Another year, another tax increase for North Carolina’s employers

Given that the state remains delinquent with its Unemployment Insurance system—$2.5 billion delinquent and third worst in the nation—it will fail to meet a November 10 deadline for repayment.

The consequence of not resolving this is a mandatory tax increase on employers and continued interest payments. For each year, the federal UI tax increases by 0.3 percent ($21 per employee), this time from 0.6 to 0.9 percent, to go into effect in January of 2013. Since the Great Recession, the interest payments have totaled $162 million, and the next payment will be approximately $73 million.

As I noted in a Carolina Journal column on the matter, it doesn’t have to be this way.

At $292 per week, North Carolina has the most generous UI payments of all its neighbors, 22 percent and 25 percent more than Tennessee and South Carolina respectively. That’s also 27 percent more than the after-tax earnings of a full-time, minimum-wage job.

By simply bringing North Carolina’s UI payment levels in line with those of South Carolina, legislators would save $250 million annually. That would eliminate immediately the shortfall between UI revenues and benefit payments, and depending on one’s projection, it would also come close to covering interest payments…

[O]ther states, including Missouri, Michigan, and South Carolina — facing similar challenges — already have shown how to [go further to repay their debts]. They have reduced their periods of state-funded eligibility from 26 weeks, North Carolina’s current level, to 20 weeks.

If adopted in North Carolina, the six-week reduction would generate annual savings of approximately $300 million. Combined with reduced benefit generosity, that would enable the state to clear the $2.6 billion debt in six years.

Fergus Hodgson

Director of fiscal policy studies at the John Locke Foundation, policy advisor with The Future of Freedom Foundation, and host of The Sta...

Reader Comments