As reported by Ebru News             Feb 19,2011 

WASHINGTON (AP) – State officials had plenty of warning. Over the past three decades, two national commissions and a series of government audits sounded alarms about the dwindling amount of money states were setting aside to pay unemployment insurance to laid-off workers.

“Trust Fund Reserves Inadequate,” federal auditors said in a 1988 report.

It’s clear now the warnings were pretty much ignored. Instead, states kept whittling away at the trust funds, mostly by cutting unemployment insurance taxes at the behest of the business community. The low balances hastened insolvency when the recession hit, leading about 30 states to borrow $41.5 billion from the federal government to pay unemployment benefits to their growing population of jobless.

The ramifications will be felt for years.

In the short term, states must find the money to pay interest on the loans. Generally, that involves a special tax on businesses until the loan is repaid. Some states could tap general revenues, making it harder to pay for schools, roads and other state services.

In the long term, state will have to replenish their unemployment insurance programs. That typically leads to higher payroll taxes, leaving companies with less money to invest.

Past recessions have resulted in insolvencies. Seven states borrowed money in the early 1990s; eight did so as a result of the 2001 recession.

But the numbers are much worse this time because of the recession was more severe and the funds already were low when it hit, said Wayne Vroman, an analyst at the Urban Institute, a liberal-leaning think tank based in Washington.

The Obama administration this month proposed giving states a waiver on the interest payments due this fall. Down the road, the administration would raise the amount of wages on which companies pay federal unemployment taxes. Many states probably would follow suit as a way of boosting depleted trust funds.

Businesses pay a federal and state payroll tax. The federal tax primarily covers administrative costs; the state tax pays for the regular benefits a worker gets when laid off. The Treasury Department manages the trust funds that hold each state’s taxes.

Each state decides whether its unemployment fund has enough money. In 2000, total reserves for states and territories came to about $54 billion. That dropped to $38 billion by the end of 2007, just as the recession began.

Over the next two years, reserves plummeted to $11.1 billion, lower than at any time in the program’s history when adjusted for inflation, the Government Accountability Office said in its most recent report on the issue. Yet benefits have stayed relatively flat, or declined when compared with average weekly wages.

“If you look at it from the employers’ standpoint, they’re not going to want reserves to build up excessively high because then there’s an increasing risk that advocates for benefit expansion would point to the high reserves and say, ‘We can afford to increase benefits,”‘ said Rich Hobbie, executive director of the National Association of State Workforce Agencies.

A review of state unemployment insurance programs shows how states weakened their trust funds over the past two decades.

In Georgia, lawmakers gave employers a four-year tax holiday from 1999-2003. Employers saved more than $1 billion, but trust fund reserves fell about 40 percent, to $700 million. The state gradually has raised its unemployment insurance taxes since then, but not nearly enough to restore the trust fund to previous levels. The state began borrowing in December 2009. Now it owes Washington about $588 million.

Republican Mark Butler, Georgia’s labor commissioner, said his state had one of the lowest unemployment insurance tax rates in the nation when the tax holiday was enacted.

“The decision to do this was not really based upon any practical reasoIt was based on a political decision, which I think, by all accounts now, we can look back on and say it was the wrong decision,” Butler said. “Now we find ourselves in a situation where we’ve had to borrow money and that puts everyone in a tight situation.”

In New Jersey, lawmakers used a combination approach to deplete the trust fund. The Legislature expanded benefits and cut taxes, as well as spending $4.7 billion of trust fund revenue to reimburse hospitals for indigent health care. The money was diverted over a period of about 15 years and helps explain why the state’s trust fund dropped from $3.1 billion in 2000 to $35 million by the end of 2010. The state has had to borrow $1.75 billion from the federal government to keep the program afloat.

“It was a real abdication of responsibility and a complete misunderstanding of how you finance an unemployment insurance fund to make sure you have sufficient money in bad economic times,” said Phillip Kirschner, president of the New Jersey Business and Industry Association. “In good economic times you build up your bank account, but in New Jersey, they said, ‘Well, we have all this money, let’s spend it.”‘

California took its own road to trust fund insolvency. Lawmakers kept payroll tax rates the same, but gradually doubled the maximum weekly benefit paid to laid-off workers to $450. The average benefit now is about $300 and is paid for about 20 weeks.

