Fixing Unemployment Insurance
March 24, 2025 |
The Fiscal Policy Institute today released two publications on how to fix New York State’s insolvent unemployment insurance system: a memo recommending tax changes, and a short report detailing the UI system’s chronic underfunding and low benefit level.
Unemployment insurance (UI), which provides temporary income to laid-off workers, is one of the State’s most important economic stabilization policies. Unemployment can both throw workers into poverty and exacerbate recessions by driving down demand; UI counteracts these risks and can soften the blow of an economic downturn. Unfortunately, New York State’s UI system has been chronically insolvent due to an inadequate UI tax on businesses, leaving the state unprepared for economic downturns. Given the likelihood of a recession from the economic policies of the Trump administration, as well as rising job losses from federal budget cuts, New York State urgently needs to address the longstanding inadequacies of its UI system.
When unemployment rose sharply during the Covid pandemic, the State had to borrow from the federal government to pay out claims. The State still owes $6.2 billion to the federal government, which automatically results in higher taxes on businesses and lower benefits for unemployed workers. The current maximum benefit level is $504 per week, even though under state law it is supposed to be $840 per week. (By contrast, in Massachusetts the maximum benefit is currently $1,051 per week and in New Jersey it is $874 per week).
The benefit cannot rise to its statutorily prescribed level until the debt to the federal government is paid off. In response to demands from the business community for tax relief, this year’s legislative “one house” budgets have each proposed bailout measures: the Senate would spend $1 billion on a UI tax credit for businesses, and the Assembly would spend $7 billion to eliminate the debt to the federal government (and bring the trust to a minimum level of solvency). The Assembly’s proposal, while far more costly and generous to the business community, has the merit of eliminating the debt to the federal government and thereby allowing the benefit level to increase. However, each of these proposals fails to solve the underlying issue of the inadequate tax structure. Any deal that is worked out between the legislature and the Governor must (i) raise the benefit level for workers and (ii) reform the UI tax to adequately fund the trust.
Recommendation: FPI recommends reforming the UI tax to apply to all taxable wages at a rate of 1 percent, enough to raise $6.5 billion annually. This reform would lower the tax rate while raising more revenue by covering a much larger share of wages, and it would more fairly distribute the tax burden to businesses with higher-wage employees.
Fixing Unemployment Insurance
March 24, 2025 |
The Fiscal Policy Institute today released two publications on how to fix New York State’s insolvent unemployment insurance system: a memo recommending tax changes, and a short report detailing the UI system’s chronic underfunding and low benefit level.
Unemployment insurance (UI), which provides temporary income to laid-off workers, is one of the State’s most important economic stabilization policies. Unemployment can both throw workers into poverty and exacerbate recessions by driving down demand; UI counteracts these risks and can soften the blow of an economic downturn. Unfortunately, New York State’s UI system has been chronically insolvent due to an inadequate UI tax on businesses, leaving the state unprepared for economic downturns. Given the likelihood of a recession from the economic policies of the Trump administration, as well as rising job losses from federal budget cuts, New York State urgently needs to address the longstanding inadequacies of its UI system.
When unemployment rose sharply during the Covid pandemic, the State had to borrow from the federal government to pay out claims. The State still owes $6.2 billion to the federal government, which automatically results in higher taxes on businesses and lower benefits for unemployed workers. The current maximum benefit level is $504 per week, even though under state law it is supposed to be $840 per week. (By contrast, in Massachusetts the maximum benefit is currently $1,051 per week and in New Jersey it is $874 per week).
The benefit cannot rise to its statutorily prescribed level until the debt to the federal government is paid off. In response to demands from the business community for tax relief, this year’s legislative “one house” budgets have each proposed bailout measures: the Senate would spend $1 billion on a UI tax credit for businesses, and the Assembly would spend $7 billion to eliminate the debt to the federal government (and bring the trust to a minimum level of solvency). The Assembly’s proposal, while far more costly and generous to the business community, has the merit of eliminating the debt to the federal government and thereby allowing the benefit level to increase. However, each of these proposals fails to solve the underlying issue of the inadequate tax structure. Any deal that is worked out between the legislature and the Governor must (i) raise the benefit level for workers and (ii) reform the UI tax to adequately fund the trust.
Recommendation: FPI recommends reforming the UI tax to apply to all taxable wages at a rate of 1 percent, enough to raise $6.5 billion annually. This reform would lower the tax rate while raising more revenue by covering a much larger share of wages, and it would more fairly distribute the tax burden to businesses with higher-wage employees.