Texas Is Underfunding Unemployment To Keep Business Taxes Low. Now It Owes $7 Billion And Counting

[TexasTowelie]

Texas leaders had long known they weren't charging businesses enough unemployment insurance tax to ride out a deep, job-killing recession like the one last year.

The state was slammed with two years worth of unemployment claims in the first two months of the COVID-19 pandemic. The surge quickly drained the state's Unemployment Insurance Trust Fund.

The federal government bailed out Texas and 22 other states. The feds footed some amount of the bill for out-of-work Texans in 10 of the past 18 months, at a cost of $7 billion.

The funding was not a gift. It was a loan to pay the 9.5 million worker claims that had been filed since last March. And now the interest is starting to build up, and Texas will begin paying it back.

Read more: https://www.houstonpublicmedia.org/articles/news/business/2021/09/10/408151/texas-is-underfunding-unemployment-to-keep-business-taxes-low-now-it-owes-7-billion-and-counting/

[LetMyPeopleVote]

1. Greg Abbott is an idiot

[Javaman]

2. no, I consider him evil. everything he does is with intent.

this was purely a political move.

"Texas leaders had long known they weren't charging businesses enough unemployment insurance tax'

and the businesses willfully went along with it. some were ignorant of the under charging but the bigger corps probably knew full well.

[Shell_Seas]

3. But didn't Abbott cut off unemployment early?

[TexasTowelie]

4. I don't believe that anyone thought unemployment would get as bad as it was last year.

Also include the fact that some of those receiving unemployment received the maximum amount of compensation because they worked in high paying jobs.

I can understand both sides of the argument about whether unemployment taxes on businesses are too high or too low. If the taxes are too high then the state government is taking funds from business that a) keeps the business from expanding or b) keeps the business from failing. While theoretically, the state will invest that revenue in a manner such that it cannot be accessed easily such as in securities like T-bills. If the revenue is invested in more volatile markets such as stocks or derivatives, then those markets may also decline so significantly that the state would take a loss if they liquified that position (and they would have missed the rebound in stock prices).

On the converse side, having low UI taxes means that businesses do have more money to hire workers, increase wages, and invest in new technology to keep the business viable. The investor class (whether owner or stockholder) also benefits economically and some of those investors may depend on that dividend check along with their fixed income. Those businesses also have some leeway if they need to absorb a temporary price increase. Of course, that leaves the UI fund depleted, but the last time multiple sectors of the Texas economy was affected was in the Great Recession (I'm not including the depression in the oil industry in 2013 since it was concentrated on one sector).

I don't know how all of the numbers crunch out (and I'm not volunteering to crunch them even though I was a stat analyst). However, the state knew that there was precedent for the feds to intervene if the UI fund was empty. The interest rate being charged to the state by the Feds is only 2.27% so I'm not certain whether hiking the UI tax is a good option. It does seem prudent in the long run to raise the UI tax in more prosperous times so that the fund is not depleted if another major multiple sector economic crisis arises.