Loree Levy, spokeswoman for the California Employment Development Department, said lawmakers were warned of the consequences.

“We testified at legislative hearings that the fund would eventually go broke and would become permanently insolvent if legislation wasn’t passed to increase revenue,” Levy said.

California has borrowed $9.8 billion to keep unemployment insurance payments flowing. It owes the federal government an interest payment of $362 million by the end of September.

In Michigan, unemployment insurance tax rates declined from 1994 through 2001. The trust fund prospered during those years because of the healthy economy and low unemployment rate. Then the recession arrived and reserves plunged. In response, Michigan lawmakers passed legislation that lowered the amount of wages subject to unemployment taxes from $9,500 to $9,000. They increased the maximum weekly benefit from $300 to $362. The trust fund dropped from $1.2 billion to $112 million over the next four years. In September 2006, Michigan was the first state to begin borrowing from the federal government.

Other states held their trust funds purposely low as part of an approach called “pay-as-you-go.” Texas is a nationally recognized leader of this effort. Its philosophy is that, in the long run, it’s better for the economy to keep the maximum level of dollars in the hands of businesses rather than government. Texas had to borrow $1.3 billion in 2009. State officials have no regrets about their policy.

“By keeping the minimum in the (trust fund), Texas is able to maximize funds circulating in the Texas economy, allowing for the creation of jobs and stimulation of economic growth,” said Lisa Givens, spokeswoman for the Texas Workforce Commission.

The pay-as-you-go approach goes against the findings of a presidential commission that looked into the issue of dwindling trust funds in the mid-1990s.

“It would be in the interest of the nation to begin to restore the forward-funding nature of the unemployment insurance system, resulting in a building up of reserves during good economic times and a drawing down of reserves during recessions,” said the Advisory Council on Unemployment Compensation, which President Bill Clinton appointed.

Hobbie, from the association representing state labor agencies, said there’s no way to tell which approach is better over the long haul. He acknowledged that keeping reserves at the minimum in good times goes against one of the original aims of the program – to act as an economic stabilizer in bad times. That’s because businesses are asked to pay more in taxes, which leaves them less money to invest in their company.

A survey from Hobbies’ organization found that 35 states raised their state unemployment taxes last year.

Hobbie said he suspects that some states allowed reserves to dwindle out of complacency.

“I think we just got overconfident and thought we wouldn’t experience the bad recessions we had in, say the mid ’70s, and then this big surprise hit,” he said.

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JIM KUHNHENN   04/11/11 06:13 PM ET   AP

WASHINGTON — President Barack Obama, plunging into the rancorous struggle over America’s mountainous debt, will draw sharp differences with Republicans Wednesday over how to conquer trillions of dollars in spending while somehow working out a compromise to raise some taxes and trim a cherished program like Medicare.

Obama’s speech will set a new long-term deficit-reduction goal and establish a dramatically different vision from a major Republican proposal that aims to cut more than $5 trillion over the next decade, officials said Monday.

Details of Obama’s plan are being closely held so far, but the deficit-cutting target probably will fall between the $1.1 trillion he proposed in his 2012 budget proposal and the $4 trillion that a fiscal commission he appointed recommended in December.

The speech is intended as a declaration of Obama’s commitment to seriously tame the deficit while outlining his long-term budget principles – key components of his campaign for re-election in 2012. After gingerly avoiding any discussion until now of cuts in the government’s massive benefit programs for the elderly and poor, Obama will acknowledge a need to reduce spending on Medicare and Medicaid while at the same time tackling defense spending and calling for increased taxes on the wealthy, White House officials said.

If that sounds like a reprise of last week’s budget fight that barely avoided a government shutdown, it isn’t. The stakes are far higher, the political risks greater and the goals more ambitious. At issue are long-term budget deficits and a $14.3 trillion national debt that many say could threaten the nation’s economy.

