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Tax cuts create unemployment benefits crisis for NC

RALEIGH — Over the past few decades, Republicans seemed to have redefined fiscal conservatism as always involving tax cuts.

But as responsible adults managing their own finances know, being conservative with money isn’t always about the size of your income.

People who make six-figure salaries can still spend beyond their means. Waiters working for minimum wage and tips can live within their means.

To live a fiscally conservative lifestyle is to not run up huge debts that you may not be able to repay. It might involve living in a cheaper home or buying a used car, or it might involve taking a second job.

It’s about balancing the books, whether you get there with by cutting expenses or increasing revenue.

North Carolina is fortunate that the writers of our state constitution forced fiscal conservatism upon us. Unlike the federal budget, the state budget must be balanced. Governor and legislature cannot run up huge deficits that are then piled upon each other to create a whopping pile of debt.

Despite those constitutional guards against financial recklessness, state legislators in the 1990s, cheered on by business interests, still found a way to be reckless.

Five times in that decade, legislators agreed to cut business unemployment taxes, the money that goes to pay for unemployment benefits when workers are laid off.

At the time of the first tax cut, in 1994, the trust fund into which the taxes accumulated had reached $800 million. So why worry? Surely the good times will roll on forever, right? Right?

Today the trust fund is empty. The state has borrowed $2.6 billion from the federal government to pay its share of unemployment benefits. With unemployment hovering around 10 percent, the taxes collected in 2010 covered roughly half of the benefits paid out.

And so a pool of money operated outside the state’s general operating budget has been managed liberally and recklessly by elected officials looking for short-term political gain.

Even though they weren’t responsible, the new Republican majority in the North Carolina General Assembly appears loath to acknowledge that the accumulated debt is largely a result of ill-advised tax cuts.

A bill moving through the legislature calls for the Department of Commerce to hire a consultant to study the issue.

Sounds a lot like Republicans are looking for political cover — the kind of thing they used to accuse Democrats of — wasting money in the process.

The debt to the feds will eventually have to be repaid. The feds might delay repayment for another two years. They might delay an automatic increase in the unemployment tax that kicks in because of the borrowing.

Whether that happens or not, no study or consultant is going to change the basic parameters: A dedicated tax failed to keep pace with its dedicated costs.

Unless Republicans are prepared to call for lowering unemployment benefits — and suffer the resulting political fallout — they need to let the taxes rise.

Anything else isn’t fiscal conservatism.

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

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