Finding Common Ground to Save Unemployment

by: Senator Fred Madden

Sat Mar 20, 2010 at 02:13:59 PM EDT

When Governor Chris Christie recently proposed cutting unemployment benefits by up to $50 per week and delaying an increase in the amount businesses contribute to the system, it would be easy to think yet another issue would break down simply along the lines of Democrat versus Republican.

Frankly, as a Democrat, my first instinct was to oppose the Governor's plan. The jobless and their families need every penny to stay above water - and as one of only three states where employees pay into the Unemployment Insurance (UI) Trust Fund, workers who lose their jobs deserve every cent they put into the system while they were working. And preventing money from flowing into the UI fund is every bit as dangerous to its long-term health as the past raids that left it on life support.

Yet simply opposing the Governor's proposal would be counter-productive. The UI Fund would still be woefully unprepared to cover the needs of the unemployed, and New Jersey's economic recovery would be threatened by a business tax increase. What is clearly needed is a compromise to protect both the jobless from a benefits cut and businesses from a potentially destructive tax increase.

The proposed cut in benefits is simply unworkable - and not just for the reason that the jobless need this money to survive. Follow me below the fold for why.

So now Christie wants the Federal Government to help?

by: Adam L

Wed Feb 03, 2010 at 02:10:00 PM EST

What I found humorous about his already broken promise is how he blamed the Federal Government for this tax hike if loans to NJ were not forgiven.  Now, this is not isolated to NJ, as 40 states' unemployment reserve funds are either in or approaching bankruptcy.  But the irony here is that Christie was very outspoken about not having the Federal Government interfere when it was convenient to do so during the campaign, and now he wants the Federal Government to bail him out of his broken promises.

The reality is that, immature holding of his breath and irresponsible finger pointing aside, there are things that other states are doing, which NJ can also do, that would be constructive and productive - that is if Christie is interested in doing things other than pass blame and throw up his hands.

For example, take the statement of Senate Majority Leader Buono, who called for a series of specific steps to help NJ employers:

--Continue fully funding the Extended Unemployment Insurance Benefits. This program provides an additional 20 weeks of benefits to the existing 26 weeks of benefits that workers who lost their jobs already receive. Pursuant to provisions included in the American Recovery and Reinvestment Act of 2009, the extended benefits are funded completely by the federal government until December 31, 2010.

---snip---

--Extend the federal waiver of interest payments and interest accrual on loans received by state unemployment trust funds through the end of 2012. Currently, the waiver expires at the end of 2010.

---snip---

--Forgive the $1.2 billion loan to New Jersey's UI Fund, especially given that New Jersey employees, who are hurting, contribute to the UI Fund and the State contributed significant funds over the past two years.

And here is where I agree and disagree with Buono:

Continuing to fully fund UI benefits is one approach I agree with, as well as waiver of interest and penalties - although I would caveat that to a degree.  But in order to really help NJ employers, I would go a step further and have the state not "charge" employers with the unemployment benefits paid out to claimants if those benefits are funded by the federal government.  This last matter is a NJ matter that will directly help NJ employers without making what I think is an unrealistic plea (or in Christie's case, demand) for a loan forgiveness when almost every other state is in the same boat.

The unemployment tax rates are impacted by 2 things within the employer's control and one that isn't:  benefits paid out and taxes paid in are pretty much within the employer's control (to a degree).  The amount of benefits paid out statewide and the level of the state fund is not.  Right now, I think employers are charged for additional weeks of benefits as directed by the federal government, and possibly also by the additional eligible claimants from the stimulus bill.  Removing those from the "employer calculation" would help individual employers as well - especially since the state isn't paying for such benefits.

Desperate times call for creative solutions, and Buono's proposal gets most of the way there.   On the other hand, finger pointing, hypocrisy and a lack of leadership is precisely what is not needed.

Looks like it is going to be a long four years....

The truth about the "payroll tax hike"

by: Adam L

Tue May 12, 2009 at 12:30:00 PM EDT

Now, being that my area of expertise and what my "real" job has focused on for the past 17 years is employment taxes, including state unemployment taxes, I (1) was waiting for a republican to pounce on this, and (2) knew what the real deal is with the unemployment fund.  So, it gives me a bit more pleasure to combine my work and political lives and smack down republican ignorance in the process.

