With the raging debate over Texas’ Unemployment Compensation Trust Fund, it’s interesting to take a second look at the Texas Workforce Commission’s decision– at Gov. Rick Perry’s urging — to award a $90 million tax cut to employers. First, from Perry’s March 2008 press release:
Gov. Rick Perry today announced that an estimated 370,000 Texas businesses will be getting a tax cut of $90 million, thanks to the state’s strong economy and low unemployment. “I believe in truth-in-budgeting: when government levies a tax and collects more money than is needed, we must either stop collecting the tax, return the money or both,” said Gov. Perry. “Thanks to our healthy economy and low unemployment rate last year, the state collected more money for the unemployment trust fund than we need, which is why I’m directing the state to bring that tax to a screeching halt for this year.” The tax cut will come in the form of a one-year suspension of the Unemployment Insurance (UI) replenishment tax. An estimated 370,000 Texas businesses will be eligible for the tax cut, which will save employers $90 million. The Texas Workforce Commission (TWC) approved the suspension of the tax after reviewing employment figures and economic forecasts for Texas and determined there were sufficient reserves to meet unemployment obligations for 2008.
Next, from a transcript of the TWC meeting in Commissioner Ron Lehman made a motion to grant the tax break, Commissioner Ronald G. Congleton opposed it and Commissioner Diane Rath voted for it, with reservations:
Congleton: Because of my fiduciary duty to the Trust Fund and the protection of 12 million working people and my doubts about the national economy right now, I have to vote no on this.
Rath: I will tell you it is with deep concern because of the increase in the unemployment rate, the increase payout rates, the national economic situation, and the indications we are seeing here in Texas. However, the governor supports this and I certainly support his position. So with that, we’ll eliminate the .12 percent for the replinishment tax, notify the employers as soon as possible.
Fast forward to Wednesday, when Commissioner Tom Pauken, in testimony before the Senate Nominations Committee, painted a bleak picture of the financial solvency of the Trust Fund: it’ll be broke by October, best case scenario. A clarification: I wrote that the claims being paid now are 120 percent of where the amount being paid last year; it’s actually the number of new claimaints asking for help this week, which according to Pauken, is actually approaching 130 percent of the number of folks in the system at this point last year. Given those stark figures, Pauken, who mentioned to committee members that he’s especially sympathetic to unemployed workers as his own son is now job-hunting, believes that some sort of bi-partisan compromise is essential on the stimulus money issue. Gov. Perry and Texas Association of Business president Bill Hammond object to the federal help because they fear it will come with “strings,” i.e. change eligibility so that more laid-off workers will be eligible for help from the Trust Fund. Pauken told me today he believes that if Texas segregates the federal money — and follows all federal stipulations — it should be free to revert to its old practices when it runs out of the federal money. “I’m trying to work out a compromise in which we do change (eligibility) but that doesn’t mean that we have to do it forever,” Pauken said. “Once it (the federal money) is gone, they shouldn’t be able to dictate things.” Bill Hammond has posted his arguments against a temporary change in eligibility standards in the comments section for the previous post. While Hammond has been roundly criticized for comparing extending unemployment help to laid off workers to a drug dealer giving free product to create more addicts, his analogy might have been borrowed from Perry. Here’s what Perry told the Wall Street Journal this week with regard to stimulus money as it relates to all government programs, particularly entitlement programs: “If this expands entitlements, we will not accept it. This is exactly how addicts get hooked on drugs.” Perhaps Perry feels differently about compensation for laid-off workers, since it is an insurance program, not an entitlement program, but he has failed to treat the two differently in his public comments about the stimulus. Ironically, the addiction problem was worrying Diane Rath when she voted for the $90 million tax break for Texas businesses. She was afraid employers wouldn’t get the message that this was a limited deal, and would expect the break to go on forever. From the transcript of the TWC meeting in March, 2008: Rath: I will say we will have to be extraordinarily careful with the wording with the notice that is sent out so that employers understand this is not a tax cut but is a one-time occurrence only and that next December when their tax notices are again sent out if the Trust Fund is not in the situation where this can again occur that it will not be a tax inrease occurring because my deep fear is that next December employers will perceive a tax increase when the elimination is not able to occur again, coupled with many employers having increased experience rated employers and the economy right now and the increasing layoffs and claims that we continue to see. Sounds to me like she knew the tax break was a bad idea.