Tax Foundation: Unemployment insurance debt can cost jobs

Graphic by Emily Metcalf
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Graphic by Emily Metcalf

BY WATCHDOG.ORG – A national tax education organization Monday released a study that shows the need to overhaul the unemployment insurance program because it now can “exacerbate negative job growth.”

According to Tax Foundation vice president Joseph Henchman, the financial burden state governments and businesses now face proves that the system must be reformed. The Tax Foundation is a Washington, D.C.-based nonpartisan organization that works “to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government,” according to its website.


“Beginning on Sept. 30 … states must pay approximately $1.3 billion in interest on those outstanding balances; in many cases, businesses and employees in those states will also face increases …,” Henchman said in an introduction to the study.

“These new interest obligations and tax increases, if they ultimately occur, come at a time when private sector hiring is already at a low level and states are under significant fiscal pressure. These unemployment insurance fiscal policies may exacerbate negative job growth and tax trends, instead of operating counter-cyclically.”

The report, Unemployment Insurance Taxes: Options for Program Design and Insolvent Trust Funds, says, “Between 2008 and 2011, $174 billion was paid in unemployment taxes while $450 billion was paid out in benefits, a gap of $276 billion. In 2011 alone, employers and employees are projected to pay $51.8 billion in taxes, while $131.4 billion is projected to be paid out in benefits for workers recently unemployed.”

Henchman said, “This may be an appropriate time for the federal government and the states to contemplate significant changes to the structure of unemployment insurance taxation and benefits.”

According to the National Conference of State Legislatures, the amount owed by 27 states and the Virgin Islands is $38 billion as of Sept. 29, the day before they started having to pay interest. NCSL is a bipartisan organization that provides research and opportunities for lawmakers to exchange ideas, according to its website.

However, NCSL shows states overall had been able to rebuild the trust funds by $3.9 billion, to about $12.7 billion.

And the U.S. Department of the Treasury reported Friday, “Higher-than-expected unemployment insurance receipts, attributable to higher-than-estimated deposits by States to the unemployment insurance trust fund to replenish depleted balances, increased this source of receipts by an additional $2 billion relative to the … estimate,” by the end of fiscal 2011.

If states fail to make interest payments, the federal government can imposed taxes on businesses directly.

Henchman said the Tax Foundation study offers “… more innovative and more sustainable methods to find jobs for the short-term and long-term unemployed while preserving benefits to support them in the meantime.”



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