Our Choice

Emerson Lynn on Politics

Question: What is the difference between borrowing $343 million over 10 years and ending up with precious little in the till, and having borrowed $123 million last year giving us a $200 million bank balance at the end of that same 10 years?

Answer: The Vermont Legislature and its refusal to deal with the crisis facing Vermont’s unemployment trust fund.

This abdication of responsibility could end up costing Vermont almost $200 million, and put at risk those the fund is intended to support: Vermont’s workforce.

In January of 2009, the trust fund’s balance stood at $129 million. Today, the figure is $42 million and falling like a stone. The fund will be bankrupt early in the Legislature’s next session.

This isn’t news. We were told of this inevitability when the Legislature convened last January. The administration offered a plan to deal with the crisis. The Legislature balked. By all estimates, that refusal has cost Vermont $30 million in increased borrowing in 2010. And that’s the short-term cost.

The crisis has materialized for three basic reasons: The recession hit us harder and faster than anyone thought, benefits were increased, and the taxable wage base has remained static.  It’s the classic example of why it’s often more difficult to manage in good times than bad. In 1998 and 2002, the Legislature expanded the unemployment benefits offered, but did nothing to ensure that the increased benefits were supported. As is the normal course in Vermont, we have a benefit system that ranks high nationally with a wage base that doesn’t.

The legislative committee studying this issue reportedly eyes this problem in a single dimension: If the taxable wage base has remained static for the last quarter century, then businesses have gotten a break and the wage base needs to be adjusted accordingly. The taxable wage has been increased from the first $8,000 of a person’s wages to the first $10,000 effective Jan. 1, 2010 and the committee’s work continues to focus on how and at what pace the taxable wage base can be raised.

No thought is being given the need to scale back benefits.

Preliminary reports indicate the legislative committee is considering the need to borrow from the federal trust fund for the next 10 to 15 years. If followed, those borrowing needs could total an estimated $343 million. It would take 10 years just to get back into the black and then, just barely. We wouldn’t be borrowing, but we also would have no cash in the fund.

The committee’s thoughts are straightforward: Keep the benefits, borrow from the federal government and raise the tax levels on Vermont employers. The first keeps costs going upward, the second has to be repaid, and the third puts at risk the very people who need to be creating new jobs.

But this is even more daft than it appears. It presupposes a growing economy for the next 10 to 15 years. We had a recession in 2001-2002 with the current downturn beginning in 2008. What happens if we repeat the cycle and have another recession six years out?  Under this committee’s “leadership” we would be swamped in a sea of red.

This compounds the problem on several levels. The federal unemployment tax is 6.2 percent of the first $7,000 of each employee’s wage, but is reduced to .8 percent if several conditions are met, one of them being the need for a state’s unemployment trust fund to be solvent. We would not meet that test. The federal tax assessment will jump to 2.9 percent, a huge percentage increase, and one twined with the increased state tax. If the committee’s path were followed, it’s almost a given that Vermont’s employers would not escape this formidable tax increase for the foreseeable future.

The response is that Vermont’s employers would still be paying at a level common to many other states, according to the beliefs guiding the legislative committee.

That’s accurate, but it views the tax in isolation. Vermont’s per capita tax burden is among the nation’s highest by almost everyone’s standard. Raising taxes is raising taxes. It’s money spent in one place that can’t be spent in another. And, sadly, most of our conversation in Vermont focuses on the various maneuvers necessary to generate revenue within the existing framework with very little focus on how to expand the framework, i.e. new jobs.

The unemployment insurance fund cannot be restored through raised taxes alone. Benefits will need to be trimmed, and this need should not be cast in draconian terms. We’re not talking about offering less than what most states are offering. The cuts proposed by the administration last year would still leave us a more generous state than most.

So here is the choice: Keep the present benefits package intact. Raise the taxable wage level from $8,000 to $21,500. Borrow $343 million. Get the trust fund back to about even in 2018 and pray for 15 years of continual economic expansion. Or, trim benefits modestly [still offer more than the national average], borrow $123 million, raise the taxable wage level modestly, and end up with a $200 million surplus in 2018.

That should not be a difficult choice. But for many of our legislators, it is. It will be one of those issues that defines our choice for governor the first Tuesday in November, 2010, and those we choose as our legislators.

(Emerson Lynn is editor & publisher of the St. Albans Messenger where this essay first appeared.)

 

Comments

[Chris Campion]

The unemployment tax could be increased (helping to fund the fund) but a corresponding decrease could happen in the corporate tax rate, which would most positively impact net income, and make the firm more likely to hire people in the first place - which helps both fill the fund and keep it from being drawn down by the unemployed.

Taxes need to be cut in a most permanent fashion. Unemployment taxes raised in a recession ensures that even more people are likely to have to consume unemployment benefits. Unemployment benefits would be less demanded if, for instance, there were more employment available, and one of the primary reasons there is zero job growth is due to the overall tax posture of the state. Disincentives to growth lead to higher unemployment, and under-employment. That's where we are right now, where we've been for 10 years. I don't see solutions in the offing regarding specific and permanent plans to change the tax posture of the state, and until that does happen, the employment and growth trends will continue. There is nothing in place to stop or change them.

[Bill]

When applicants call Montpelier to find out how much their unemployment benefit will be, they learn $25 a week extra will be given courtesy of President Obama. The top benefit of $425 becomes 450 under the stimulus bill. This is a golden opportunity for the state to reduce the top benefit by 25 dollars. While they are at it, why not reduce the per diem for legislator's meals to $45 from the overgenerous 54. State employees get 24 dollars a day for meals. Legislators who spend the night in Montpelier could sleep well on $75 instead of the current 93 per day. Not interested, Madam or Mister Legislator? Maybe those who want to replace the current legislature in next year's election can use these kinds of figures to take the pledge to reduce the burden the legislature places on the taxpayer. Let's see some personal sacrifice from Montpelier so they can feel what so many of their constituents are feeling.