Posted by Ezra Klein on August 28, 2012 at 1:10 pm
On the Republican convention stage tonight, you’re going to see a really large clock. But the clock isn’t for keeping time. The idea isn’t to stop speakers from going over their allotted time, or the convention from running late. It’s a debt clock. And the idea is to blame President Obama and the Democrats for the national debt.
But in doing so, the Republicans will end up blaming Obama for the policies they pushed in the Bush years, and the recession that began on a Republican president’s watch, and a continuation of tax cuts that they supported. They’ll have to. Because if they took all that off the debt clock, there wouldn’t be much debt there to blame him for at all.
The single thing you should look at to understand the debt clock and what it is — or isn’t — telling you is this graph from the Center on Budget and Policy Priorities. It does something very simple. It takes public debt since 2001 — which is when we last saw surpluses — and breaks it into its component parts.
You can see it kind of looks like a layer cake. In fact, the folks at the Center on Budget and Policy Priorities call it “the parfait graph.”
The top layer, the orange one, that’s the Bush tax cuts. There is no single policy we have passed that has added as much to the debt, or that is projected to add as much to the debt in the future, as the Bush tax cuts, which Republicans passed in 2001 and 2003 and Obama and the Republicans extended in 2010. To my knowledge, all elected Republicans want to make the Bush tax cuts permanent. Democrats, by and large, want to end them for income over $250,000.
In second place is the economic crisis. That’s the medium blue. Recessions drive tax revenue down because people lose their jobs, and when you lose your job, you lose your income, and when you lose your income, you can’t pay taxes. Tax revenues in recent years have been 15.4 percent of GDP — the lowest level since the 1950s. Meanwhile, they drive social spending up, because programs like unemployment insurance and Medicaid automatically begin spending more to help the people who have been laid off.
Then comes the wars in Iraq and Afghanistan. That’s the red. And then recovery measures like the stimulus. That’s the light blue, and the part for which you can really blame Obama and the Democrats– though it’s worth remembering that Senate Republicans proposed and voted for a $3 trillion tax cut stimulus that would all have gone on the national credit card and added almost four times what Obama’s stimulus added to the debt.
Then there’s the financial rescue measures like TARP, which is the dark blue line. That’s almost nothing, as much of that money has been paid back.
If we didn’t have all that? If there’d been no Bush tax cuts, no wars, no financial crisis and everything else had been the same? Debt would be between 20 and 30 percent of GDP today, rather than almost 100 percent.
Now, the response you sometimes get to this graph is yes, that’s true, but Obama should have done more about the debt. But Obama has proposed a multi-trillion dollar deficit reduction plan. Republicans just refused to pass it. And, to be fair, he refused to sign their plan too. So the question then is less about what led to the debt and more about who has the right plan to get rid of it. I’ll get into that in a subsequent post.
Why You Pay More
July 8, 2011
Each year at the end of July or in early August,
the State of New Jersey
mails to all NJ employers
the updated Employer
Contribution Reports.
This report notifies
employers of their new unemployment rate
For the next 12 months
This begins a yearly ritual.
The owner sends a copy to their accountant,
the account reviews it
and life goes on.
Unemployment is a necessary evil.
Did you know….
Unemployment is the 2nd highest employer mandated tax paid by a business?
It is the only tax that you have the opportunity to control
what you contribute?
Unemployment is similar to having a checking account with
the State.
With this report….
The State tells you how much is in your account (reserve
balance)
The State also show you how many dollars were paid out in
claims
(how much was taken
out of your checking account)
The State assigns a rate based on the reserves you are
carrying
As a percentage of the taxable wages you have paid over the
past 3 to 5 years
This rate determines how much you will contribute into the
unemployment fund
over the next 12 months.
Seems pretty simple….
You hear all the latest political buzz
Everyone is talking about the deficit….
What are we to do about the debt ceiling?
Reduce our cost…….
Don’t raise taxes……
My guess is that nobody wants to talk about
The unemployment
deficit!!!!!
Each month we get updated numbers on the job market
Unemployment is over 9%
How are we to support the growing number in unemployment?
Did anybody tell you
That you will be getting a tax increase
To help cover the shortfall?
In the NJ Unemployment Rate Table
There are 6 columns the State uses to determine employers’
rates
In 2009/2010.
