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GOP, N.C. Chamber hatch plan to reduce unemployment benefits, pay state debt

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Imagine squeezing by on $2,000 a month. Now take out $600. You'd be living on less than $17,000 a year.

North Carolina's jobless could face deep cuts to unemployment benefits if a Republican plan passes the N.C. General Assembly in the upcoming legislative session.

Unveiled during a Dec. 5 meeting of the Revenue Laws Study Committee, the plan dramatically changes the state's unemployment insurance system.

The germ of the proposal advanced by Senate and House conservatives originated in a May study commissioned by one of the state's most powerful political and business interests, the N.C. Chamber of Commerce.

And perhaps not coincidentally, the Chamber's political action committee contributed to the election campaigns of 17 of 20 members of the revenue committee.

Starting next summer, the lawmakers' plan would slash maximum weekly benefit checks from $506 to $350 and limit benefit periods from 26 weeks to a sliding scale between 12 and 20 weeks. The Chamber made similar recommendations in its study.

Republicans characterized the revamps, which include modest tax increases on some businesses, as "shared pain." Revenue from the changes, lawmakers say, will help repay the $2.5 billion the state owes the federal unemployment trust fund.

But many North Carolina residents are already feeling the pain. In October, the state's unemployment rate was 9.3 percent, according to the latest figures available from the N.C. Employment Security Commission

In the Triangle, the rate ranged from a low of 5.6 percent in Orange County to a high of 7.1 percent in Durham. Wake and Chatham counties hover around 6.5 percent.

Democrats say they weren't aware of the proposal, and that no one consulted them during its development.

Sen. Floyd McKissick Jr., a Durham Democrat who sits on the revenue committee, says the cuts are "draconian."

"At this point in time, we need to be extraordinarily sensitive to the fact that when people are eligible for unemployment benefits, it's because they have earned the right to receive them," McKissick says. "We should be extremely reluctant to cut those benefits."

North Carolina paid $18.1 billion in unemployment benefits from January 2008 to November 2012, according to state data.

At the committee meeting, business leaders said the changes are essential to saving an insolvent system. However, workers' rights groups and defenders of the poor see only disaster.

"This is probably one of the most radical, if not the most radical, proposals in the country," said Bill Rowe, advocacy director for the N.C. Justice Center, a Raleigh-based nonprofit.

While the plan would call for modest tax increases—six-hundredths of a percent—on some businesses, it also would strip the unemployment-tax exemption from nonprofits and local governments. They would have to pay taxes into the state's unemployment trust fund.

In some ways the plan is also misleading, according to a report released Monday by the Justice Center's Budget & Tax Center.

The report notes the plan would increase taxes for less than a third of private employers. Most important, the increased taxes would raise an additional $27.6 million in employer contributions—a mere 1.1 percent of the state's trust fund debt.

"It's just a misguided way to fix the problem and it's going to do a lot of damage," Rowe says.

Meanwhile the plan would reduce taxes for at least 43 percent of the state's taxable wages, the report said. Justice Center officials said they don't know how many businesses will receive a tax break because lawmakers didn't provide that data.

MaryBe McMillan, secretary for the state chapter of AFL-CIO, says when the economy was booming in the late '90s, employers got a tax break. "And now they want to rebuild the fund on the backs of workers," she says. "I think that's dead wrong."

The breaks for employers began before the late 1990s, according to the N.C. Employment Security Commission. When North Carolina was enjoying relative prosperity, Democratic lawmakers changed tax codes five times from 1993 to 2000, slicing contribution rates for established businesses and new businesses.

So when North Carolina plunged into recession in the fall of 2008, the depleted unemployment fund forced the state to borrow billions from the federal government.

Businesses can expect annual tax increases of $21 per employee until the debt is paid, which, under the GOP plan, could be in 2015.

Key to the conservative argument is that North Carolina's benefits and taxes are higher than its southeastern neighbors, although opponents note the state ranks in the middle of the pack nationwide.

According to the Chamber study, North Carolina's debt is the fourth-highest in the nation, and the increasing federal taxes would handicap businesses at the worst possible time.

"It's putting an extreme tax burden on businesses at a time that they are struggling," says state Sen. Bob Rucho, R-Mecklenburg, who co-chairs the Revenue Laws Study Committee.

Rucho's words largely echo those of Gary Salamido, vice president of government affairs for the N.C. Chamber. Salamido tells INDY Week: "In the good times, the companies asked for a decrease in taxes. And that was not the right thing to do. We need to make sure it is solvent for the future."

Salamido says the reforms, while imperfect, are fair. However, the Chamber opposes taxing nonprofits and local governments.

The Chamber has long called for changes to the state's unemployment system, and the powerful business group's campaign donations indicate a willingness to spend. Chamber-associated groups contributed $21,500 to Revenue Laws Study Committee members since 2010, according to State Board of Election records.

State Sen. Harry Brown, a Republican from Jacksonville, tops the list at $3,000 in donations, followed by Forsyth County Republican Peter Brunstetter with $2,500.

Chamber groups donated $2,000 and $1,500, respectively, to committee co-chairs Rucho and Mocksville Republican Julia Howard. Democrats Becky Carney and Dan Clodfelter both received $2,000.

McMillan says workers are giving up far more than employers, and the lost benefits could further stagnate the North Carolina economy.

Monday's Justice Center report estimated the benefit cuts would drain $166 million from the economy by 2016, and economic multipliers could compound the loss from $183 million to $257 million.

"They think that unemployed workers are lazy, they think that they want to live on these meager unemployment checks, and nothing could be further from the truth," McMillan says. "People don't want unemployment checks, they want jobs."

McKissick agrees. "[People] are using [unemployment benefits] to pay for fuel, to get out and look for jobs," he says. "They're using it to put food on the table. That's money that goes back into the economy."

This article appeared in print with the headline "The first cuts are the deepest."

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