NC finds the solution to replenishing its unemployment fund: Don’t help the unemployed
Thirty-four years ago, the administration of President Ronald Reagan stirred up one of the great domestic policy P.R. controversies of the early 1980’s with its laughably ill-conceived plan to consider tomato paste (and, thereby, its salty-sweet sibling, ketchup) as a “vegetable” in the national school lunch program. The purpose of the proposal, of course, was to save money in a supposedly overly-generous “welfare” program that was draining public coffers.
By the end of 1981, the ridiculous cost-cutting proposal had been quickly repudiated and consigned to the monologues of late night comedians. Russell Baker of the New York Times even bestowed his “Sore President” award on Reagan “on the basis of reports that in spite of the ever-pleasant smile he is secretly sore at his old botany teacher for telling him that ketchup was a vegetable.”
In the decades since, “ketchup is a vegetable” has rightly served as a shorthanded putdown for clumsy and mean-spirited proposals of all kinds that seek to slash essential public service programs in the name of cost-cutting, all while attempting to maintain a veneer of compassion and decency.
North Carolina’s unemployment insurance cuts
If there is any justice in the world, the “ketchup is a vegetable” moniker will soon be widely applied to another, more recent and cold-hearted assault on an essential safety net structure – North Carolina’s unemployment insurance system.
Last week, in a moment of great disingenuousness, the McCrory administration claimed “credit” for having replenished the state’s unemployment insurance trust fund. This is from a release distributed by the Governor’s press office:
“After paying off a $2.8 billion debt to the federal government in May 2015, Governor Pat McCrory and the Division of Employment Security (DES) announced that the unemployment trust fund reserve has reached $1 billion. It’s the first time that the trust fund has exceeded $1 billion since May 2001.
By reaching this mark, the 20 percent state unemployment insurance tax surcharge that N.C. employers have been paying for ten years will be discontinued. These savings, along with receiving the full Federal Unemployment Tax Act (FUTA) credit will save employers more than $600 million in taxes during 2015-2016.
‘This money can be used to hire more workers, which will ultimately add more money to the trust fund so we don’t get into another borrowing situation,’ said Governor Pat McCrory. ‘We have paid off the debt five years early and reached an important balance in our trust fund at the right time to bring certainty to North Carolina businesses.’”
But, of course, the Governor’s claim completely ignores what is actually responsible for most of the fund’s replenishment: massive and destructive cuts to benefits and eligibility.
You really can’t make this stuff up. It’s as if, three decades ago, the Reagan administration had gotten away with its “ketchup is a vegetable” scheme and then held a press conference to brag about the cost savings to the school lunch program – all while never discussing the destruction inflicted on the bodies and brains of America’s school children.
Of course, the trust fund has been replenished, Governor; that’s what happens when you all but stop paying benefits to anyone.
Consider the following comparison from the U.S. Department of Labor’s “Quarterly Summary of Unemployment Insurance” for the second quarters of 2013 and 2015 – i.e. the quarter immediately before massive cuts to the state system went into effect and the same calendar quarter just two years later (and the latest data available):
39% — The state “recipiency” rate (i.e. the percentage of unemployed North Carolina workers who were receiving unemployment insurance benefits).
24th – Where this placed North Carolina with respect to the other states in the nation.
$301.06 – The average weekly benefit that those drawing benefits were actually receiving.
$7.53 – Hourly wage that such a benefit equates to, based on a 40-hour work week.
25th – Where this placed North Carolina with respect to the other states in the nation.
36.5% — Percentage of the average weekly wage that the benefit amount represented.
25th — Where this placed North Carolina with respect to the other states in the nation.
15.9 – Average number of weeks that recipients received assistance.
31st — Where this placed North Carolina with respect to the other states in the nation.
13% — The state recipiency rate.
49th – Where this placed North Carolina with respect to the other states in the nation.
$233.69 – The average weekly benefit that those drawing benefits were actually receiving.
$5.84 – Hourly wage that such a benefit equates to, based on a 40-hour work week.
47th – Where this placed North Carolina with respect to the other states in the nation.
27.2% — Percentage of average weekly wage that the benefit amount represented.
43rd — Where this placed North Carolina with respect to the other states in the nation.
12 – Average number of weeks that recipients received assistance.
50th — Where this placed North Carolina with respect to the other states in the nation.
Talk about racing to the bottom! North Carolina has, in just two short years, taken a decent and middle-of-the-pack (but hardly overly-generous) anti-poverty safety net program and, to put it bluntly, wrecked it. What’s more the damage reflected in these cuts doesn’t take into account the tens of thousands of workers who lost temporary extended benefits and the hundreds of millions of federal dollars that did not flow into North Carolina back in 2013 as a result of the state’s refusal to abide by the federal government’s directive not to cut state benefits at that time.
What ought to be on the agenda
None of this is to say that North Carolina’s unemployment insurance system wasn’t flawed prior to 2013 or that reform wasn’t needed. Indeed, as experts at the Budget and Tax Center observed even before the Great Recession took hold, the state’s system for financing unemployment insurance has long been inadequate and the trust fund has long been too small to weather powerful economic storms. Building the fund back to a respectable level is an excellent idea.
That said; building the fund back up to the levels at which it can truly fulfill its mission during an economic downturn does not appear to be what the McCrory administration really has in mind. As noted in the Governor’s statement above, current law will now kick in another big tax cut for employers even as benefits remain mired at the bottom.
Last week on The Progressive Pulse blog, Alexandra Sirota of the Budget and Tax Center put it this way:
“With the announcement today, North Carolina appears poised to make the same mistake [it made in 2013]: underfunding the program in good times leading to ineffective stabilization of the economy in bad times when jobless workers lose their jobs through no fault of their own.
In the meantime, jobless workers today still face a labor market with too few jobs for those who want to work, limited skills training opportunities and a system that is increasingly inaccessible.”
Happily, for all of this destructive action, it’s still possible – even for the current administration – to make meaningful improvements in the state system that could help it begin to inch its way back up the national ladder from its current, bottom-of-the-pack status.
Having fulfilled every imaginable item on the wish list of powerful corporate interests, McCrory and his team can still do some good for the state’s economy during future recessions (and help ease some human suffering while they’re at it) by beginning to consider some modest changes to eligibility and benefits that would soften some of the 2013 cuts. One can only hope they unearth a kernel of compassion in their hearts to make it happen.
Photo credit: Governor’s office.