NJ worked off column
B to establish employer rates
Because of the rise in unemployment claims
The reserves became depleted
In order to build up the reserves in 2010/2011,
There was talk in NJ of working off column D.
The State chose to buffer the increase passed onto employers
and work off column C instead
That meant
last year every employer in NJ saw their rates go up
automatically
And pay more into the unemployment fund.
Did the shift from column B to C help?
The state still has a shortfall
This year,
There is talk of using column
E
for 2011/2012
However, most feel again
this would be too much of an increase
Instead,
Governor Christie’s signed a bill last Friday (7/1/11)
to work from Column D
I must have missed
that phone call!!!!!
Wasn’t that the Friday
before the holiday weekend?
I think I was stuck in
a traffic jam…
Each year,
the state continues to increase taxes by
shifting the table
used to assign rates to each employer.
We are all supposed to sit back and accept this as
The cost of doing business???
Besides jumping around on the table charts
How does an employer
even know their rates are correct?
Well, the State sent
me this form and it said this is our new rate
If you are an employer
with over 100 employees,
you should be asking that question.
The new rate does
not affect just 1 employee
But all employees
Therefore businesses with a larger employee base
Are affected more
If you currently employ over 100 employees,
Take the time to question your new rate
when you receive your notice.
Did you know that NJ has close to a 10% error rate in the processing of claims?
Nationally the error rate is over 11%
If the State is paying too much out in claims…..
Are they taking too
much money out of your checking account?
Really, close to a 10%
error rate
Who is holding the
state accountable?
For the last 10 years
Hutchinson Business Solutions along with our strategic
partner DCR
Has been asking this question for our clients.
We are your public
advocate.
There have been multiple instances that we have found an
error
In the rate assigned by the State
This is just not a NJ issue,
We see this in all the states we currently service
unemployment
How do you know if your current unemployment rate is
correct?
We would like to validate your
New unemployment rate,
for no cost.
We currently service many of the major corporations in the
Tri State area
For over 20 years
HBS and DCR have been at the forefront of unemployment
Representing the clients interest
Now more than ever, employers need to be proactive
Take the time to contest claims
Verify that the amount paid out for claims are correct
As the cost of unemployment continues to rise
You must be diligent
And take the necessary steps to manage your reserves
There may be some instances you cannot control
The state switches columns and everyone is affected
However,
There are multiple rates within each column
That is something we can
manage.
Our goal is to keep the dollars in your account
And achieve the best rate possible for our clients
Notice that the state will always contact you
If you owe taxes
Unfortunately,
They do not contact you,
If you are overpaying
taxes
The onus is on you
Let us help you
All you need to do is ask.
Let us validate your unemployment rate?
Many clients have been surprised at what we have found.
To learn more about how unemployment rates affect your
business, email
george@hbsadvantage.com
or call 856-857-1230
Visit us on the web www.hutchinsonbusinesssolutions.com
Unemployment Benefits: More States Eye Cuts
May 20, 2011
Written by Arthur Delaney for Huffington Post
Add Pennsylvania and Wisconsin to the list of states considering cuts to unemployment insurance.
The Pennsylvania General Assembly needs to pass a law in order for the state to remain eligible for the federal Extended Benefits program for the rest of the year, which provides the final 20 weeks of checks in Pennsylvania for people who use up 73 weeks of combined state and federal aid. Within the past two months, lawmakers in Michigan, Missouri and Florida permanently slashed state unemployment aid in bills that preserve temporary federal aid.
Two Republican-sponsored measures moving through the GOP-controlled Pennsylvania statehouse would achieve similar results. And in Wisconsin, a proposal by Republican Gov. Scott Walker would restore the Extended Benefits program after local lawmakers let it lapse with virtually no public debate last month. But Walker’s bill would also permanently install a one-week waiting period for new claimants before any jobless claims are paid, relieving Wisconsin businesses of a $45.2 million tax burden. (Wisconsin is one of 13 states that had no waiting week in 2010.)
“Without knowing exactly how the state arrived at the $45.2 million figure, it is safe to say that a roughly equivalent amount will come out of workers’ pockets,” said Mike Evangelist of the National Employment Law Project, a worker advocacy group.
