Senior Director of State Fiscal Research
North Carolina, where unemployment is over 9 percent, is close to enacting a breathtaking cut in jobless benefits that would surely prove extremely harmful for unemployed workers — and very bad for the state’s economy. The proposal would:
Proponents of the cut rightly point out that North Carolina’s UI system, like many other states, faces serious financial problems. Those problems, however, stem not only from the unusual depth and length of the recession but also from imprudent tax cuts. In the 1990s, North Carolina cut UI taxes that businesses pay too low to sustain its system during a recession, a mistake from which the state has never recovered (see this graph). Slashing benefits now would effectively force workers to pay for those ill-advised tax cuts.
The best approach to handling the financial strain that the recession has put on state UI systems is a patient and balanced one that includes phased-in tax increases and, when necessary, temporary benefit freezes or prudent cuts. Colorado has enacted a sensible plan, for example. North Carolina, on the other hand, appears headed in entirely the wrong direction.