The cuts accomplished last week were for $38.5 billion over the next six months; the cuts envisioned now are for trillions of dollars over the next 10 years.

Obama’s speech, to be delivered at George Washington University, comes as Congress readies for a fierce fight over raising the nation’s debt limit. Republicans have vowed to use that vote as leverage to extract greater budget discipline from the Democrats and the president.

Setting the terms of the debate and the likely brinkmanship to follow, White House spokesman Jay Carney said on Monday: “What I’m saying is that we support a clean piece of legislation to raise the debt ceiling. … We cannot play chicken with the economy in this way.”

The president’s speech also comes amid liberal apprehension over recent Obama spending concessions and a desire among some Democrats to make proposed GOP cuts in Medicare a 2012 election issue.

House Republicans, led by the chairman of the House Budget Committee, Paul Ryan, last week unveiled a plan that would cut $5.8 trillion over 10 years with a major restructuring of the nation’s signature health care programs for the elderly and the poor. Meanwhile, six senators have formed a bipartisan group to work on their own plan to rein in long-term deficits by making changes to Medicare and Medicaid and examining a fundamental overhaul of the tax system that would yield additional revenue.

Obama is expected to concede a need for overhauling Medicare and Medicaid and to even make adjustments to Social Security, always considered politically risky territory. But he will distinguish his plan from the Republican budget, which would shrink Medicare by shifting the program to private insurers and send block grants to states to pay for Medicaid, the health care program for the poor.

Unlike the Republican plan, Obama is also expected to call for cuts in defense spending and for tax increases, repeating his 2012 effort to increase Bush-era tax rates for families making more than $250,000. Obama shelved that plan in a budget compromise with Republicans.

His 2012 budget blueprint didn’t touch the health care entitlements or Social Security. Now that he plans to, some of his own supporters are wary, arguing that the president ceded too much ground when he cut a tax deal with Republicans last December and in yielding spending cuts last week.

“I want to have confidence, but I’ve got to see something,” said Barbara Kennelly, a former Democratic congresswoman and president of the National Committee to Preserve Social Security and Medicare, an advocacy group. “They can’t continue to give in.”

Many liberals say Obama has not been a strong bargainer.

“Their weakness in getting the most out of negotiations is their strategic belief that they don’t want to be seen as fighting, they want to appear above the fray and beyond partisanship,” said Lawrence Mishel, president of the labor-leaning Economic Policy Institute. “They also believe that they shouldn’t get out there on a position where they may not succeed. These are characteristics that make for a weak negotiator.”

Republicans on Monday said Obama’s speech was overdue.

“I’m anxious to hear what the president has to say,” House Speaker John Boehner said on Fox News. “We’ve been waiting for months for the president to enter into this debate with us. I can tell you that privately I’ve encouraged the president: `Mr. President, lock arms with me, let’s jump out of the boat together. We have to deal with this, this is the moment in time that we’ve been given to address the problems.

“Forget the next election, forget the next poll that’s going to come out. It’s time to do the right thing for the country.'”

The speech is expected to affirm Obama’s stand on the spending he is not willing to cut, chiefly in the areas of education, energy, infrastructure, research and innovation. On Medicare, the federal insurance program for senior citizens, the president is expected explain his case for cost savings without putting “all the burden on seniors,” as his senior adviser David Plouffe put it.

In choosing to wait until now, White House officials have looked at past precedents, including President George W. Bush’s plan to partially privatize Social Security, and have seen the pitfalls of staking out major policy initiatives that come undone in Washington’s combative environment.

Democrats have been torn over what Obama should do. Many believe the weight of the debt is a powerful issue with independent voters and that Obama needs to engage Republicans with a legitimate counterproposal and then conduct the “adult conversation” he professes to desire.

The debate over Medicare and Medicaid may not be resolved before the 2012 election, potentially making it the defining element of the presidential campaign.

