Beyond North Carolina's Unemployment Insurance Crisis
By Fergus Hodgson
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North Carolina's staggering Unemployment
Insurance (UI) debt -- which fluctuates around $2.5 billion -- has been growing
for two and a half years and is in the top five among the 50 states on a per
capita basis. In 2011, state officials added another $470 million to the total
without any reforms to curb the bleeding.
The pain has already arrived.
State officials sent a $78 million interest payment to D.C. late in 2011, and
from January employers have had to pay higher UI taxes on all wages, $21 per
employee each year. So long as the state remains delinquent, more interest
charges will accrue, and by federal mandate the UI tax will step up by another
0.3 percent each year.
Given that the state's UI
program brings in less than $1 billion per year, repayment of almost three
times that amount appears very difficult. With a little context, however, one
can see that a few simple reforms would return this program to solvency.
In fact, North Carolina has the
most generous UI benefits of its neighbors, including by far the highest
maximum weekly benefit of $506. If state officials were to match the benefit
levels and weeks of eligibility of South Carolina's program, for example, it
would be sufficient for repayment within seven years.
One way to do this would be to lower the highest benefit and bring the program
closer to a uniform subsistence income, as the North Carolina Chamber has supported
and as I called for back in January.
A simple bond issue, to be paid
by employers, could achieve this. First, that would disentangle the state from the
federal debt. Second, it would allow the state to downsize the program to
cancel out the additional burden on employers.
The other proposition of higher
taxes is simply not viable. As the Entrepreneurship Council
and Chamber have rightly
noted, a higher tax burden would further dissuade offers of employment when
the North Carolina labor market is already fractured and the rate of labor
force participation is one of the lowest in the nation.
Further, past workers are
receiving benefits far in excess of what their contributions -- paid through
employers -- ever justified. Rather than curtail overly generous benefits, an
increase in taxes on employment would shift the burden onto new and current
workers who would not be recipients.
Beyond this particular episode,
the UI is a convoluted system, combining state and federal agencies with
various funding streams with variable and dependent tax rates. If you want to
better understand it, please see my spotlight on this, "First, Stop the Bleeding,"
which I published in January.
The program's complexity also
points to its forgettable origins. Legislators designed it during the Great
Depression with tax rebates to conceal its unconstitutionality -- since it is a
federal mandate, plain and simple. Additionally, at that time labor unions were
one of the biggest sources of opposition, since they already provided such
insurance on a private basis. Times may have changed in that regard, but the
program's moral and constitutional grounds remain more than questionable to
research staff here at the John Locke Foundation have been busily working on
our upcoming publication of Agenda 2012. It is a candidate's guide and an
update from the previous, 2010 version. Stay tuned for that, as it should be
out within another couple of weeks.
- My most recent
speaking engagement turned into an insightful discussion in
Winterville, North Carolina. We examined my latest research
article, which I encourage people to read. My analysis lays to rest the notion
that the latest budget cut state spending. In fact, state spending this fiscal
year 2012 will be a record and on a per capita basis more than three times what
it was in 1970.
Click here for the Fiscal
Thursday, Jun. 7th, 2012 at 6:00pm
North Carolina History Project Lecture
with our special guest Professor Jeff Broadwater
"James Madison, North Carolina, and the Problem of Governance"
Monday, Jun. 11th, 2012 at 12:00 PM, Noon
A meeting of the Shaftesbury Society
with our special guest John Hood
Our Best Foot Forward
Tuesday, Jun. 12th, 2012 at 12:00 p.m.
A Lunchtime Discussion
with our special guest Lawrence Lessig
Tuesday, Jul. 31st, 2012 at 12:00 pm
Friedman Legacy Freedom Lecture
with our special guest Joseph P. Calhoun
Keeping Milton Friedman's Ideas Alive in Colleges and Universities