May 16, 2011
State politicians all across the country claim that the system that administers unemployment benefits is supposedly broke. Officials in Michigan say that the reserve fund for unemployment benefits is more than four billion dollars in debt to the federal government. The other 50 states owe tens of billions of dollars more, with California topping the list, carrying 10.5 billion dollars in debt.
What the politicians don’t say is that over the last years, they repeatedly slashed the taxes that businesses pay into the unemployment system. Instead of companies paying into the trust fund and building up its reserves during the good times, they continued to draw the reserves down. It got so bad, over the past three decades, three national commissions and several federal audits issued warnings to the states that their systems were close to going broke.
For business, this constituted a huge savings. A 2001 study for the National Employment Law Project (NELP) found that tax cuts and reduced tax rates took more than 47 billion dollars out of unemployment insurance funds between 1994 and 2000.
This continued in the following years. From 2000 to the end of 2007, years with relatively low unemployment, when reserves should have been built up, the unemployment reserves in all 50 states fell from 54 billion dollars down to 38 billion dollars. This meant that even before unemployment really skyrocketed when the recession hit, business had already drained what had been left in the reserves for the unemployed.
Once the recession hit, businesses continued to seek reductions in what they had to pay, and lawmakers in such states as Michigan, Texas, South Dakota, Hawaii and Oregon complied with further reductions in the taxes businesses are supposed to pay to cover the unemployment they create.
For more than 30 years, big businesses have been cheating the unemployment reserves of hundreds of billions of dollars.
In other words, the funds aren’t broke – business stole the reserves. Make the thieves pay!