WASHINGTON — Congressional negotiators held what were described as “productive” talks Tuesday afternoon in an effort to pass a spending measure that would cut tens of billions of dollars from the federal budget. But with just days remaining before the federal government runs out of money, there was only muted optimism that lawmakers would be able to avert a government shutdown.

The above paragraph was ripped from the headlines on Wednesday April 6th

What do you make of all this talk?

You can turn on any cable channel and the coverage is 24/7. The American press seems to be obsessed with the moment.

Japan??? ………That happened over a month ago

Libya…….That sound bite may last 30 seconds

Now we are faced with a Government shutdown!!!!….

Is it possible?

Will it happen?

I found myself being drawn to this topic. Numbers are constantly being discussed.

What are we really dealing with?

Can we just focus on making cuts to 12% of the budget and tackle the deficit issues?

What about the sacred cows!!!!!!

Defense….Social Security….Medicare…..Medicaid

Let’s look at some numbers:

On February 14, 2011, President Obama released his 2012 Federal Budget.

The report updated the projected 2011 deficit to be $1.645 trillion.

This is based on estimated revenues of $2.173 trillion and outlays of $3.818 trillion.

Observations

The federal deficit of $1.645 trillion is for 1 year (2011)

The federal deficit of $1.645 trillion is 75.7% of the $2.173 trillion total revenue the Government brought in last year.

The US Government is currently funding only 56.9% of their current expenses ($3.818 trillion) with the total revenue they received ($2.173 trillion).

The federal deficit of $1.645 trillion helps fund 43.1% of the $3.818 trillion in expenses.

You hear Congress arguing over whether to cut $30 billion or $40 billion in expenses.

That number may seems like a large amount, but what is it in the scheme of things?

Let’s take a quick look at where we are spending this money.

The federal budget in 2011 was projected at $3.83 trillion in total spending.

Below is a breakdown of the budgeted expenses for 2011. (This budget has never been passed, yet!!!)  

Obama’s new 2012 budget calls for reducing these cost by $12 billion dollars to $3.818 trillion from the proposed 2011 figure of $3.83 trillion.

You can now……. all play along….

Where do you want to take the $12 billion from?

$787.6 billion in pensions, $898 billion in health care expenditures, $140.9 billion for education, $928.5 billion in defense spending, $464.6 billion in welfare spending, $57.3 billion in protective services such as police, fire, law courts, $104.2 billion for transportation, $29 billion in general government expenses, $151.4 billion in other spending including basic research, and          $250.7 billion on interest payments.

Let’s not get too aggressive…..

What are our options?

 

How do we reduce cost and lower the deficit?

There is some talk of cutting all the expenses, 5%  across the board.

They’ll be no discrimination, everyone will take a hit.

That would reduce overall cost by $190.9 billion.

Guess what…..

the deficit would still be $1,454.1 trillion for this year.

Now what?

…………..I’m thinking…….I’m thinking

More factors to think about

 

The overall deficit is just under $15 trillion,

Our existing $1.645 trillion deficit makes up just under 11% of the overall deficit.

Recently, Robert Gates said the Pentagon has identified $178 billion in cuts for the five years from fiscal year 2012 to 2016. The Pentagon plans to reinvest about $100 billion of that into its own services, leaving the remainder for deficit reduction.

Hmmmmm!

Gates can identify $178 billion in cuts but wants to keep 57% of it?

This week, Portugal was looking to raise money by selling 6 month T -Bills for 5.117%.

Just 60 days ago the same T Bill was selling for 2.984%.

The US is currently selling T Bills for under 0.5%.

What do you think will happen if there is a Government shutdown?

There is the looming question of raising the debt ceiling.

How long before the world loses confidence in our ability to control cost?

Somehow I think we really took our eye off the ball.

Just this morning, experts were discussing the fact that the Government is expected to run with a deficit,

But……. $4 to $5 trillion is a more acceptable number.

How do we get from $15 trillion to $5 trillion?

Let’s try cutting the deficit by $1 trillion a year.

That means ………

In 10 years we can be within the acceptable numbers.

