States are Draining Unemployment Insurance Funds Like Crazy

Unsurprisingly, many states have been draining their unemployment insurance funds like cheap liquor during this recession. Now, with so many people losing their jobs, state governments are simply running out of money to pay unemployment benefits.

Some states are choosing to reduce the maximum number of weeks that a person can be on the dole.  Many states have borrowed from the federal government to keep up unemployment benefits, with 30 states borrowing a total of $44 billion. With US Treasury Secretary Tim Geithner raiding retiree funds to keep up the federal government’s debt addiction, it’s a miracle the states are asking for additional welfare.

In order to pay off the loan and replenish funds for unemployment, states will have to increase taxes on business owners.  States choosing to decrease the length of time over which a person can receive unemployment benefits, and thus the amount of money a person can ultimately receive, are doing so in hopes of lessening the burden on local businesses.

So far Michigan and Missouri have reduced the maximum to 20 weeks, down from the average of 26 weeks that most states give, and Arkansas has decreased that number to 25.  Florida, where unemployment is currently at 11.1%, is on the verge of making a cut as well, with benefits being conditional upon the unemployment rate at the time during which they are bestowed.

While this new legislation only applies to state benefits, and not to the 13 to 20 weeks of extended federal benefits that kick in after state benefits are depleted, or the several more months of emergency benefits the federal government provides during a recession, these changes will reduce future federal benefits because those benefits are calculated using a formula that takes into account state benefits. (Yes, a CPA is needed.)

Still, many states are choosing not to act, knowing that in times of recession, the federal government will step in, increasing federal taxes on businesses for unemployment insurance, thus avoiding more state tax increases, which are already up 44% since 2009.  Many would rather see businesses bear the brunt of the burden than allow the unemployed to be negatively impacted, but most state governments would rather allow the federal government to be the bad guys in this situation, especially in states with Republican majority legislatures where tax increases on a state level aren’t likely to pass.

Don’t Miss: Look How the Federal Budget Deficit Will Exceed $1 Trillion Again.