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States warned about unemployment insurance being inadequate in 1988, states in turn CUT insurance tax...thoughts?

WASHINGTON – State officials had plenty of warning. Over the past three decades, two national commissions and a series of government audits sounded alarms about the dwindling amount of money states were setting aside to pay unemployment insurance to laid-off workers.

"Trust Fund Reserves Inadequate," federal auditors said in a 1988 report.

It's clear now the warnings were pretty much ignored. Instead, states kept whittling away at the trust funds, mostly by cutting unemployment insurance taxes at the behest of the business community. The low balances hastened insolvency when the recession hit, leading about 30 states to borrow $41.5 billion from the federal government to pay unemployment benefits to their growing population of jobless.

The ramifications will be felt for years.

In the short term, states must find the money to pay interest on the loans. Generally, that involves a special tax on businesses until the loan is repaid. Some states could tap general revenues, making it harder to pay for schools, roads and other state services.

In the long term, state will have to their replenish unemployment insurance programs. That typically leads to higher payroll taxes, leaving companies with less money to invest.

Past recessions have resulted in insolvencies. Seven states borrowed money in the early 1990s; eight did so as a result of the 2001 recession.

Answer Question

Asked by sweet-a-kins at 10:52 AM on Feb. 19, 2011 in Politics & Current Events

Level 34 (67,502 Credits)
Answers (7)
  • sweet-a-kins

    Comment by sweet-a-kins (original poster) at 10:52 AM on Feb. 19, 2011

  • The ramifications will be felt for years.

    Kind of like our little deficit and Obamacare.


    Answer by jesse123456 at 12:26 PM on Feb. 19, 2011

  • Well, this is what happens when you let people collect unemployment indefinitely. My unemployment insurance doubled this is now almost 7% of the wages I pay. I have never had a claim and I have been running a business/s for more than 10 yrs. I had to cut wages by $1-$2 an hour because of this and the big hike we got in the workers comp insurance (also no claims). I have a set budget I can spend on labor. I would rather the money go to the employee, but the govt seems to see differently.

    Answer by yourspecialkid at 12:30 PM on Feb. 19, 2011

  • And the OP is surprised at this turn of events?!?!

    Answer by LoriKeet at 3:56 PM on Feb. 19, 2011

  • And the OP is surprised at this turn of events?!?!

    But of course Lori! Are you really surprised that she's surprised?

    Answer by DSamuels at 7:08 PM on Feb. 19, 2011

  • Exactly ysk. It is 'gap' insurance. It is to fill the gap between no job and a job. It wasn't ever meant to be your way to earn a living.

    Answer by jesse123456 at 10:59 AM on Feb. 20, 2011

  • Just like all of the pension plans being underfunded ~ no oversight, no penalties

    Answer by tasches at 3:45 PM on Feb. 22, 2011

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