If we have already budgeted for a deficit of $1.645 trillion; to save $1 trillion this year, we would have to cut expenses $2.645 trillion dollars.

That means, we cut expenses from $3.818 trillion to $1.173 trillion.

We would only have to cut expenses by 70%!!!!

That doesn’t sound too promising!

How about we take 20 years to get the deficit from $15 trillion to $5 trillion?

Then we would only have to cut expenses 35%.

Do I hear 30 years?

Where am I going with all this fuzzy math?

I wish I knew!!!

No one seems to want to stand up and address any of these questions?

Ask anyone, we already feel we pay our fair share of taxes.

Can the American public be asked to pay more?

If you want to get reelected,

you better not be talking about raising taxes!

Cut our taxes but don’t dare cut our programs….

Is the US Government up for the challenge?

Will they be able to make the tough choices?

Or will the push the ball forward.

At HBS we pride ourselves on providing Smart Solutions for Smart Business

I am not sure where we would place this budget category?

I am just trying to make some sense of it.

Your comments are welcomed.

You may email george@hbsadvantage.com

Visit us on the web www.hutchinsonbusinesssolutions.com

Written by Jon Ward as reported in Huffington Post

WASHINGTON — The big numbers from Paul Ryan’s budget: It will reduce spending by $6.2 trillion over the next decade and reduce the deficit by $4.4 trillion.

It also cuts the top income tax rate by nearly a third, from 35 percent to 25 percent.

A big part of the House Budget Chairman’s plan rests on the assumption that President Barack Obama’s health care law will be repealed. Over the next decade, that would cut $1.4 trillion in spending alone, according to Ryan’s budget. Those savings, however, wouldn’t go directly to deficit reduction, because Ryan would also repeal the elements of health care reform that are aimed at raising revenue or reducing costs.

The Wisconsin Republican’s budget spends less on nearly every major category of the budget. Over the next decade, Ryan (R-Wis.) wants to cut $389 billion from Medicare, the public health insurance program for seniors. Over the same period, Ryan’s budget puts $735 billion less toward Medicaid, which benefits Americans too poor to afford private insurance. Discretionary spending on domestic programs is also reduced by $923 billion.

Two exceptions are security and defense spending and spending on Social Security, the public pension program for the elderly. Both are kept steady and relatively unchanged from Obama’s proposed budget.

A draft proposal from Ryan’s House Budget Committee says that under his plan, the national debt would be $1.1 trillion less than it would be over the next five years under Obama’s budget, and would add $3 trillion less to the debt than Obama’s budget proposal over the next decade. Ryan’s budget proposal would bring the debt held by the public to $13.9 trillion by 2016 and $16 trillion by 2021, compared to $15 trillion in 2016 and $19 trillion in 2021 under the president’s proposal. (The full national debt of just over $14 trillion also includes money owed to the Social Security and Medicare trust funds, but the public figure is the one normally used for budget forecasts.)

Though Ryan’s plan would reduce the size of the national debt as a portion of the economy – which is the key factor when considering the country’s obligations to creditors – the addition of new debt in the short term shows the gap between talk of not raising the debt ceiling by many Republicans and fiscal reality.

Ryan’s plan has $40 trillion in spending over the next 10 years compared to $34.9 trillion in revenues. Obama would spend $46 trillion in the coming decade while bringing in $38.8 trillion in revenues. So Ryan’s plan would still result in the government spending $5.1 trillion more over the next decade than it brings in, but that’s less than the $7.2 trillion in deficit spending that Obama has proposed.

The most fundamental difference between the competing budget proposals is seen in the way they envision the size of government’s imprint in the economy, as measured by spending and revenues as a percentage of gross domestic product.

Obama’s budget plan would take spending as a percentage of gross domestic product (GDP), the total economic output of the American economy, from 25.3 percent this year to the 22 percent range for much of the next decade. But by the end of the 10 year horizon, his plan has spending back at 23 percent. Revenues, meanwhile, which are currently at an anemic 14.4 percent, would creep up to 19 percent by 2015 and then hit 20 percent in 2021.

