Policymakers’ recent proposal to reform the unemployment insurance system through a series of benefit and tax changes is severely out of balance, a new report finds.
The NC General Assembly’s Revenue Law Study Committee’s proposal would result in deep benefit cuts for workers in order to eliminate debt and provide further tax cuts for employers, according to a new report from the Budget & Tax Center, a project of the North Carolina Justice Center. Workers would be forced to pay for debt created by tax cuts for employers in the 1990s, which, when combined with two historic economic downturns, left the unemployment insurance system severely depleted.
The proposal would reduce the maximum benefit by 33 percent and the maximum duration of benefits from 26 to 20 weeks for workers. It would also include changes to how benefits are calculated and who is eligible, resulting in a reduced share of unemployed workers that can access benefits.
The impact of the duration of benefits alone could result in $166 million less circulating in the economy by the time the system reached solvency in 2016, the report said. The economic impact of this loss could range from conservative estimates of $183 million to $257 million.
Despite small tax increases for employers at the top and bottom of the rate schedule, the report finds, many employers would see a tax cut under the new proposal. The report conservatively estimates that 43 percent of the state’s taxable wages would be taxed at a lower rate, with the potential for an even greater tax cut on taxable wages.
These tax cuts and the existing debt would be paid off through large and permanent cuts to benefits and eligibility for unemployed workers, the report said, undermining the system’s wage replacement function and its ability to support businesses and the economy – both today and in future downturns. The current proposal requires further analysis in order to full assess the impact on workers, business, and the economy before policymakers take a vote.
“It is critical for the public and policymakers to receive detailed information about who would be impacted by each benefit and tax change,” said Alexandra Forter Sirota, director of the Budget & Tax Center and author of the report. “It’s also essential that policymakers focus on building an unemployment insurance system that can serve the state’s economy in future downturns.”
The full report is available at this link.