Spotlight Report

First, Stop the Bleeding: Getting North Carolina Out of Its Unemployment Insurance Crisis

posted on in Economic Growth & Development, Energy & Environment, Government Reform, Spending & Taxes
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Key facts:

  • Since the onset of the Great Recession, North Carolina’s Unemployment Insurance (UI) administrators have vastly outspent revenues and generated a debt of $2.6 billion with the federal government—the third-highest in the nation, on a per-capita basis.
  • The state’s debt continues to grow at an annual rate of $178 million and generated its first interest charge of $78 million in September 2011.
  • After three years of delinquency, the state faces a 0.3 percent punitive tax imposed by the federal government on N.C. wage income, starting in January 2012. That tax will step up in additional 0.3 percent increments every year until repayments begin.
  • The state’s UI benefit generosity exceeds that of all four neighboring states and also, on average, the after-tax remuneration of a minimum-wage job.
  • Since 2007, the average length of UI payments has increased by 25 percent. And since initiation of the UI scheme in 1935, the maximum period of eligibility has grown by 519 percent and has almost reached two years.
  • North Carolina’s UI tax burden as a percentage of income is roughly equal to Tennessee’s, but both surpass that of South Carolina, Georgia, and Virginia, by 48 percent or more.
  • The United States Department of Labor estimates that 8.9 percent of North Carolina’s UI payments are in error, which equates to $125 million annually.
  • The federal government’s full funding of Extended Benefits, through to 99 weeks and at an annual cost of $424 million in North Carolina, runs out on March 6, 2012.
  • Cutting state-funded weeks for UI eligibility from 26 to 20 would save between $230 million and $440 million annually and close the current shortfall immediately.
  • A reduction in North Carolina’s UI benefits to match those of South Carolina would save an additional $250 million. Combined with the federal tax penalty and fewer weeks of eligibility, it would pay off the state’s UI debt within six years.
  • As of October 2011, the federal government has mandated interest penalties on all UI benefit overpayments on account of fraud, although that penalty will not go into force until October of 2013.

Spotlight 418 First, Stop the Bleeding: Getting North Carolina Out of Its Unemployment Insurance Crisis

Fergus Hodgson (@FergHodgson) is Director of Fiscal Policy Studies at the John Locke Foundation, a Policy Advisor with The Future of Freedom Foundation, and a member of the American Legislative Exchange Council’s Tax and Fiscal Policy Task Force. He… ...

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