It would be the highest amount of government spending since World War II. During the 12-year presidency of Franklin Delano Roosevelt, spending went from 8 percent of GDP to 41 percent, driven by FDR’s New Deal but even more so by war spending.

During Harry Truman’s administration, spending was cut in half, from 41 percent of GDP down to 20 percent, and went down further to 18 percent under Dwight Eisenhower. It stayed at 18 percent of GDP through the John F. Kennedy presidency, crept up to 19 percent under Lyndon Johnson, and then went up to 20 percent while Richard Nixon was in the White House. Gerald Ford brought spending back down to 19 percent of GDP, it then went up to 22 percent during Jimmy Carter’s term, down to 21 percent under Ronald Reagan’s two terms and George H.W. Bush’s four years as commander in chief. Bill Clinton brought spending back down to 18 percent of the U.S. economy.

No president since FDR has increased spending as a percentage of GDP by more than George W. Bush, taking it from 18.4 percent of GDP to 22.8 percent.

Obama’s budget does not show what happens beyond the 10-year window. So, compared to George W. Bush’s spending, he seems to be about on par. However, projections from the Congressional Budget Office (CBO) show spending growing at its current pace will grow to more than 26 percent of GDP in 2022, over 32 percent of GDP in 2030, 38 percent of GDP in 2040, and 45 percent of GDP by 2050, with the bulk of that spending driven by ever-rising health care costs.

Revenues under CBO projections would not move above 19 percent of GDP, leading to a gap between spending and revenues that would be difficult to sustain.

Ryan said a computer simulation program of what would happen in the future “crashes in 2037, because it can’t conceive of any way in which the U.S. economy can continue because of this massive burden of debt.”

Ryan’s plan would move spending back to historic levels, keeping it at 20 percent of GDP through 2030, and actually reducing it to under 19 percent by 2040. Ryan’s plan predicts revenues growing to 19 percent of GDP by 2040, allowing the national debt to be reduced over time.

The proposal landed in the middle of a busy news cycle where Washington is consumed with a spending fight over the current fiscal year budget, a much smaller portion of government spending that nonetheless will shut down the federal government if it is not resolved by Friday.

“Right now we’ve got some business in front of us that needs to be done,” Obama told reporters Tuesday afternoon, declining to respond to Ryan’s budget.

The reaction to Ryan’s plan was predictably split along ideological lines, though even those who supported the broad contours of Ryan’s plan did not embrace it in all its detail.

Robert Borosage, co-director of the liberal Campaign for America’s Future, delivered the harshest rebuke of the day to Ryan’s plan.

“This is being hailed as courageous. It isn’t courageous; it is corrupt,” Borosage said in a statement.

“Rep. Paul Ryan’s budget plan will push rising health care costs onto those least able to afford them – the elderly, the disabled and the poor,” Borosage said. “It will do nothing to curb the rising costs imposed by the powerful complexes – insurance and drug companies, private hospitals – that now force Americans to pay twice per capita of any other industrial nation for worst results.”

Rep. Chris Van Hollen, the Maryland Democrat who is Ryan’s foil as the Budget Committee’s ranking member, said the plan was a “lopsided approach” to deficit reduction that took too much from the disadvantaged and elderly in order to benefit wealthy Americans and big business.

“Behind the sunny rhetoric of reform, the Republican Budget represents the rigid ideological agenda that extends tax cuts to the rich and powerful at the expense of the rest of America – except this time on steroids,” Van Hollen said in a statement.

However, David Walker, the former U.S. comptroller general and founder of the Comeback America Initiative who is generally a fiscal hawk, said Ryan “should be commended for having the courage to lead in connection with our nation’s huge deficit and debt challenges.”

“His budget proposal recognizes that restoring fiscal sustainability will require tough transformational changes in many areas, including spending programs and tax policies,” Walker said.

Among the 2012 Republican presidential hopefuls, only former Minnesota Gov. Tim Pawlenty was quick to comment on Ryan’s plan.

