Christensen: Bipartisan blame for NC's unemployment debt

rchristensen@newsobserver.comFebruary 16, 2013 

The political spin machine has been working overtime explaining why North Carolina’s unemployment insurance program owes $2.5 billion to the federal government.

Senate Republican leader Phil Berger blamed it on “previous leaders’ mismanagement for several years.”

The state Senate Republican leadership, in a news release, pinned it on previous Democratic legislatures and governors who “made irresponsible decisions that hurt the solvency of our state’s unemployment insurance system.”

But here’s the truth. The reason North Carolina got in such a hole, is the state – led by both Democrats and Republicans – went overboard in cutting unemployment taxes trying to please business during the flush times.

That, of course, is not the current GOP line in Raleigh, which goes something like this: Business had been mistreated under Democratic rule, and now the Republicans are here to correct matters and make sure business gets a fair shake.

In fact, North Carolina cut unemployment insurance taxes six times between 1992 and 2000.

‘Nice little Christmas gift’

When the recession hit, there were not sufficient reserves to handle the huge growth of unemployment benefits as many companies began laying off workers. So North Carolina, like 30 other states, began borrowing from the federal government to cover the first 26 weeks of jobless benefits when unemployment soared during the recession. The state continues to borrow about $25 million a week to cover those benefits.

The tax cuts began in 1992, when, at the urging of Republican Gov. Jim Martin, the Democratic legislature repealed a temporary 20 percent surcharge on unemployment taxes put in place in 1987. The move was made at the request of the business community, which said it would give a much-needed boost to the economy, help attract new companies to the state, and save businesses an estimated $50 million to $60 million annually.

In 1993, in an effort to make the state more attractive to business, the Democratic legislature, at the urging of Democratic Gov. Jim Hunt, cut the unemployment insurance rate by 30 percent. They said it would save businesses an estimated $171 million annually.

In 1994, the Democratic legislature was back again with a 39 percent cut in unemployment insurance taxes.

With the election of a Republican House during the 1994 GOP landslide, Hunt tried to get the jump on the GOP lawmakers, when in December he proposed a 23 percent cut, which the legislature passed in 2005.

“This is an easy one,” said Democratic Senate leader Marc Basnight. “It’s a nice little Christmas gift for all the businesses in North Carolina.”

The 23 percent tax cut gave North Carolina the lowest unemployment insurance rate in the country. “I think anytime that our state has the lowest tax rate, it gives us a big leg up on economic development,” said Bill Rustin, a business lobbyist at the time.

In 1996, a moratorium was passed by a Republican House and a Democratic Senate, allowing businesses with a positive balance to pay no tax and lowering the new business rate from 1.8 percent to 1.2 percent. In 2000, the contribution rates for all accounts were reduced by 20 percent for 2000 and 2001.

All the tax cuts received near-unanimous support from Democrats and Republicans.

No plan for lean times

I am not above blame.

I wrote column back in November 1993, urging the legislature to further cut unemployment taxes, writing: “this is a way of painlessly returning money to the private sector without laying off state workers or cutting services.”

By the time the recessions of 2001and 2008 hit, North Carolina was not prepared with an adequate reserve.

“The lesson we learned from this experience is that we ought to plan for lean times,” said Harry Payne in 2003, when he headed the Employment Security Commission.

The legislature passed a plan last week to fix the unemployment insurance debt, that was basically crafted by business. Not surprisingly, most of the sacrifice falls not on employers but on the folks unlucky to get laid off.

Those who lose their jobs will see their maximum benefits reduced by roughly one-third, from $535 a week to $350 per week, and the maximum weeks of benefits reduced from 26 to a sliding scale of between 12 and 20 weeks, depending on the unemployment rate.

Now you might think that business – having benefited from years of tax cuts that got us in this fix in the first place – might have agreed to shoulder most of the cost of the fix. But business said no, that would hurt the economy. Business has all the high-priced lobbyists and bankrolls most of the legislators’ campaigns.

The unemployed have virtually no voice in the legislature. So they get stuck with the tab.

Christensen: 919-829-4532

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