A bill to drastically cut unemployment benefits and slightly raise business taxes has cleared its last major hurdle in North Carolina. Republicans behind it say it's going to be painful, but it's necessary to pay back the $2.5 billion the state owes the federal government for help paying unemployment insurance.
How did the state build up such a massive debt?
Our unemployment insurance system got way out of balance. Businesses fully fund it through taxes, and when the recession happened, there wasn't enough money going in to cover all the benefits going out to unemployed people. So the state had to borrow from the federal government. Today only California and New York still owe more than North Carolina does.
How does the legislation pay that back?
Mainly by cutting benefits. It would slash the maximum weekly benefit from $535 to $350. And it would cut the number of weeks the state offers unemployment payouts from 26 weeks to a range of 12 to 20 weeks depending on the unemployment rate. Those changes will account for about 74 percent of the total savings in this bill, according to the General Assembly's fiscal research division.
And on the tax side?
Most of the pain on the tax side has nothing to do with this legislation. The federal government automatically increases taxes on businesses each year until the debt is paid off. After that, the federal rate goes back to normal. There is a state tax rate that goes on top of the federal rate, and the bill slightly increases that rate for some businesses. But in the scope of the entire plan, that increase is tiny. The fiscal research division estimates the increased state taxes will account for less than 5 percent of long-term savings.
Does the bill affect people who are currently on extended federal benefits?
Yes, and that actually drew the U.S. acting secretary of labor into the argument. He released a statement Monday saying that struggling families would "suffer a grievous blow" under the bill – 170,000 people on extended benefits would lose those benefits in July. That's because states can only get that extension if they maintain their current level of weekly benefits. That would change in July under this legislation, and that'd be it for extended benefits.
What's left before the legislation becomes law?
It's already passed the House, and it tentatively passed the Senate Tuesday. The way it works is the Senate takes a full vote on passing a bill, and then takes another vote to make sure that yeah, we really did want to pass that bill. That double-check vote is the only thing that's left before it heads to Governor Pat McCrory's desk, and he's said he'll sign it.