Generous Unemployment Benfits Put PA in Bind

Lawmakers in Harrisburg are properly occupied with the challenge of replenishing the state’s exhausted unemployment compensation fund. The National Federation of Independent Business, which represents nearly 14,000 small businesses in Pennsylvania, agrees that this must be an urgent priority.We believe as well, however, that a solution preferred by some, which starts with higher taxes on businesses, would drive unemployment higher and extend the recession.

It is important to remember that like many states, Pennsylvania drained money from the unemployment fund to pay for generous benefit increases when the economy was booming. NFIB warned against such irresponsibility, but the spenders in Harrisburg paid little attention. Now the chickens have come home, and the same people who cheered the spending binge then, and who helped to drag down Pennsylvania’s economic competitiveness, are now urging Gov. Corbett to break his promise and siphon more money from businesses and wage earners.

The problem is not that Pennsylvania taxes too little. Indeed, we rank 10th in the country for unemployment taxes per employee. The average this year is more than $400 per worker. Raising the taxable wage base to $12,000, as some state lawmakers propose, would raise employer payroll taxes by more than $100 per worker and result in roughly 13,000 lost jobs. A proposal by President Obama to raise the taxable wage base to $15,000 would be even more costly.

Whether the taxable wage base is increased to $12,000 or $15,000, it is difficult to imagine a more powerful disincentive to hiring new workers than a massive tax penalty for hiring new workers. The real problem is that Pennsylvania has among the most generous unemployment benefits in the country.

Last year it paid out more than any other state except for California, despite that its population is one-third the size and its unemployment rate was lower. In fact, it is common for some individuals to collect more in benefits than they earned on the job. Another flaw in the system is that we don’t require beneficiaries to prove that they’re looking for new work as a condition of eligibility.

For starters, Congress should repeal a 2009 federal mandate that requires states to expand benefits in order to accept federal unemployment solvency funds. Second, Congress should extend the grace-period to allow states, ultimately employers, to repay the federal unemployment trust fund without interest and penalties.

To fix Pennsylvania’s state unemployment trust fund, small-business owners recommend a three-pronged strategy to reduce the cost of hiring and employment; require unemployed workers to seek and accept work; and implement initiatives and provide services that are most effective in assisting unemployed workers in returning to work.

Pennsylvania owes the federal government $3 billion, which is a deep hole from which to dig out. But starting with higher taxes is not the solution. In fact, our members are certain that they would make the hole deeper.

Kevin Shivers is director of the Pennsylvania office of the National Federation of Independent Business, the largest small-business advocacy group in the country.