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NC Cuts the Federal Credit Card

On Tuesday, May 5, 2015, NC elected officials announced that the state has repaid early a debt owed to the federal government for unemployment insurance, a debt to the tune of $2.75 billion. Some leaders and NC businesses applaud the milestone and started their Cinco De Mayo celebrations early but was everyone invited to the party?

Why did NC owe the federal government to start with. . .

During the 2009 economic downturn, many people lost their jobs and were forced to claim unemployment benefits. During times of economic prosperity, NC lawmakers gave tax cuts rather than preparing for times of economic hardship.  Accordingly, NC was not prepared to handle this increase in claims and before long the unemployment insurance trust fund, from which the benefits are paid out, was depleted. NC was forced to turn to the federal government for loans to help keep our state’s unemployment system running.

How did the state repay the loan. . .

The repayment was accomplished in two years—a full year ahead of estimates—by way of legislative changes to the unemployment insurance program. These changes cut the maximum amount of time an unemployed individual may claim benefits from 26 weeks down to a sliding scale which could dip down as low as 12 weeks. The changes also reduced the maximum weekly payout allowance from $535 down to $350 a week. The General Assembly has also increased the amount that employers must pay in state unemployment taxes by $21 per employee.

Why is this important for businesses. . .

Under federal law, beginning in 2011 the debt triggered an increase in the amount that NC employers would have to pay per employee for federal unemployment taxes. This increase amounted to about $21 per employee for each year that the debt remained unpaid. Now that the federal debt has been repaid in full, employers will no longer have this yearly increase looming over their heads.

There is also a 20% surcharge on state unemployment taxes until the state unemployment reserve fund reaches the $1 billion mark. Freeing up the money that was going to the federal government to repay the debt will now allow the surplus charge-money to go directly to the reserve fund. The goal of $1 billion is expected to be reached sometime next year.

These penalties and surcharges, so far have amounted to about $962 million dollars paid out by NC businesses since 2011.

What does this mean for job-seekers in NC. . .

Well, the answer to that question depends on who you talk to. Conservative leaders and business owners around the state will tell you that these changes and the accelerated debt repayment will ease the tax burden on employers, allowing them to have more cash which translates into job creation around the state. On the flip side, those claiming unemployment benefits will have to deal with the decreased weekly payments and the shorter period of time for which they can claim these benefits.