Employers alone can’t foot the $7 billion bill for unemployment insurance

Beacon Hill should follow other states and devote federal COVID-19 relief funds to bring down the debt from the cost of layoffs from the pandemic.

 

Massachusetts employers were recently handed their revised unemployment insurance tax bills for 2021. These lower bills are the result of new legislation that has been marketed as a fix for the unemployment insurance crisis. It authorizes the state to borrow $7 billion to shore up what would have been an insolvent unemployment insurance fund to pay back federal loans and interest on those loans. For many businesses, their revised tax bills dropped dramatically from what was first sent to them in April. The catch? Employers must pay it back. While the reduction in payments is welcome, employers have been handed an unprecedented tax increase for the $7 billion COVID-19 unemployment tab, which is now being amortized over 20 years rather than just two years.

This is hardly a fair fix. What employers need from Beacon Hill is for government to step up with true shared responsibility by significantly reducing the overall unemployment insurance debt. The Legislature can do this by using a portion of the $5 billion in federal COVID relief funds under its control to make a fair down payment to mitigate the unprecedented tax increase for COVID layoff costs, which were triggered by public policy and government administration as a result of the pandemic.

The current legislative “fix” to the unemployment insurance system is a tax on employers to amortize over 20 years the massive $7 billion in COVID claims paid out during the pandemic. Through state bonding, the $7 billion — plus interest — is being spread out, but current and future employers are still being asked to pick up the entire tab for the claims, fraud, and interest charges.

The delayed tax increase on employers will most certainly suppress future wage and job growth in the Commonwealth by making it more expensive to run a business here. By mortgaging the entire debt, Beacon Hill has yet to do what more than half of the states have done — devote federal COVID relief funds to bring down the debt and relieve employers from significant portions of the cost of the layoffs from the pandemic. Furthermore, some states — such as Connecticut — have also recently reformed their unemployment insurance systems, including freezing benefit increases for multiple years to create economic balance in the future, but Massachusetts has yet to freeze benefits.

In recent months, the majority of states have used either CARES Act federal funds or committed to using new American Recovery Plan Act dollars to shore up their unemployment insurance trust funds. Massachusetts has received $5.3 billion in Recovery Plan funds. A significant portion of those funds should be committed now to this crisis to bring down the future borrowing, interest charges, and unprecedented tax increases for employers.

Unlike past recessions, the unemployment insurance claims from COVID were not the fault of employers. Small-business owners did not order the business closures or the workplace and commerce restriction; nor did they prompt school and daycare closures. Employers also didn’t trigger the extra emergency unemployment insurance benefits.

And they certainly didn’t cause the unrecoverable, fraudulent unemployment insurance claims and overpayments. A study by the National Conference of State Legislatures pegged the COVID fraud claims and overpayments nationally at a whopping $63 billion. Using a common economic extrapolation of Massachusetts representing 2.5 percent of national figures (probably conservative in this instance, given the generous nature of the state’s unemployment insurance system), one could assume that the fraud and overpayments portion of the $7 billion COVID unemployment insurance costs could be at least $1.6 billion.

Members of the Retailers Association of Massachusetts understand that legislators are hearing from countless organizations, special interests, and constituent groups seeking a portion of that once-in-a-lifetime kitty of $5.3 billion in federal COVID aid. Congress recognized its shared responsibility in the COVID crisis by appropriating those funds, with an express intended use of state unemployment insurance Trust Fund replenishment. Now Beacon Hill must acknowledge its role in the shutdowns, restrictions, fraud and overpayments, and act as effective stewards of those federal tax dollars by mitigating the $7 billion COVID-related tax increase. The very floor of discussion for the state’s fair share of the COVID unemployment insurance costs should be the $1.6 billion that can be reasonably attributed to fraud and overpayments.

Beacon Hill should prioritize a fair level of public investment into these unemployment insurance COVID claims. Likewise, balanced policy reforms should be considered to close outlier eligibility loopholes — such as joining 49 states in having both a minimum number of weeks of work as well as minimum earnings in order to qualify for benefits — and to prevent future system abuse. In doing so, it would send the right message to small businesses that they are valued and not taken for granted.