States pay for the first 26 weeks of unemployment benefits, and during recessions the federal government pays for extra weeks. While current federal unemployment benefits will only be around until January barring an unlikely congressional reauthorization, changes to state law will be permanent.
The bill in the Pennsylvania House of Representatives would save the state $632 million chiefly by cutting the average weekly payment from $324 to $277, according to Sharon Dietrich, an attorney with Community Legal Services, a nonprofit group that advocates for poor people in Pennsylvania. The bill in the Pennsylvania Senate — which Dietrich said she considers “way more innocuous” — would, like its counterpart in the House, tighten work-search requirements, but would only result in a net spending decrease of $50 million, Dietrich said. Each bill will reach the floor of its respective chamber early next week.
“On June 11, approximately 45,000 unemployed Pennsylvanians who currently qualify for federal extended benefits will be dropped from the unemployment rolls unless we slightly modify the state law,” State Sen. John Gordner (R) said in a statement. “It costs the state no money to qualify for these fully funded federal benefits through the end of the year, and results in an estimated $150 million in economic benefits.”
South Carolina is also considering cutting state aid, and lawmakers in North Carolina and Tennessee are still debating measures to revive the EB program after they let it die last month.
And in the U.S. Congress, Republican lawmakers are pushing a bill that would give states leeway to trim federal aid to the unemployed to use the money instead to repay federal unemployment government loans
States ignored warnings on unemployment insurance
April 28, 2011
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.
MICHAEL L. DIAMOND
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 Lisa Fleisher/Statehouse Bureau
As reported on NJ.com
TRENTON — Gov. Chris Christie Thursday will propose major changes to the state’s broken unemployment system, reducing benefits for workers and limiting tax increases on employers, legislative and administration officials said tonight.
Christie’s proposal, which will need to be passed by the Democrat-controlled Legislature, is aimed at softening a tax hike business groups said was their top concern for the year, while also targeting benefits given to future unemployed workers.
Democratic lawmakers have said they would fight to protect benefits for workers, but they also said increasing taxes employers pay for workers could stunt job growth.
“I am going to have to support some element of what is being put on the table,” said Assembly Speaker Sheila Y. Oliver (D-Essex), who was briefed on the proposal Thursday. But “to have unemployed people, quote, ‘share the burden’ of dealing with our fiscal (problem), it’s like adding insult to injury to devastated New Jerseyans.”
The proposal, which would take effect in July, would reduce tax increases on businesses, institute a one-week waiting period for people receiving benefits, reduce the maximum weekly benefits check by $50 and increase benefit restrictions on people fired for “misconduct,” said Oliver and two senior Christie administration officials, who requested anonymity because they were not authorized to speak before the announcement.
With the state’s jobless rate hovering around 10 percent, the proposal would not affect employees already on unemployment.
Full Star-Ledger coverage of the N.J. budget
Christie’s proposal is a shift from a statement he made just before taking office in January. He had said he wanted to find a way to help employers, but the state would have to “pay the piper on this” and he would not ask for legislation to put off the tax increase.
Those taxes on employers pay most of the cost of providing state benefits to laid-off workers. But politicians in both parties for years used unemployment taxes for other purposes, such as paying for health care for the poor.
A constitutional amendment, which Christie supports, will go on the ballot in November asking voters to force the Legislature to stop raiding accounts such as the New Jersey Unemployment Insurance Trust Fund.
When New Jersey and the country plunged into the deepest recession since the Great Depression, the state quickly ran out of money to pay benefits. That triggered a tax increase lawmakers have tried to soften.
“There’s no bigger issue for the economy, for future economic growth, for this state,” said Arthur Maurice, a vice president with the New Jersey Business and Industry Association. “Unless it’s resolved, there will be greater unemployment and no hope of any jobs recovery in the state.”
Without the proposed changes, the average employer in July would see taxes go up 58 percent — or $390 a year — per employee, according to the administration. The changes would hold that increase, on average, to 17 percent this year, or $130 per employee and further limit the potential for increases through 2013.
New Jersey has borrowed $1.2 billion from the federal government in the past year, and Christie and lawmakers have asked congressional representatives to work to get the loan forgiven.
