hook to pay the state payment. With the downturn still very much in effect, we could not take anymore risks or losses – and sadly closed.
Small businesses and small start-ups are the ones who struggle to pay high state unemployment insurance premiums not the big corporations. These small businesses are where most of the jobs come from, not the “Volvos” of the world. Small businesses aren’t hoarding pots of gold they can just dip into when these quarterly premiums come due either.
Keep the premiums as low as possible.
Yes, I have owned a small business.
So, as I read and react to your personal case-in-point, I’ll first empathize with your hard work and struggles to keep your enterprise going. Sory for your loss.
But as you said yourself “With the downturn still very much in effect, we could not take any more risks or losses – and sadly closed.” So, despite businesses like yours paying less than they should have into the unemployment fund for many years, your business was in bad enough fiscal straits that paying what it owed, by law, into UI would hurt you personally, so you made the wise decision to shut down.
I likely don’t need to tell you that such are the realities and the risks of owning a business. There can be profits to make, but there can also be losses and failures that hurt. And there are government obligations to meet.
IMO, It’s not all about keeping UI premiums as low as possible, as I believe they already are. It’s about making sure businesses pay UI premiums, on time, that will keep the system solvent over the long-term economic ups-and-downs. NC state government, as lobbied by business interests, didn’t make that happen when it should have.
Small businesses should not have to pay at the same rate as an established big business.But there is no common sense in politics most of the time and the little guys always get banged up first!
The truth here is sad and nothing to celebrate. The fact it was “celebrated” should make all those religious conservatives mad as hell.
While I agree virtually entirely, the debate should be about the future instead of the past.
For example, at what amount should the unemployment insurance fund be replenished to defend against future economic downturns? 2.5 billion? 4 billion? 5 billion?
What is an appropriate UI reserve fund for the eighth/ninth largest state?
This is the policy question the legislature should address as the fund begins to rebuild.
Appropriately funding the state’s UI reserve fund NC’s large population would demonstrate truly conservative and responsible governing.
I wonder what the state auditor or the state treasurer believe to be an appropriate minimum UI reserve fund?
Do the math numbers don’t lie, Politian’s do but numbers do not.