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@NCCapitol

NC has paid off unemployment debt

Posted May 5, 2015
Updated May 6, 2015

Lawmakers use a giant pair of scissors to cut up a mock credit card, symbolizing the payoff of $2.75 billion borrowed from the federal government to pay unemployment claims.

— North Carolina no longer owes $2.75 billion it borrowed from the federal government pay first-time unemployment claims during the recent recession, action that will translate into lower taxes for employers.

"This is not just about repaying debt we owe to the federal government. This is about creating jobs," Gov. Pat McCrory told a gathering of lawmakers, business leaders and cabinet officials Tuesday in the old House chambers at the historic State Capitol.

Businesses pay two basic types of unemployment taxes – federal and state. The federal, or FUTA, taxes state employers will pay on Jan. 1, 2016, will be about $280 million less than they were this year. State unemployment taxes, or SUTA, are going to remain steady for roughly another year until the state's unemployment reserve fund tops $1 billion, then they will drop as well.

All told, North Carolina employers can figure to pay $700 million less a year in unemployment taxes starting in 2017 than they paid in 2014.

However, paying off the debt more quickly came at a cost to workers. Changes to North Carolina's unemployment insurance system triggered cuts to long-term federal benefits in the state. Roughly 71,000 workers who had been among the long-term unemployed lost benefits immediately on July 1, 2013, while another 100,000 unemployed workers lost access to long-term benefits that would have otherwise begun later than year. Funding for federal long-term benefits ran out nationwide on Jan. 1, 2014.

Longer term, North Carolina's benefits became less generous, shorter in duration and forced unemployed workers to take jobs that paid less or required fewer skills than they were used to.

Worker advocates argue businesses got a tax break on the backs of workers.

"The reality is that the vast majority of the debt was repaid not by employers but by jobless workers," said Alexandra Sirota, director of the North Carolina Budget and Tax Center, a liberal-leaning policy think tank.

Cuts to benefits, she said, weren't mirrored by commensurate increases in SUTA taxes. She added that $1 billion is not enough of a cushion to prevent future shortfalls in the trust fund.

Cutting up the credit card

To symbolize the debt payoff, lawmakers used a pair of giant scissors to cut a mock giant credit card in half.

Like many states, North Carolina had to borrow from the federal government during lean times in 2009 through 2012 to pay for unemployment benefits when FUTA and SUTA taxes on employers could not keep pace with payments to large numbers of laid-off workers. North Carolina's debt situation was frustrated because, in prior years, the state had scaled back what employers paid to cover unemployment insurance.

"We just started piling up debt and figured someone else will take care of it," McCrory said.

Really, the money would always have come from employers. However, if left unchanged, North Carolina law would have put the state on course to pay off the debt some time in 2020.

Business leaders urged lawmakers to chart another course. They pointed out that FUTA taxes would increase $22 per employee per year until the federal debt was paid off.

"The debt to the federal government was a tax on jobs," Senate President Pro Tem Phil Berger said.

Berger, McCrory and others said employers were slower to hire new workers because of the added costs involved.

"That was money you could not reinvest in your business," said Andy Ellen, president of the North Carolina Retail Merchants Association, one of a coalition of business groups that pushed for the changes.

17 Comments

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  • Tom Boswell May 6, 2015
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    , Our unemployment has dropped to 5.4% which ranks us 25th from 47th when McCrory took office. The drop of 4.1% since McCrory took office represents the largest drop in the country. Since McCrory took office the U6 unemployment rate which the N&O stated is the most realistic has dropped by 4.1% which is the 3rd largest decrease in the country. When he took office we ranked 44th and today we are 32nd in the U6 rate. According to the Gallup job creation index we were ranked 43rd in 2013 based on the Democrats 2012 policies. In one year under Republican control we are now ranked 31st. Sorry for all the FACTS and no rhetoric!!!

  • Tom Boswell May 6, 2015
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    Wow just two years ago with Democrats responsible, we had a 2.5 billion dollar deficit. At the time it was the countries fifth largest. Our employment rate was 9.5% and ranked us a laughing stock 47th. Our overall tax burden rated us the 6th highest in the country according to the Tax Foundations web site. Our teachers were paid at a rate of the 46th highest. We owed the federal Government 2.5 billion in unemployment benefits.
    Today, we have paid off the 2.5 billion, our tax burden has fallen to
    34th highest, our unemployment has dropped to 5.4% which ranks us 25th. The drop of 4.1% since McCrory took office represents the largest drop in the country. Teachers just received one of their largest raises in history. Let the rhetoric, denial and refusal to accept the FACTS begin!!!

  • Marcy Lyn May 5, 2015
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    The " State " didn't pay anything off, our citizens did !

  • Jamal Jensen May 5, 2015
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    So, Dolly, how many of the "1%" live in North Carolina? Two, possibly three people. The owner of SAS, James Goodnight, is worth about $7 billion. Does that even fit into the 1% class.

    Dolly, part of the problem is people like yourself repeating ignorant statements without even reflecting on them. You don't really even know what that means.

    As far as NC paying off its federal debt, that increases NC's financial worth. That attracts more business and more jobs.

  • Roy Hinkley May 5, 2015
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    Paying out less in benefits than you take in through unemployment taxes from businesses is how the debt was paid off on the back of unemployed folks.

  • Dolly Butler May 5, 2015
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    First, the "debt" was largely caused because the unemployment tax was reduced for no good reason. This is something which is supposed to be largely paid for by businesses and the state didn't do a good job at managing it. Again, the "debt" largely should have been paid directly by private business and not affected the unemployed in such a big way.
    Read more at http://www.wral.com/share/page/1896337/?id=14624935#3yX0JK2jykDeYtY0.99
    Yes, Kenny Dunn is right. How did this all come to be in the first place. Who got hurt the most by paying the Feds in full? Not taxes on the 1% ....but more tax cuts for the rich. Governor McCrory is not concerned with the poor and unemployed ... or even Seniors as noted with the Health Care Deduction removed. I have a bumper sticker that states : Pat One Term !

  • Timothy Watson May 5, 2015
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    If jobs were created by doing this, where are the jobs Governor McCroy? And more importantly, where are the jobs that pay a living wage? You and the GA lied to put more money into the pockets of corp. and wealthy people.

  • Kenny Dunn May 5, 2015
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    Agreed. I've been there as well. Still, many do resort to unemployment - one of my neighbors among them. Surely you're not saying we should not pay out the benefits the employers have already funded.

  • Frank Curcio May 5, 2015
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    So, cuts to benefits "forced unemployed workers to take jobs that paid less or required fewer skills than they were used to." Sorry, but to me working a job like that is still preferable to sitting at home, collecting money from the state. I know, because I did work that kind of job after I was laid off from IBM years ago.

  • Kenny Dunn May 5, 2015
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    First, the "debt" was largely caused because the unemployment tax was reduced for no good reason. This is something which is supposed to be largely paid for by businesses and the state didn't do a good job at managing it. Again, the "debt" largely should have been paid directly by private business and not affected the unemployed in such a big way.

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