FACING SOUTH - Online Magazine of the Institute for Southern Studies

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Unemployment insurance programs in Minnesota and Texas in the red

By Olga Pierce, ProPublica 

For the past few months we have been probing the increasing troubles of our nation's fractured unemployment insurance systems. Texas and Minnesota are the latest casualties, borrowing tens of millions of federal dollars so far to keep their unemployment insurance trust funds afloat. 

So far, Texas has borrowed about $73 million, but anticipates borrowing about $643 million by October, and more before the end of the year, a combination of federal borrowing and issuance of bonds. 

For years, Texas has maintained one of the country's lowest tax rates (PDF) (only three states had lower average tax rates in 2008), and an explicit policy of keeping reserves low as a way to stimulate job creation. 

But that policy has been sustained by offering some of the stingiest benefits in the country. Only about a third of unemployed Texans received unemployment insurance last year, ranking the state 50th out of the 50 states. (Only the District of Columbia had a lower percentage.) 

Earlier this year, Gov. Rick Perry refused the $555 million Texas could have claimed in stimulus funds for expanding eligibility for the program to low-income and part-time workers. Perry wrote in a recent op-ed that he rejected the money so "Texas job-creators and taxpayers will be protected from federal mischief." 

Apparently that federal mischief does not include the interest-free loans Texas will get to keep the state's unemployment insurance system afloat. (Has your state taken full advantage of stimulus funding for unemployment? See this interactive map.) 

To close the gap, Texas plans to raise tax rates for businesses -- in the middle of the recession -- undermining one of the purposes of the system, which is to act as automatic economic stimulus when the economy worsens.  

At the moment, Minnesota's borrowing of $11 million is a cash-flow problem, state workforce department spokeswoman Kirsten Morell told ProPublica. As tax revenue from employers flows in at the end of the month, the state should be able to pay back its current loans, she said. 

But that doesn't mean that Minnesota is in the clear. The state, still recovering from borrowing in 2005, had only a few months of reserves in its fund before the current recession struck and anticipates long-term borrowing at the end of this year and the beginning of next year, Morell said. 

In June, we did an interactive feature highlighting the states that could face shortfalls in unemployment insurance trust funds. Unfortunately for the unemployed in Idaho, Illinois, Minnesota and Texas, we've been right so far. 

Due mainly to poor financing, 18 states have now been forced to borrow just to keep unemployment checks in the mail.

(Image: U.S. employers cut far more jobs than expected in June and the unemployment rate hit a nearly 26-year high of 9.5 percent. Photo by Brian Snyder/Reuters.)
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Your article is full of implied falsehoods and misleading data.

The article implies that Texas has mismanaged its unemployment system because it's having to borrow some money to keep it afloat. But earlier in the article you mentioned that Texas tries to keep its coffers low so those $$ can stay in and bolster the State's economy. So what's wrong if they have to borrow some in the short run? You cannot possibly calculate the benefit to the State's economy due to the State leaving the money in the economy versus confiscating it and giving it away. So there is simply no way to know whether the State would have been better off redistributing the money, or letting it run its course in the free market. Your analysis is lacking, and your criticism not based in fact.

Secondly, you say that Texas should have taken the federal stimulus money because it could have paid for their current unemployment shortfall. But that's a fallacy. The stimulus money tied to unemployment would have made huge numbers of new people eligible for unemployment benefits and paid for them, and then several years later retracted that funding -- all while requiring the States to abide by the new eligibility requirements. So yes it would have paid for some people's unemployment benefits for a few years, but then would have left the State holding the bag. Now why in the heck would a State that's already having trouble paying for unemployment benefits take on that new burden? This is exactly the kind of 'federal mischief' Rick Perry is talking about.

Thirdly, the states that Texas has one of the lowest tax rates in the nation. But if you look closely at the PDF file cited in your article, you'll see that this number is based solely on employer withholding. It does not count self-employed earnings, and most importantly, it doesn't take into account the fact that in Texas, the lion's share of the tax burden is not withheld from your paycheck. It goes to county and local government taxes (because most services are handled at that level instead of the State level). In short, you're using a misleading statistic that simply doesn't tell the whole story on taxation in Texas, but is favorable, on its surface, to your point of view. If you want to compare Texas tax burden to other states, then you need to find a more comprehensive statistic that looks at the total tax burden of the average Texan, compared to the average American.

Lastly, you claim that Texas' plan to tax businesses more is somehow worse than either taxing citizens directly, or taking the stimulus money. But if they take it from their citizens directly, obviously, those citizens will have less to spend and the economy suffers just as much as if the State took the money from businesses instead. And if Texas were to take the stimulus money from the federal government, well where do you think the feds got it? They either taxed it away from you and me (inherently depressive to the economy as well) or they created it out of thin air (the more likely option) which just means they are going to tax it away from our kids and grandkids, and their economy will suffer for it. Neither solution is any good, and they all hurt the economy. Don't pretend that sucking from the federal tit is any better than sucking at any other tit.

This is the kind of article that really gets my dander up. It's pure propaganda, designed to further a message of greater federal control. It's filled with typical statist arguments (and I use the term loosely) that are supported (again I use the term loosely) by misleading, incomplete statistics. If you want to publish an article describing the woes of the unemployment systems in Texas and Minnesota, please do so. But I can do without the poor quality editorializing.

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