Jun
03
Amortizing $7 B in COVID UI Claims Simply Not Good Enough
June 6, 2021 -- by Jon Hurst, RAM President
Beacon Hill recently passed legislation which was billed as a fix for the $7 billion unemployment insurance crisis. It was the second such bill passed in two months. Yet employers are still waiting for government to step up with shared responsibility by making a fair down payment on the unprecedented employer tax increase for COVID layoffs triggered by public policy.
The “fixes” to the UI system to date has been all about amortizing over 20 years the incredible $7 billion of COVID claims paid over 17 months. Through state bonding, the $7B (plus interest) is being spread out, preventing as much as 1600% immediate 2021 tax increases; but current and future employers are still being handed the entire bill of the claims and the interest charges. To put that $7B in perspective, it is equivalent to 5 years’ worth of normal Massachusetts UI taxes and claims—and those typical annual UI taxes are already the highest in the US. And of course, over the next 20 years, new, typical UI claims will also continue, ensuring growing payroll tax liabilities for decades.
The $7 B delayed tax increase will most certainly suppress future wage and job growth in the Commonwealth. And by mortgaging the entire huge debt, Beacon Hill has yet to deliver what most states have already done to date—by making an appropriate “down payment” on the debt by recognizing a shared responsibility by state government to cover an appropriate amount of the COVID layoffs cost. In fact, more than half of the states—most with far less dire UI Trust Fund debt than Massachusetts—have devoted federal COVID relief funds to bring down the debt and relieve employers from significant portions of the cost of the layoffs from the pandemic.
These states have used either CARES Act federal funds from 2020, or committed to using American Recovery Plan Act (ARPA) dollars from the 2021. Massachusetts is receiving $5.3 B in ARPA funds. A significant amount of those funds should be committed now to this crisis, to bring down the future borrowing, interest charges, and unprecedented tax increases for employers. And certainly, the state budget is in very good shapes with continuing increased tax revenues and expenditures far in excess of our rate of economic growth.
Unlike any past recession, the facts are clear that the UI claims from COVID over the last year were not the fault of employers. Small business owners did not order the business closures, the work place and commerce restrictions, nor did they prompt school and daycare closures. Employers certainly didn’t trigger the extra emergency UI benefits which incented many to not work, because the majority of claimants made more on benefits than previously on the job. And they certainly didn’t cause the hundreds of millions in unrecoverable, fraudulent UI claims. Government triggered the UI claims due the health concerns, business restrictions and benefits structures, yet under current state law, the entire bill of over $7 Billion is currently being paid for by current and future Massachusetts employers.
We can all understand that 200 legislators are hearing from countless organizations, special interests, and constituent groups looking for a piece of that once in a lifetime kitty of $5.3B in ARPA funds from the federal government. But Beacon Hill’s very first decision, and their very first investment of those ARPA funds should acknowledge government’s role in the $7 B COVID UI debt, and the need for shared responsibility for that unprecedented tax liability.
Recognizing government responsibility, and prioritizing fair levels of public investment into those COVID claims, will send the right message that small businesses didn’t cause the problem. Rather the message would be that it is vital that wage and job growth be incented going forward, rather than the creation of economic stagnation due to the assessment of unfair taxation.