Unemployment insurance program in drastic need of revision
If you’re looking for evidence of the certifiable train-wreck of misplaced policy and inefficiency in government, look no further then the nation’s system of providing direct payments to the many Americans who are unemployed. It’s called unemployment insurance and the system, at all levels, is a literal mess.
You don’t have to be a heartless right-wing Scrooge to see just how bad the unemployment insurance system has become. Even if you think that government should provide direct transfer payments to unemployed individuals for a whopping 99 weeks — a remarkably protracted period, which is the current national policy — the unemployment insurance system is still an indefensible quagmire crying out for reform.
This is the shared federal-state program that provides direct transfer payments to individuals who are unemployed for a “lack of work.” Here’s how the program works:
The federal government levies a tax that employers pay based on the number of individuals they employ. Revenue from the this tax funds the general administration of the unemployment insurance program and sustains a reserve that states can borrow from during windows of persistent, widespread unemployment. In other words, when state unemployment funds go broke, states can borrow (key word) from the fed’s honey-pot to cover obligations.
For their part, the state’s levy their own direct tax on employers to cover the costs of benefits for the first several months of unemployment insurance.
Now let’s get to the sticky stuff.
Because unemployment insurance payments are counter-cyclical in nature (meaning, the program pays out the most when the economy is bad), so too is the scheme that funds them (meaning, taxes ratchet up to cover the growing costs of expanding benefits during recessionary periods, a time businesses can least afford it).
On a practical level, this is an economically impractical way to fund unemployment insurance. In the current recession, for example, a medium-sized employer has seen its state unemployment tax liability surge from a few hundred dollars to a few thousand dollars, each and every year. Think of it as making what’s bad, worse.
These employer tax hikes are driven by the growing aggregate costs of the insurance program — Colorado’s unemployment insurance payments skyrocketed from about $300 million in 2005 to more than $1 billion by the end of the decade.
And now the really bad news: Like most other states, even a run-up in state-level unemployment taxes has not been sufficient to cover all of the new payments from the fund. Remember, eligible persons can receive unemployment insurance payments for as long as 99 weeks in many states, so in a persistent jobs recession like ours, more people are receiving payments for a longer period of time. The result: Colorado, along with the vast majority of other states, has been forced to borrow federal bucks, too.
One final kicker for Colorado employers (or should I say kick in the shins?): If the state does not repay its federal loans within a couple years, employers will get hit with an additional increase in their federal levy to pay back the loan.
Remember that double whammy on employers? It’s actually a triple whammy.
And now for the really, really bad part: According to recent disclosures by the Colorado Department of Labor, the arm of state government that implements the program, fully 17 percent of all payments from the unemployment insurance fund were improper. This amounts to overpayments of an outrageous $169 million.
Think anyone in the economy could have put that 169-large to better use?
In an embarrassing twist, during testimony before the state’s Legislative Audit Committee last week, the head of the Colorado Department of Labor announced to lawmakers that the state was working vigorously to reduce the level of overpayments from 17 percent to a nationally acceptable level of 10 percent.
You read that right: A program that is funded by the already-drained pocket books of struggling employers willy-nilly accepts a waste ratio of 10 percent — an outrageously low standard that the Labor Department still can’t meet.
“There will always be a systematic level of improper payments,” the department’s chief shruggingly said.
If only state and federal tax collectors were so nonchalant.
There is insufficient space in this column to describe a host of other issues facing the program. Suffice it to say, it’s a mess that should be front-and-center this legislative session.
More sensible strategies for funding the state’s share of the program should be pursued so that employers aren’t trapped in a death-spiral of repeating tax hikes the next time the economy goes south.
More importantly, an aggressive compliance strategy is needed to minimize waste, fraud and abuse. Call the IRS. If state and federal tax collectors can squeeze every penny out of taxpayers, the Department of Labor should be able to squeeze out waste and fraud in the state’s otherwise inefficient system of providing payments to the unemployed.
Josh Penry is a former minority leader of the Colorado Senate. He is a graduate of Grand Junction High School and Mesa State College.