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Columnist Mooneyham: No mysteries about unemployment, tax deficit

Connie Wilson says there is “foot-dragging” going on.

She may be right.

Wilson is a former state legislator and lobbyist for a group of businesses called the Employers Coalition of North Carolina.

The foot being dragged to which she referred can be found in the Department of Commerce. Earlier this year, legislators gave the state agency the task of studying the state’s $2.5 billion in borrowing from the federal government to pay out unemployment benefits.

Six months later, no study has started.

Commerce Department officials say no immediate funding was provided for the study. They also hope to combine it with another study looking at unemployment system administration and agency consolidation.

That’s too bad, because the foot-dragging should have started at the North Carolina legislature before this study was ever given legislative sanction.

The study could cost as much as $250,000, and what is it going to tell legislators that they don’t already know?

There’s no secret to the unemployment tax deficit.

When the economy contracts, the amount that employers pay into the system declines. When employees are laid off, claims and pay outs go up.

That’s why in the past, during the good times, the state built up big surpluses in a trust fund from the taxes. In 1994, the surplus reached $800 million.

Then legislators cut the tax. Then they cut it again, four more times during the 1990s.

When the bad times came in 2008, the trust fund ran out of money. To cover the deficits, the state borrowed from the feds.

Of course, the economy hasn’t improved much. The borrowing has continued. In 2010, the taxes collected covered roughly half of the benefits paid out. With unemployment still high, the deficits could grow.

The Republicans who now control the legislature can’t take credit for this development. Democrats controlled one or both chambers of the General Assembly when the decision was made to lower unemployment taxes.

Nonetheless, Republican legislators are now charged with fixing it. No study is going to change that fact or the hard choices required.

Given the state of affairs in Washington these days, it’s highly unlikely that Congress will forgive the debt, or those in 26 other states. About the best that state officials can hope for is that the repayment is delayed. An automatic increase in the unemployment tax rate, caused by the borrowing, might also be delayed.

Beyond any delays, the inevitable is, well, inevitable.

Unemployment benefits are paid with dedicated taxes. When the revenue raised by the taxes don’t equal the benefits being paid out, the taxes are going to rise.

Or, perhaps some legislator would like to propose having non-dedicated taxes paid by the public at large pick up the tab for those tax cuts back in the 1990s.

Before doing so, he or she might first want to announce his or her future plans outside of politics.

Scott Mooneyham writes about North Carolina politics for the Capitol Press Association.

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