Under Christie’s changes, future laid-off workers would have to bear some of the pain. The maximum weekly state benefit would be scaled back from $600 to $550, and people would have to wait a week to get a check. That means people who take weeklong furloughs — or temporary, unpaid time off — would not be eligible for benefits for that first week.
Those provisions will likely face the biggest fight.
“It’s something that I would have a very hard time supporting,” said Senate Majority Leader Barbara Buono (D-Middlesex). “I think it’s Draconian.”
Posted by: Mitchell Hirsch on Feb 17, 2011
As reported by Unemployedworkers.org
UPDATE: FEB. 17 – UNEMPLOYMENT INSURANCE SOLVENCY BILL INTRODUCED IN SENATE
Senator Richard Durbin (IL), with Senators Jack Reed (RI) and Sherrod Brown (OH), today introduced the Unemployment Insurance Solvency Act of 2011, which offers immediate tax relief to cash-strapped states and employers, preserves UI benefit levels, and creates strong incentives for states to restore their UI programs to solvency while also rewarding states that have managed their UI trust funds effectively.
In a statement, NELP Executive Director Christine Owens said, “Jobless workers, and we hope employers too, should be grateful for the leadership of Senator Richard Durbin and his colleagues Sherrod Brown and Jack Reed on the issue of unemployment insurance solvency. Following the President’s FY 2012 budget, the introduction of the Unemployment Insurance Solvency Act sets the stage for a serious conversation on how to make sure that the safety net tens of millions of Americans have counted on during the tough times of the last few years will be financially secure into the future.”
The new bill is similar to the plan outlined by President Obama in his remarks last week, but adds further protections for benefits and additional opportunities and incentives for states to return to solvency in the long run.
Original Post: Feb. 11
Unemployment insurance is just that — insurance — and it’s financed by premiums paid on workers’ paychecks and deposited into a trust fund. However, the unemployment insurance (UI) trust funds in many states are not only insolvent, but now face heavy debt burdens due to their increased need for federal borrowing during this prolonged period of high unemployment. Restoring them to financial health is essential to ensure that unemployment insurance benefits are there for workers when they’re needed, both today and in the future. The Administration has outlined a significant framework to address the problem, which would provide needed debt and tax relief to states and businesses.
A new plan from the National Employment Law Project (NELP) and the Center on Budget and Policy Priorities (CBPP) would build on that framework, further strengthening the long-term solvency of state UI systems while avoiding benefit cuts and employer tax increases. Workers need to pay attention to this issue. The last time UI trust funds got hit this hard, in the 1980s, 44 states cut back benefits for workers.
Many states UI trust funds have been hit in recent years by a double-engine freight train. First, for years many states have inadequately financed their UI funds, both by keeping their taxable wage base for UI too low relative to inflation-adjusted dollar values, and by taking a dangerous “pay-as-you-go” approach, which failed to build adequate reserves during periods of economic growth. The graph below shows the substantial erosion in the inflation-adjusted value of the wage base that is subject to the UI taxes that fund state systems. What does this mean? It means that the employer of a dishwasher pays the same unemployment premium as the employer of a banker. It does not take a degree in actuarial science to know that this is not going to work.
And oh yeah, second — well, then came the Great Recession with millions of workers’ jobs being lost and the vastly increased need for unemployment benefits to help sustain unemployed job-seekers and their families.
Now, 30 states have exhausted their UI trust funds and are borrowing from the federal government.
The lead editorial in The New York Times yesterday, titled ‘Relief for States and Businesses’, explained the need for the Obama administration’s approach. Here are some excerpts:
So many people now receive jobless benefits that 30 states have run out of their unemployment trust funds and are borrowing $42 billion from the federal government. Three of the hardest-hit states — Michigan, Indiana and South Carolina — have borrowed so much that they triggered automatic unemployment tax increases on employers, and the same thing is likely to happen to 20 more states this year.
….
On Tuesday, the Obama administration unveiled a smart proposal to delay those tax increases and provide some relief to both employers and state governments. Congressional Republicans reflexively objected to the idea, which could produce higher taxes in three years, but this plan provides relief that might stimulate hiring now when it is most needed.
….
Under the plan, which is subject to Congressional approval, there would be a two-year moratorium on the increased taxes that employers would otherwise have to pay to support the unemployment insurance system, which could save businesses as much as $7 billion. During those same two years, states would be forgiven from paying the $1.3 billion in interest they owe Washington on the money they have borrowed.
