Tami Luhby, of CNN Money, writes about the problems in a succinct and accessible manner. Her article, “States drain unemployment trust funds.” describes an increasingly dire situation.
State unemployment insurance trust funds are rapidly running out of money amid soaring job losses.
This is prompting state officials to consider raising employer taxes or curtailing benefits, while forcing them to borrow from the federal government to cover claims.
The timing of these failures is what truly puts lie to the aphorism that a paternalistic state can assuage the pain dealt out by economic vicissitudes. If there were ever a time when Big Brother could actually be a good sibling and help us buck up, it would be now.
Jeannine Aversa, an economics reporter for the AP, describes the extent to which the need has become increasingly dire. Her title “Jobless rate bolts to 14-year high of 6.5 percent” is both evocative and self-explanatory. If there were ever a time when Government could put truth behind the old, sardonic remark that they were to help us, it would be now.
The states levy taxes against every employer in their domain to build up an unemployment trust fund. They do so to honor an explicit contract that these funds will provide for the general welfare of unemployed workers during times of economic duress. Now that the duress has arrived, 19 out of the 50 US states are performing at sub-optimal levels in meeting their legal obligations to the needy.
The trust funds of five states are insolvent - meaning they have reserves of three months or less - while another eight state funds are nearly insolvent with reserves of four to six months, according to the National Employment Law Project. Six other states don't have enough money to cover a year of payments. - (Vice: Tami Luhby)
Michigan has puckered up and gone into full reaction mode. Having failed to plan for the inevitability of the down side of all economic cycles, they are bailing out their retirement fund to the detriment of financially precarious corporations. These corporations that Michigan intends to tax are same people that are already laying off workers, due to lack of funds.
Businesses already shell out between .06% and 10.3% on the first $9,000 of earnings of each worker, depending on how many of their former employees are drawing benefits. About 20% of companies soon will start paying up to $67.50 in an additional solvency tax, levied on employers who have paid less in unemployment taxes than their former employees have received in benefits.
The state realizes the additional tax will impose yet another burden on struggling companies, but the law does not allow exceptions, said Stephen Geskey, director of Michigan's Unemployment Insurance Agency.
"It is not an optimal time for the solvency tax to kick in," Geskey said. "But there's really no wiggle room."(Luhby Obcit)
Ohio, like Michigan, suffers from a similar set of pension fund problems. Unlike Michigan, their state government also seems to suffer from Dementia Precox. They got cracking on investigating Joe the Plumber’s personal files and marshaled the resources of state government to make sure he got a nice, thorough roto-rooting. The state unemployment fund, which currently has less than 15% of the necessary cash on hand to meet next year’s estimated obligation, is another matter entirely.
Even though the fund will likely run out of money by early January, lawmakers likely won't address the issue before the middle of next year.
Wow! It would totally suck if they bugged these guys in the middle of dinner. I’d hate to see these officials, who have run election campaigns, legislated to amass vast supervisory powers and promised the state that gave our nation John Glenn the moon; actually have to do something useful and serve their constituents in the hour need.
Oh, and then there’s the Grandfather Twilight Factor. The state that inflicted upon our nation Dennis Kucinich, passed an unemployment law that should have gotten the authors taken out and fired. Someone please tell these people that this economic crisis is not a Dungeons and Dragons module. Or at least, please find a better Dungeon Master than Governor Ted Strickland.
The rising number of claims is not the only reason the fund is running out of money, Hall Phillips said. The law calls for benefits to increase annually, though there's no provision for taxes to do the same.
Now people will argue that Michigan and Ohio are nefarious exceptions and that it really isn’t fair to criticize if I don’t live there and vote in the local elections. However, they do have recourse to the federal treasury. That means their marginal propensity to legislate after too many bong hits translates into an obligation against Federal Funds.
This then restricts the credit market and makes my credit cards more radioactive. Also, it leads to an increase in the various Federal Taxes raised to remunerate all of these recalcitrant state legislatures. So what happens in Lansing isn’t staying in Lansing and the vapid, feel-good incompetence of a government playing Santa Claus makes Christmas way less merry for the rest of us.
Thus under the aegis of the general welfare, the government confiscates the money of employers and citizens. It then fails to deliver the benefits that are promised, when those benefits are absolutely needed the most. Finally, they attempt to belatedly catch up to the need by imposing economic penalties on people who had nothing to do with the initial problem.
So maybe President-Elect Obama can explain to us in his press conference today how a big, activist government will make all our problems go away.
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