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Michigan Makes Futile Effort To Cut Its Way To Unemployment Fund Solvency


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Michigan doesn’t just have 10.9 percent unemployment, it also has one of the most dysfunctional unemployment insurance funds in the nation. That’s not because of the state’s high unemployment, though. It’s because of policy decisions by state lawmakers who have consistently sought to cut taxes for employers at the expense of jobless workers and the unemployment fund’s solvency, as a new report from the National Employment Law Project shows.


Between 1996 and 2000, Michigan businesses received a $750 million tax cut, courtesy of the UI trust fund and unemployed workers who sacrificed $350 million of benefits as the result of a cap on the maximum weekly benefit amount. In 2002, the second year of what would be the trust fund’s decade-long decline, lawmakers granted employers another tax break, this time cutting the amount of wages subject to taxation by $500.


Most recently, with trust fund borrowing in excess of $1 billion, Michigan gave businesses a two-year break on a special tax designed to cover interest payments on trust fund loans, potentially leaving state taxpayers on the hook for a $50 million shortfall this year. And, despite historic borrowing, Michigan dug a deeper hole by allowing a state tax credit to partially offset a federal tax increase that would have begun paying back trust fund loans.


In March, Michigan became the first state in the nation to cut the maximum number of weeks that jobless workers can file for unemployment insurance from 26 weeks down to 20 weeks, for claims filed in January 2012 and thereafter. Pending legislation would further reduce UI benefit levels and restrict program eligibility. During the years since 1995 that Michigan’s employers have been awarded billions in UI payroll tax cuts, Michigan’s maximum weekly benefit has only been raised once (in 2002), and remains at only $362 a week.


At this point, according to the report, unemployment benefit cuts will not be sufficient to avoid employer tax increases; in fact, employers are already facing increased payroll taxes as a result of Michigan’s past borrowing. Yet Michigan’s legislature and governor continue to act as if cutting benefits in more and different ways will be enough to bring the state’s unemployment fund back to solvency.

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