Report: Unemployment insurance system critical in economic downturn
But changes adopted during the 1990s threaten the system’s solvency, a problem North Carolina needs to fix
RALEIGH (March 14, 2011) – A strong unemployment insurance system is critical in an economic downturn, a new report says, and changes in North Carolina’s financing system have undermined the solvency of this vital public investment.
The federal government established the unemployment insurance financing system after the Great Depression to support workers and ensure that the economy could recover in the face of massive job loss. The system works thanks to “forward financing”—employers contribute to an unemployment insurance trust fund in good times so that in tough times, when benefit payouts increase and payrolls shrink, funds are available.
“The unemployment insurance system is a critical support for workers who lose their jobs through no fault of their own,” said Alexandra Forter Sirota, director of the NC Budget & Tax Center. “It also supports economic recovery and eases the impact of recessions on working families.”
In the mid-1990s, North Carolina’s policymakers enacted a series of tax changes that moved the state effectively to pay-as-you-go financing and set the state up for the current insolvency challenges with the Unemployment Insurance Trust Fund.
If North Carolina had required contributions from employers at the national average tax rate during the past two decades, the UI Trust Fund would have had $2.8 billion by 2004, potentially erasing the current solvency issues.
Because of a combination of tax cuts and significant and sustained job loss in the Great Recession, North Carolina, like 30 other states, has borrowed from the federal government to sustain the day-to-day delivery of unemployment benefits.
“Policymakers must put together a solvency plan that rectifies the tax changes made in the 1990s and ensures that all employers are contributing to this critical program that supports families, business and communities in tough times,” the report reads.
For more information, contact: Alexandra Forter Sirota, email@example.com, (919) 861-1468; or (919) 801-0465; Jeff Shaw, Director of Communications, NC Justice Center, firstname.lastname@example.org, (919) 863-2402 (office) (503) 551.3615 (mobile).