If ever there was an example of the failure of tax breaks, North Carolina is it. Starting on July 1, 2013 unemployed workers will suffer for failures of over 20 years of continued tax cuts to the state’s unemployment insurance system. Workers will see a reduction in level of their benefits, as well as the length of time that they can receive those benefits. Current workers are having to pay for a $2.5 billion bill that it owes to the federal government. While North Carolina is not alone in this, it is alone in the way that it’s tackling the problem.
North Carolina’s new Republican governor Pat McCrory passed the bill within the first two weeks of the new legislative session. In terms of passing legislation, that’s fast. The bill was backed and crafted by business groups, including the North Carolina Chamber of Commerce. Once passed, the bill was signed with no fan fare, as there was no special announcement to the media. So what exactly do the changes entail?
The governor describes the new law in general terms:
This bipartisan solution will protect our small businesses from continued over-taxation, ensure our citizens’ unemployment safety net is secure and financially sound for future generations, and help provide an economic climate that allows job creators to start hiring again.
The statement belies the hard hitting truth that the unemployed will experience. According to the National Employment Law Project (NELP), a nonpartisan advocacy organization for the rights of low wage workers, the law will cut off 170,000 of the state’s unemployed for any benefits starting on July 1st. This is the result of a violation the law will make, preventing them from collecting on unemployment benefits at the federal level once the state’s benefits run out. What makes this extra hard is that North Carolina has a 9.2% unemployment rate, which is the 5th highest in the nation.
For those who will continue to receive benefits, the maximum benefits from go from $535 a week down to $350 a week. To add further insult to injury, the maximum number of weeks that someone can expect to receive help while looking for employment will drop. The number of weeks will lessen when the entire state has a drop in unemployment. The range will be from 12 to 20 weeks. Currently, benefits at the state level stop at 26 weeks. While this is fine if you live in an area where employment picks up, it unfairly punishes those who happen to live in counties where unemployment remains high.
One has to wonder, how did North Carolina get into this mess? North Carolina violated the number one rule of balancing its budget – save your money for a rainy day. Instead of saving, the state has nibbled away at the tax rate that businesses have to pay towards the state’s insurance fund. Taking a look from 1992 until 2000, an analysis from the North Carolina Justice Center shows how this was accomplished.
This short history shows how the state slashed tax rates year after year during times of prosperity. When it should have been saving for economic downturns, it was instead cutting the amount that businesses were paying into the state’s fund. The reason cited again and again was to boost the economy, and thereby creating more jobs. It didn’t work.
While at times it appeared to be effective, it was all a ruse. The economy was chugging along so no one noticed. However, when the whole country experienced the full force of the Great Recession, North Carolina has fared poorly. Not only does the state have a higher unemployment rate than the rest of the country, its citizens are being left in the lurch and being asked to pay for the bill. If there ever was a demonstration of the ineffectiveness and failure of more and more tax cuts, North Carolina is a prime example. I hope for the sake of those who will be left out in the cold, leaders in North Carolina will soon wake up to the reality of the situation, and reinstitute this reasonable and important safety net.