The worst time to end tax cut

January 28, 2003

ATLANTA: The Southeastern Legal Foundation, the group which issues a study in 1997 revealing a $1.5 billion surplus in Georgia's Unemployment Insurance trust fund and inspired the 1999 billion-dollar tax moratorium, today announced its estimate that Georgia's current UI trust fund would be solvent for three years at current levels without any new tax dollars collected for the fund. The UI trust fund is an off-budget item, meaning that it has no bearing on the current state budget. Georgia's current fund level is the seventh-highest among the fifty states.

"Georgia's UI trust fund current stands at nearly $1.3 billion, according to the U.S. Department of Labor, which does not include millions in funds continuing to be collected from new companies, as well as interest accruing on the fund of approximately $45 million a year assuming 3 percent return," said Phil Kent, SLF President. "What this translates into is approximately three years of total compensation at current levels for Georgia's unemployed without adding a dime of new taxes to the fund."

Kent added that the current four-year Georgia moratorium, slated to sunset at year's end, has an "emergency valve" in place to trigger immediate taxation if needed. "The General Assembly should clearly continue the moratorium with a safety mechanism in place to ensure the UI trust fund does not become underfunded," said Kent. "This is the prudent thing to do, at a time when creating and sustaining jobs in Georgia is at a premium."

In states like Kansas, where a UI moratorium was enacted for a single year, unemployment actually dropped from nearly 10 percent to 6 percent during the recession of the early 1990s. Kansas lawmakers wisely continued the moratorium and, within 18 months, unemployment dropped an additional 2.5 percent, which qualified Kansas at statistical full employment. "This scenario was repeated in other states, leading to the inescapable conclusion that UI tax breaks and moratoria are job-creation bills," said Kent.

"Historically speaking, continuing the UI tax moratorium in Georgia ensures available money for new jobs, and that's key in our state right now," said Kent. "The General Assembly is off-base if it believes that reinstating the tax on every employer is a good move for our economy and the unemployed."

Of note, before the 2000 moratorium was enacted, new companies in Georgia paid roughly $229 per employee per year into the fund, while "experienced" employers (those in business longer than three years) paid approximately $115 per employee. The pre-2000 fund had grown into the largest of its kind in the nation, sustaining seven (7) years of potential claims at 2000 levels. Currently, SLF estimates the UI fund to hold three (3) years' of reserve at current unemployment levels. "The sky is not falling is we continue the moratorium," said Kent. "If we end it, and begin taxing employers to the tune of $300 million per year again, we can all but guarantee a slow recovery from the current recession."

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