Unemployment Benefits

Unemployment benefits have been in the news lately , especially UI for the long term unemployed.  NC has taken a lot of heat from liberals and outsiders who really don't like Republicans very much. Senator Berger and House Speaker Tillis have gone on record blaming Senator Kay Hagan for much of the problem. I think I should explain a bit.

When the Democratic Party controlled the NC legislature, they made a number of changes to the unemployment law that kept state UI rates low. Those changes, coupled with the federal UI law that keeps rates low when there are few people unemployed, helped make NC more attractive to employers. That in turn kept employment figures high and rates low. A virtuous cycle, if you will.

Employers have two taxes that individual taxpayers never encounter on their 1040s. Employers have FUTA and SUTA taxes. Federal Unemployment Tax Act and State Unemployment Tax Act. Those rates are set fairly low and generally apply to only the first $8000 of each employee's wages. Most states adjust the SUTA tax by employer based on the employer's track record of laying off people. The more people an employer puts on UI, the higher its rate. Simple enough. But, in the good years, NC stopped adjusting employers individually. In stead, and this is where Kay Hagan comes in, the NC legislature changed the law. Hagen was the chairperson of the Senate Finance Committee that wrote the changes in the SUTA for North Carolina. She and the other Democrats who voted for the changes (in those days the Dems simply ignored the GOP as the Dems had a super majority) did so in the belief that keeping taxes lower even for employers who laid off workers would make it easier to attract new employers to NC. That worked well enough for a while.

But, the Great Recession was too much for the NC UI system. Too many people lost their jobs through no fault of their own. They turned to UI for assistance. But, NC was unprepared for the massive influx of newly unemployed high wage earners. Very quickly, NC had to borrow $2.0 billion from the federal government to keep making UI payments Our debt exploded from nothing to $2.0 billion in just three years.

Then, the GOP was swept into power in state government. One of the many problems facing the newly in power Republicans was what to do with $2.0 billion in debt to the federal government. The federal government had a mechanism to collect the debt, the FUTA. The federal law called for a roughly 810% increase in FUTA taxes across the board for NC employers. That would cripple North Carolina's efforts to attract new jobs and expand existing companies. The GOP looked for and found a different way. Cut benefits to levels consistent with surrounding states, and cut the length of time an unemployed person can receive UI benefits.

Finally, the GOP leadership thought there would be a compromise on the fiscal cliff in Washington. They had worked with the federal government in crafting the new NC law that would avoid a massive FUTA tax increase, so they were not working in isolation. (Here comes Hagan again.) The GOP asked Kay Hagan, now in the U.S. Senate to "grandfather in" the NC law so that if there was a federal extension of UI benefits, NC would participate without the massive FUTA tax increase. She didn't get that done. Thus NC's unemployed lost out. Berger and Tillis are working to get the NC law grandfathered into any upcoming compromise to extend UI benefits in congress. Read about Berger's take on the mess at his website.

Walt-in-Durham