A Closer Look

UI in US – States are using COVID relief funds to pay off unemployment insurance debt

Because the COVID-19 pandemic and ensuing recession led to skyrocketing unemployment rates in early 2020, 23 states were forced to take out federal loans to continue paying out unemployment insurance (UI) benefits. While interest was initially waived on these loans, these debts started to collect interest after Labor Day of 2021. In recent months, many states have chosen to use federal fiscal relief funds given to state and local governments by the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the 2021 American Rescue Plan (ARP) to pay off accumulated UI trust fund debt.

This blog will detail why this is a poor use of federal recovery funds. Our main arguments are:

  • Paying off UI trust fund debt accumulated in the past with fiscal relief funds means that these funds are not being used to support currentinvestment or employment,
    • Several key areas of state and local government investment have been deprived of funding for over a decade—using ARP relief funds to make up for this past investment deficit would spread the benefits of the fiscal aid much more broadly.
    • State and local government employment remains steeply depressed from the COVID-19 economic shock. Restoring these jobs—and the full value of services these workers provided—should be a much higher priority for these governments than paying off UI debt.
  • Paying down accumulated trust fund debts should be done by collecting more revenues from the employer payroll taxes earmarked for the UI system. These taxes have been kept far too low for too long and the result has been a dysfunctional UI system in many states.

Chosen excerpts by Job Market Monitor. Read the whole story @ States are choosing employers over workers by using COVID relief funds to pay off unemployment insurance debt: Policymakers shouldn’t be afraid to increase taxes on employers to improve unemployment insurance | Economic Policy Institute


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