….
In 2014, when the economy will presumably have recovered somewhat, employers will have to make up for the moratorium by paying higher unemployment taxes to the states. Specifically, they will have to pay taxes on the first $15,000 of an employee’s income, instead of the current $7,000. But, even then, unemployment taxes will be at the same level, adjusted for inflation, as they were in 1983, when President Ronald Reagan raised them.
The administration is proposing to cut the federal unemployment tax rate in 2014 so that employers would pay the same amount to Washington as they do now. States, if they choose to do so, could collect more from each employer to repay the federal government and restock their own unemployment trust funds.
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The full details of the plan’s costs and benefits will be available when President Obama submits his 2012 budget to Congress next week. When he does, both parties should take a close look at the numbers and seize the opportunity to keep this fundamental safety net solvent.
“It is a major step forward for the President’s FY 2012 budget to address the UI trust fund crisis,” said Andrew Stettner, deputy director of the National Employment Law Project and a co-author of the new joint NELP-CBPP policy proposal. “Our proposal rests on the same core principles — giving employers and states relief now while taking concrete steps to restore the long term solvency of the UI trust fund as the economy recovers. The plan endorses two key aspects of what the Administration’s proposal reportedly includes — raising the taxable wage base up from the inadequate, outdated level of $7,000 and endorsing a two-year moratorium on federal UI tax increases.”
The NELP-CBPP plan, detailed in a new report, would enable states to restore the solvency of their UI trust funds, avoid significant tax increases on employers during a weak economy, and prevent damaging cuts in UI eligibility and benefits for jobless workers, without increasing the deficit. The plan also suggests additional debt relief for states and positive incentives for employers, rewards states that have maintained sound financing packages, and builds on existing federal protections of state benefit levels.
In a statement, the groups provide a summary of the plan:
• The federal government would gradually raise the amount of a worker’s wages subject to the federal UI tax (i.e., the FUTA taxable wage base). This would automatically raise the floor for the taxable wage bases in the states which by law cannot be lower than the federal wage base, helping those states rebuild their trust funds. (The federal UI tax rate would fall, however, so that overall federal UI taxes did not go up.)
• The federal government would provide a moratorium, until 2013, on state interest payments on their UI loans.
• The federal government would also postpone, for two years, the FUTA tax increases required to recoup the loan principal in borrowing states.
• The federal government would offer immediate rewards and future incentives for states that currently have and continue to maintain adequate trust fund levels.
• The federal government would excuse a state from repaying part of its loan if the state (a) enters a flexible contractual agreement with the U.S. Labor Department to rebuild its trust fund to an appropriate level over a reasonable number of years, and (b) agrees to maintain UI eligibility, benefit levels, and an appropriate tax rate over the loan-reduction period.
This plan would produce the following benefits:
• Employers would not pay higher federal UI taxes until the beginning of 2014, saving them $5 billion to $7 billion while the economy remains weak and $10 billion to $18 billion over the next five years. Also, employers would pay no additional assessments to cover interest payments in 2011 or 2012, saving them $3.6 billion.
• In addition, partial loan forgiveness that comes from a state’s commitment to build adequate trust funds would save employers about $37 billion by the end of the decade. Counting the interest payments on this principal as well, employers could save as much as $50 billion.
• All or nearly all states would assume a path to permanent solvency.
• Employers in responsible states would receive concrete rewards and a more level playing field between the states.
• Adequate trust funds would stabilize UI tax rates over time, avoiding the roller-coaster tax rates common in many states — very low during healthy economic times, rising rapidly during recessions — that harm businesses and the economy.
• States would maintain current UI benefit and eligibility levels.
• The federal deficit would not rise as a result of these policies.
“States face a tremendously urgent crisis when it comes to their unemployment insurance trust funds,” said Michael Leachman, assistant director of the Center’s State Fiscal Project and co-author of the report. “If federal policymakers address this crisis using our plan, employers could save as much as $50 billion in taxes and states would maintain the critical benefits they provide to people who lose their jobs.”
KEVIN FREKING 02/19/11 08:42 PM 
As reported in Huffington Post
WASHINGTON — 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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