“Thanks to Paul Ryan in Congress, the American people finally have someone offering real leadership in Washington,” Pawlenty said, but he otherwise steered clear of the details and focused on the coming fight over the debt ceiling.

“President Obama has failed to lead and make tough choices his entire time in the White House. While the budget is going to be debated for several months to come, the more immediate issue we face is President Obama’s plans to raise the debt ceiling next month. That’s a really bad idea,” Pawlenty said in a statement.

“With over $14 trillion debt already, we should not allow Washington’s big spenders to put us further in the hole. We must get our fiscal house in order with real spending cuts and with real structural reforms that stop the spending spree before it bankrupts our country,” he said.

Even the conservative Heritage Foundation, which heralded Ryan’s plan as “a monumental budget proposal for monumental times,” dinged it for insufficient levels of defense spending and for not addressing Social Security.

Written by
MICHAEL L. DIAMOND
Staff Writer   as reported by MyCentralJersey.com
TRENTON — Speaking on a panel before a group of business leaders last month, Assembly Republican Leader Alex DeCroce must have thought his remarks that the state’s unemployment benefits were too generous would resonate with the audience.

They may have. But soon after the New Jersey Business and Industry Association panel discussion ended, The Associated Press reported his comments to a wider audience, including his observation that jobless benefits “are too good for these people” and don’t provide enough incentive to return to work.

Senate President Stephen Sweeney, who also was a panelist, fumed. DeCroce the next day tried to apologize, if not to his Democratic colleagues, at least to unemployed workers.

“My comments were made to a gathering of business leaders and I wanted to convey the need to fix a system that is on the verge of collapse,” he said in a statement. “I wanted to emphasize that there are individuals who are gaming the system (and) contributing to its current state.”

That system is broken. For the third consecutive year, New Jersey likely won’t have enough money to pay benefits to jobless workers, forcing it to borrow from the federal government.

It leaves employers facing another payroll tax increase. It leaves business and labor leaders to hash out ways to improve the unemployment system and keep their constituents satisfied. And it leaves observers hoping that the state will address the root of the problem: the recession and slow recovery, and the state’s history of diverting revenue intended for the unemployment trust fund to the general treasury.

“I think there was an implication (in DeCroce’s remarks) that people who collect unemployment have an entitlement mentality,” said John Sarno, president of the Employers Association of New Jersey, a Livingston-based organization that advises employers.

“I disagree with that. I don’t think they’re too generous. It insures two-thirds of someone’s wages. Are there a few people who would rather just collect unemployment? Yeah, there are always a few people who are trying to game the system. But you can’t attack the system just because there are a few people gaming it.”

DeCroce’s desire to see benefits cut doesn’t appear to be gaining traction.

A state task force is expected to recommend keeping unemployment benefits at their current levels.

Workers who lose their jobs this year through no fault of their own are entitled to receive two-thirds of their wages, up to $598 a week. The top benefit fell from $600 last year because the state’s average wage in 2009, used to determine benefits, declined for the first time in 40 years.

The money for jobless benefits comes from an unemployment trust fund financed by taxes on employers and workers. The amount employers pay depends on how often their workers file claims. It ranges this year from .4 percent to 5.4 percent of wages up to $29,600 per employee. Employees pay .38 percent of their gross pay on wages up to $29,600 — a maximum of $113.22 a year.

The tax is meant to help workers such as Cherlyn Jackson, 46, of Asbury Park, who lost her child care job more than a year ago. She quickly dismissed the notion that the benefits were generous enough for her to stay home and kick up her feet.

What was life like on unemployment?

“Hard. Trust me, hard,” Jackson said recently at the state’s One-Stop Career Center in Neptune. “It’s like you’re waiting on that check to come to make ends meet. But you still have to borrow from someone and then pay them back. You fall further behind.”

“You don’t see one smiling face around here,” she said. “Look around.”

New Jersey’s insolvent unemployment trust fund is a product of its own making. Lawmakers from 1992 to 2006 diverted $4.6 billion from the fund to pay for other programs, leaving it on thin ice if the unemployment rate were to soar unexpectedly.

