State legislators proposing an overhaul of the unemployment compensation system say they’re taking an approach that spreads the burden of paying off a multibillion-dollar federal debt. But as initially presented, the plan inflicts a disproportionate share of the pain on the unemployed.
First, some background: The state finds itself in this position because it amassed a $2.48 billion debt when it borrowed federal funds to pay for soaring unemployment benefits during the great recession. Other states did the same thing, but North Carolina’s debt is the third-highest in the country.
Under the federal mechanism for repaying that debt, businesses are required to pay higher federal unemployment taxes, with annual increases until the debt is retired. The proposed state overhaul — which was advocated by the pro-business N.C. Chamber — would pay off the debt more quickly, requiring some sacrifices now but saving businesses money in the long run.
That intent has merit. However, advocates for the unemployed say the jobless would have to shoulder too much of the cost of the plan. Some nonprofits and local governments also aren’t too happy, either, because they also would be required to pay more.
Under the proposal’s main provisions:
n The maximum weekly unemployment benefit would be cut to $350 from $506. (The average N.C. unemployment benefit is about $291, slightly below the U.S. average).
n The maximum length of benefits would drop from 26 weeks to between 12 and 20 weeks (length to be based on the jobless rate at the time).
n The state unemployment tax rate for businesses paying the highest rate would rise from 5.7 percent to 5.76 percent on wages up to $20,900. Employers currently exempt from state unemployment taxes would pay a minimum rate of 0.06 percent on the first $20,900 in wages per worker.
n Nonprofits and local governments would have to contribute to the state unemployment trust fund
While legislators talk of sharing the pain, an analysis in the News & Observer of Raleigh indicates many businesses — about 70 percent — would see little or no increase in their state unemployment taxes. That doesn’t sound like the pain is being spread equally, especially if you’re jobless and facing benefit reductions.
There’s no question that the unemployment compensation system needs to be put on a more sustainable path, and that requires some restructuring of benefits. But as the proposed overhaul now stands, the unemployed would bear a disproportionate share of the debt payoff pain. Legislators need to find a way to take some of the sting out of these cuts.