South By North Strategies, Ltd.

The National Employment Law Project and the Center on Budget and Policy Priorities lay out a plan for reforming the financing of state unemployment insurance systems.

States could attempt to restore the adequacy of their trust funds under current law through tax increases alone. Without the provisions in the UI State Solvency Plan for limiting tax increases (delaying when federal UI taxes increase to recoup the loans, delaying interest payments, and partial loan forgiveness), however, that approach would require sharp tax increases beginning while the economy remains weak. Compared to a hypothetical scenario (referred to here as an “adjusted baseline” scenario), in which all or nearly all states do achieve solvency by 2020 by raising state UI taxes, even as employers continue to pay increased FUTA taxes to repay the loans, the UI State Solvency Plan produces significantly lower average employer tax rates nationally. That is, raising the combined federal and state UI tax rate enough for nearly all states to achieve an AHCM of 1.0 by 2020 would produce significantly higher tax rates than would be required under the UI State Solvency Plan, especially in the next several years when the economy likely will remain weak …