The economy collapsed in late 2007, and the unemployment rate climbed from 4.5 percent in December 2007 to 10 percent two years later, a 33-year high. It was 9.2 percent in November, according to the most recent statistics.

The result: New Jersey in 2009 paid $3.2 billion in benefits and collected $1.9 billion in unemployment taxes. Last year, it paid $3.4 billion in benefits and collected $2.2 billion in taxes. Its cushion gone, the state borrowed $1.75 billion from the federal government the past two years to pay benefits, according to the Department of Labor and Workforce Development.

Voters in November approved a referendum preventing lawmakers from using unemployment funds for other purposes. But for employers, who are required by law to keep the trust fund solvent, it came too late.

They were in line for a payroll tax hike of $1 billion last year until Gov. Chris Christie and the Democratic Legislature agreed to enact a smaller tax increase that on average amounted to $130 per worker, borrow the balance from the federal government, tighten the rules so workers fired for misconduct would have a harder time collecting benefits and set up a task force to seek long-term solutions.

Christie in his proposal last Februrary to reform the unemployment system supported a $50-a-week cut in maximum weekly benefits. New Jersey last year had the fourth highest benefit — behind Massachusetts, Rhode Island and Connecticut, according to the National Employment Law Project, a worker advocacy group.

Christie eventually backed away from that proposal and compromised with the Democrats.

Still, some thought Christie had a point. Christine Nichlos, chief executive officer of People Science, a Shrewsbury-based recruiting firm, said some people — particularly those in two-income families — reject job offers in the hopes of getting better ones, because of the cushion of unemployment benefits.

An informal People Science poll found that nearly half of those seeking jobs would consider a less-than-ideal position if their benefits were running out.

“We could be enabling them to delay decisions that will put them on a different career path,” Nichlos said.

Others said it is unfair to measure the state’s benefits without taking into account its average wages, which are among the nation’s highest. New Jersey’s jobless benefits ranks 28th in terms of the percentage of lost wages they replace, according to Patrick J. O’Keefe, director of economic research for J.H. Cohn, an accounting firm.

“Times change and people change, but the integrity of the unemployment fund has to be there for people in tough times to see them through,” said William T. Mullen, president of the New Jersey State Building and Construction Trades Council, a coalition of labor unions.

The report of the unemployment fund task force is expected to be released by the end of the month. Michael Drewniak, a spokesman for Christie, said the governor would review its recommendations before announcing his strategy.

Laurie Ehlbeck, director of the National Federation of Independent Business in New Jersey and a task force member, said the group didn’t support lowering benefits.

“The last thing we want to do is hurt people who are legitimately unemployed,” she said, noting that the state could have managed the high unemployment rate if it hadn’t diverted money from the fund. She declined to discuss other details about the final report.

Employers could face payroll tax hikes each year to restore the trust fund — unless the number of jobless workers dramatically declines. That’s one reason Sarno at the Employers Association and others are advocating a change to the unemployment system to include a more aggressive re-training program.

“Its purpose is to tide people over during periods of unemployment, and that’s a social good,” Sarno said. “But folks who are long-term unemployed, we’re talking 100 (weeks), their skills are rusty. There’s some evidence to suggest employers are hesitant to hire long-term unemployed, so re-training becomes critical. It’s not only an unemployment check, which is fine, but it’s also re-training for jobs that are in demand.”

By

Robert Reich

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip — but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March — the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn’t get back to 6 percent unemployment until 2016.

But isn’t the economy growing again — by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

So why aren’t we getting the truth about the economy? For one thing, Wall Street is buoyant — and most financial news you hear comes from the Street. Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street’s creativity hasn’t been watching.

To the extent non-financial companies are doing well, they’re making most of their money abroad. Since 1992, for example, G.E.’s offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group that’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.

Washington, meanwhile, doesn’t want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it like it is Americans will want government to do more rather than less. They’d rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit we’ll get more jobs and higher wages).

I’m sorry to have to deliver the bad news, but it’s better you know.