Background

The "tax hike" is something that is automatic and was written into the NJ unemployment law many many years ago, and is based on something that pretty much every state that calculates unemployment tax the same way that NJ does faces as well (around 30 states).  Unemployment tax rates are calculated using a certain formula (which is irrelevant for this purpose), but based on how much is in the overall unemployment fund, any of a number of "rate schedules" or "rate tables" would be used.  I believe NJ has 5 rate schedules, and as a contrast, NY has around 10, CA has around 8, while some other states have more than 10.  When the state
"unemployment reserve fund" hits a certain level, or dips below a certain level, a particular rate table automatically kicks in.  In good times, a rate table with lower rates is used, and in bad times a rate table with higher rates is used in order to replenish the depleted unemployment reserve fund.

It should be noted that these laws are rarely changed (NY changed its laws in the mid 1990s, and that is rare).  So, the use of various rate tables is something that shouldn't be pinned on the Governor (Democratic or republican) or the Legislature (Democratic or republican).

NJ's Unemployment Reserve Fund

Here is where it gets interesting.  In good times, employers should get a break on their unemployment taxes - and in many states they do.  NC and TX drastically reduced their unemployment taxes in the 1990s, and many states used the lower rate tables.  As a result, less unemployment taxes were paid, and the fund grew at a lower rate, although there were less unemployment claims, so the fund decreased at a lower rate as well.  During these times, the rate tables used (I believe) were relatively consistent.  However, beginning in 1993 (under Whitman - the republican Governor), approximately $4.6 BILLION was diverted FROM the state unemployment fund, thereby decreasing it further.  Most of this was diverted to pay for years of unfunded hospital charity care, but millions were also diverted to pay for other budgetary shortfalls and expenses.

However, 2 very interesting things happened when Corzine became the Governor - both of which we will see either ignored or twisted around by republicans looking to score a cheap hit while not realizing how outlandish their claims are: First, Corzine stopped this practice with his first budget in FY 07, and second, he actually transferred hundreds of millions BACK into this fund in order to avoid the kicking in of a higher tax rate table earlier:

In an effort to avoid a business tax increase, Governor Jon S. Corzine today said he would redirect funds into the state's Unemployment Trust Fund which pays unemployment insurance benefits to workers who have lost their jobs through no fault of their own.

This is the second such payment ordered by Governor Corzine in the past nine months. In June 2008, Governor Corzine added $260 million to the fund to avoid triggering a business tax increase that would have approached $400 million in July of 2008. He is now adding another $270 million to help avoid triggering the tax increase this coming July.

The level of resources in the fund changes weekly as revenue comes in and benefits are paid out. During this national economic crisis, benefit payments in New Jersey, as in most states, have outpaced revenue into the UI Trust Fund.

In the 14 years from Fiscal Year (FY) 1993 through FY 2006, approximately $4.7 billion was diverted from building the reserves of the UI Trust Fund and those dollars were put to other purposes in the state budget. Governor Corzine ended that practice in his FY 2007 budget.

Over the next few weeks and months, we will no doubt hear about how Corzine is "hiking payroll taxes for NJ employers".  However, this could not be further from the truth - not only is this out of his control, but he was the only Governor since this practice started under Whitman's administration to NOT ONLY STOP DIVERTING FROM the unemployment fund, but also to DIVERT MONIES BACK INTO THE FUND in order to avoid such a tax hike for employers.

Let's see if Christie or other prominent republicans join Tom Wilson aboard the misrepresentation express and show their ignorance for how one of the most basic and uniformly applied taxes that all employers pay in every single state works - and what the impact of a sagging economy, coupled with diversions from the one fund meant to dictate how much in unemployment taxes are paid does to that fund.  But my guess is that since republicans don't ever look far enough down the road (like Corzine did when he replenished the fund that had been depleted over the prior 14 years), they won't see this - after all, most of these diversions occurred on their party's watch.