As appeared in The Atlanta Business Chronicle, March 15, 2002

Georgia's employers owe a debt of gratitude to the forces of common sense. As we enter year three of the four-year, $1 billion unemployment insurance tax moratorium, the largest tax cut in Georgia history has survived any major tinkering by Gov. Roy Barnes and concerned state legislators who want to ensure adequate benefits for those temporarily out of work.

But the simple beauty of the tax cut, which has slashed the $300 million a year fee paid by employers, is that there is plenty in the fund to cover expanded benefits and to help spur new job growth.

In 1997, the Southeastern Legal Foundation took a breather from high-profile litigation to publish a study revealing a $1.5 billion surplus in Georgia's unemployment insurance trust fund. Like its counterparts in Florida, South Carolina, and Virginia, the Georgia fund was so enormous that the interest earned each year on the account more than paid for all benefits.

Georgia had a seven-year reserve stored away in off-budget accounts, yet employers were still paying the tax. Our policy paper basically asked, "Why?"

The Georgia General Assembly took the initiative to cut the unemployment insurance tax in 1997 and 1998, yet the fund continued to grow. Based on SLF studies, Florida, South Carolina and Virginia followed suit, reducing their unemployment taxes. The results of the combined pre-2000 efforts were $750 million in tax savings for employers in four states.

Yet the Georgia fund continued to grow, and employers continued to pay.

Before 2000, new companies in Georgia paid about $229 per employee per year into the fund, while experienced employers (those in business longer than three years) paid approximately $115 per employee. For large Georgia employers like The Coca-Cola Company, Southern Co., and Georgia-Pacific Corp., that meant literally millions of dollars a year paid into a fund that could already sustain itself for seven years.

As the foundation continued to research the issue, one startling statistic repeated itself. In states like Kansas, where the unemployment insurance 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.

The scenario was repeated in other states, leading to the conclusion that unemployment insurance tax breaks and moratoria are, in short, job-creation bills.

When employers are freed from the cost and administrative burden of a tax, they are free to invest in their companies. In many instances, employees who are "on the bubble" at large companies are more secure, while thousands of part-time employees can be made full-time. Small and mid-size companies, for whom the reduced administrative burden is as valuable as the tax savings, enjoy a "reinvestment dividend" that enables company growth.

The foundation worked with both gubernatorial candidates in 1998 to demonstrate the wisdom of the unemployment insurance tax moratorium for Georgia. In 1999, Barnes made the moratorium one of the first action items on his legislative agenda. Thankfully, it has withstood political pressure during the recent economic downturn. To the credit of Barnes and the state legislature, they avoided the temptation to meddle and have instead trusted in John Kennedy's tax maxim, "A rising tide lifts all ships."

As Georgia's economy rebounds during the next fiscal year, the common sense that has so far carried the day on unemployment insurance tax cuts should see the wisdom of continuing the limited moratorium beyond its four-year run. After all, we've got jobs to create in Georgia.

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