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Carolina Journal News Reports

Unemployment Reforms Would Raise Taxes, Cut Benefits

Legislative fix needed to retire $2.5 billion debt to feds

Dec. 6th, 2012
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RALEIGH — Laid-off workers would see their benefits decreased and about 30 percent of the state's businesses would see their unemployment insurance taxes increased under a proposal presented Wednesday to a legislative study panel.

Members of an interim legislative study committee looking at tax laws gave tentative approval to a recommendation that would reduce the maximum weekly unemployment benefit to $350 from the current $535.

The proposal also would reduce the maximum number of weeks unemployed workers are eligible for benefits from the current 26 weeks to 20 weeks. The maximum number of weeks could be as few as 12 if the state's unemployment rate drops to 5.5 percent or less.

The effort is aimed at paying back a $2.5 billion debt that the state got into when it borrowed money from the federal government to pay unemployment benefits resulting from the Great Recession. Analysts believe that by adopting the changes the state can repay its debt by 2015 or 2016. Otherwise, it would likely not get repaid until 2019.

“This proposal is kind of a compromise,” said Senate Majority Leader Harry Brown, R-Onslow. “This issue is not going away.”

For most businesses, the proposal replicates the current tax rates, said legislative analyst Cindy Avrette after the meeting.

However, about 20 percent of businesses that currently don't pay into the unemployment insurance system because of their good employment business history would have to begin paying, Avrette said.

In addition, businesses with a history currently putting them at the top of the rate scale (who are currently paying 5.7 percent of workers’ base salary) would see an increase in their rate, Avrette said. That could include another 10 percent of businesses.

The increases for those businesses could amount to a about $12 a year per employee, with some potential surcharges thrown in.

Bill Rowe of the N.C. Justice Center told the committee that the proposal could do harm to the future unemployed.

“It has severe implications for a lot of different interests,” Rowe said, saying that those out of a job depend on that money to help make ends meet. “The rent doesn’t get paid. The mortgage doesn’t get paid.”

A couple of workers who have been unemployed also addressed the committee, urging members to keep unemployed people in mind.

Rep. Julia Howard, R-Davie, who co-chairs the committee, said the bill would not affect the benefits of any workers currently receiving unemployment benefits.

The bill would become effective for claims filed after July 1, 2013. The tax changes would become effective for the 2014 tax year.

Representatives of businesses attending Wednesdays meeting generally spoke in favor of the proposal.

“No one thing caused this problem, and no one thing will get us out of this problem,” said Gary Salamido, vice president of the North Carolina Chamber. “It’s going to require all of us to have some pain.”

Connie Wilson, a lobbyist for the Employers’ Coalition of North Carolina, said that the proposal, if it becomes law, would give employers some certainty as to what their costs would be.

Andy Ellen, president of the N.C. Retail Merchants Association, thanked the committee for taking up the issue. “Unfortunately, we’ve kicked the can down the road way too long,” Ellen said. “This is our fiscal cliff here.”

The committee expects to give final approval to the recommendation Jan. 8. It is expected to be taken up by the 2013 long session of the General Assembly.

Barry Smith is an associate editor of Carolina Journal.