Senior Director of State Fiscal Research
Eileen Norcross of the Mercatus Center at George Mason University offers up a doozy in her piece about North Carolina’s unemployment benefit cuts in today’s New York Times.
North Carolina — where the unemployment rate is among the highest in the country — imposed massive cuts in unemployment benefits on July 1, breaking federal rules. This disqualified jobless workers in the state from receiving emergency unemployment insurance (UI) benefits paid for entirely by the federal government, cutting some 70,000 people off of benefits immediately. No other state has taken this extraordinary step. Jobless workers in North Carolina now are eligible for less than half the number of weeks of benefits that are available in any other state, including states with much stronger economies.
Ms. Norcross makes an extraordinary — and mistaken — claim about why North Carolina’s leaders opted to end the state’s involvement in the federal emergency benefit program. She says the state needed to make the change because the emergency benefits that North Carolina allowed its workers to receive in recent years drove the state deep in debt to the federal government. The fiscally responsible thing to do, she asserts, was to stop the borrowing.
Here’s the problem: states do not have to pay back the federal government for the emergency benefits their jobless workers receive. The program is paid entirely by the federal government.
Ms. Norcross seems to be conflating those federal emergency benefits with the state’s own UI system, which, like many other states, faces serious financial problems. Those problems stem from the unusual depth and length of the recession and from imprudent tax cuts. In the 1990s, North Carolina cut the UI taxes that businesses pay too low to sustain its system during a recession, a mistake from which the state has never recovered.
Because its UI system was underfunded going into the recession, North Carolina quickly ran out of money to pay jobless workers regular, state-funded benefits — and it borrowed from the federal government to make those payments. The state needs to pay off that debt — but not at the expense of cutting thousands of workers off from benefits at a time when the state's economy is so weak. That's not responsible; it's appalling.