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July 24, 2009
With 15 million Americans unemployed, state unemployment systems are overwhelmed and millions of people have had to wait weeks to get their benefits, according to a report in today's New York Times. Of the 12.8 million eligibility reviews that have occurred during the recession, 4.6 million took more than three weeks -- that's 2.1 million more than federal rules allow.
About 80 percent of the unemployed workers get payments within three weeks, but cases that require review can take months. Thirty-eight states have failed to make decisions within the federal deadline. In the last year, states processed 61 percent of cases where eligibility was questioned by an employer within three weeks -- well below the 80 percent required by federal rules. More than a half million cases took more than eight weeks and 350,000 took more than 10 weeks.
States are running out of money. Sixteen states have already had to borrow cash from the federal government to pay benefits. The states created this mess by cutting taxes for businesses and reducing unemployment services. Unemployed workers are now left frustrated, waiting for days just to file an application.
During the good times, states lowered unemployment taxes on businesses and closed unemployment offices. From 1960 to 1990 the unemployment tax rate averaged about 1.1 percent of overall payroll. Over the last decade it fell to 0.65 percent. That's a 40 percent tax cut. These cuts and the current economic storm leave the unemployment program in the worst financial shape since the early 1980s, when back-to-back recessions left more than half the states borrowing from the federal government.
Employers saved $165 billion with these tax cuts, but the states had just six months of recession-level benefits in reserve. That's just half of what the federal government recommends. Their response was,"We don't need a firehouse -- we can buy hoses when the fire starts," Wayne Vroman of the Urban Institute told the Times.
Now that we're in the middle of a huge economic fire, workers are stuck with the problem. People are losing their homes and apartments and are going hungry waiting for benefits. The Times quotes one person who lost his apartment and was forced into homeless shelters waiting for benefits. Another person, who waited six months for benefits while he appealed his claim, ultimately got a $6,000 check when benefits were finally approved. He and his pregnant wife had to skip meals waiting for that money and almost lost their home.
Unemployment benefits were a safety net created as part of the New Deal. The idea behind them was that we wouldn't force people to live on the streets during an economic downturn. Now, as the unemployment rate rises and the recovery likely will be a weak one, the country seems to have forgotten the lessons learned during the Great Depression. I certainly hope we don't see tent cities going up all over the country as people wait for the economy to recover.
Borrowing money is the only thing that states can do now. Unfortunately, rather than having unemployment benefits paid by business taxes, the ultimate burden will fall on workers as well as businesses, as states use general tax receipts to repay the loans due the federal government. I expect that business taxes again will be raised to cover part of the shortfall, but of course their lobbying groups will fight any attempt to raise those taxes, so I doubt that business taxes will pay the entire bill.
Lita Epstein has written more than 25 books including Working After Retirement for Dummies"